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CFP NOV 2024 Prep > Financial Fundamentals - Ch 17 > Flashcards

Financial Fundamentals - Ch 17 Flashcards

1
Q

Name several Special Financial Planning situations ?

A

Special Financial Planning Situations :

Dependents with Special Needs
Divorce
Terminal Illness
Non-Traditional Household Planning for Job Loss or Job Change Monetary Windfalls

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2
Q

What are some of the concerns with families of dependents with Special Needs?

A

CONCERNS OF FAMILIES OF DEPENDENTS WITH SPECIAL NEEDS:”
Immediate concern to the parent / guardian is how to:

  • Provide a good quality of life for the child or dependent
  • Preserve government benefit eligibility for the child or
    dependent
  • Provide lifetime care for the child or dependent as needed
  • Maintain appropriate health insurance for the dependent
  • Ensure sufficient resources to supplement government
    benefits to provide an enhanced quality of life for that
    dependent
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3
Q

What ADVICE and Strategies to families with dependents with Special needs ,,,,require ?

A

PLANNING FOR DEPENDENTS WITH SPECIAL NEEDS
* Parents / guardians will need advice and strategies with:

  • Financial Issues
  • Legal Issues
  • Government Benefits
  • Family and Support Factors
  • Emotional Factors
  • Typical Government Benefits
  • Federal
  • State and Local
  • Caregiver Responsibilities
  • Responsibilities/Checklist (
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4
Q

As a general rule, the individual with special needs should have no more than $ ——– of assets in his or her name.

A

As a general rule, the individual with special needs should have no more than $2,000 of assets in his or her name.

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5
Q

what are 3 OF THE MAIN Federal and State Level Special Educational Programs ??

A

Key Current Programs at the Federal and State Level: Federal

  • Special Education Programs - supported by Individuals with Disability Education Improvement Act 2004.
  • Social Security Benefits - including disability, SSI, and Medicaid. Social Security has a booklet on its website that provides helpful information for these situations, entitled, Benefits For Children With Disabilities SSA Publication No. 05-10026, January 2021, ICN 455360
    .
  • Benefits for Disabled Veterans - The Department of Veterans Affairs offers programs for disabled veterans
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6
Q

State and Local might have other benefits for special needs people

A

State and Local * Other Public Benefits - state and local services may include:
Residential services
Transportation services
Respite Care Services
Family Support Services
Day Program Services
Employment Services

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7
Q

What is a Pooled Trust ?

A

POOLED TRUSTS (42 U.S.C. SEC. 1396p(d)(4)(c))

  • Trust managed by nonprofit association
  • While each beneficiary will have their own account, the assets will
    generally be pooled and managed together
  • Can be funded by a parent, grandparent, legal guardian of the
    individual, or even by the beneficiary
  • Must be established solely for the benefit of individuals who are
    disabled
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8
Q

What are ABLE account ?

Max Limit ?

If the account exceeds $ _______ then the SS payments will be suspended until when ?

A

(ABLE) ACCOUNTS
* Savings accounts established for the benefit of persons with disabilities
* Beneficiary must be entitled to benefits under Social Security
Disability or SSI, or file a disability certification (under penalty of
perjury) that the individual has obtained a signed physician’s
diagnosis for a disability that occurred before the age of 46
________________________
* May be funded with gifts up to the amount of the annual gift tax exclusion amount ($17,000 in 2023) each year
* The ABLE account balance, contributions to the account, and
distributions from the account are NOT counted in determining eligibility for any federal means-tested program
_________________________
* If the account balance exceeds $100,000, SSI payments will be
suspended until the balance falls below $100,000

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9
Q

What allows the distributions to be tax free from an ABLE account ?

Are rollover permitted and if so how ?

A

ACHIEVING A BETTER LIFE EXPERIENCE ABLE accounts:

  • Distributions for qualified disability-related expenses are tax free
  • Qualified disability-related expenses include basic living
    expenses and are not limited to items for which there is a
    medical necessity
  • Rollovers are permitted from 529 plans to 529A ABLE accounts as
    long as the beneficiary is the same or is a family member of the
    original beneficiary
  • The amount rolled over is treated as an annual contribution,
    subject to the $17,000 (in 2023) maximum
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10
Q

What account can a caregiver or parent of a specials needs open for the benefit of the person ?

A

Establish and fund a Section 529A ABLE (Achieving a Better Life Experience) account for the benefit of the individual with special needs.

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11
Q

Federal benefits include available funds and healthcare, such as provided by Social Security disability, Medicaid, and the SSI (Supplemental Security Income) program through Social Security. Many of these programs will not pay benefits if the person has even limited resources. For example, to qualify for SSI, an individual cannot have more than $——— in assets and a couple cannot have more than $_______

A

Federal benefits include available funds and healthcare, such as provided by Social Security disability, Medicaid, and the SSI (Supplemental Security Income) program through Social Security. Many of these programs will not pay benefits if the person has even limited resources. For example, to qualify for SSI, an individual cannot have more than $2,000 in assets and a couple cannot have more than $3,000

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12
Q

What are some items to consider with planning for a Divorce ?

A

PLANNING FOR DIVORCE
Financial Planning Recommendations for Divorcing Couples

  • Gather data
  • Compile current investment and banking statements
  • Analyze all liabilities
  • Make a projection of future needs
  • Prepare both a current and projected Statement of Financial
    Position and Income Statement
  • Gather five years of income tax returns
  • Collect any monthly, quarterly, or annual financial statements of an
    owned business plus five years of business tax returns
  • Analyze post-divorce insurance needs
  • Analyze post-divorce emergency fund requirements
  • Analyze post-divorce retirement and education needs
  • Determine the tax basis of each asset
  • Estimate any post-divorce job training costs
  • Consider the built-in tax cost associated with assets in the property
    settlement
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13
Q

What are some common mistakes when planning for a Divorce ?

A

COMMON MISTAKES IN DIVORCE
* Failure to adequately obtain individual credit prior to the divorce
* Failure to differentiate between separate property, gifted or inherited
property, and property acquired during marriage
* Failure to discover hidden assets
* Failure to resolve joint obligations
* Failure to make good choices regarding the property settlement of
pension plans and other qualified plans
* Failure to be clear on the tax implications of assets divided by
agreement
* Failure to provide a complete and contractually binding agreement
regarding college education support for children

  • Failure to change beneficiary designations
  • Failure to insure the support agreement from the risk of death,
    disability, or inability or refusal to pay of/by the payer
  • Failure to follow through, prior to the financial settlement, on
    paperwork to change the titling of assets
  • Failure to know the Social Security benefits of a spouse married for
    10 or more years to a covered worker
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14
Q

What are some Terminal Illness planning concerns ?

A

TERMINAL ILLNESS PLANNING
* Prepare for Care
* Estate Documents
* Beneficiary Review
* Social Security Benefits
* Tax Consequences

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15
Q

What are some concerns for planning for a non-traditional Household ?

A

PLANNING FOR NON-TRADITIONAL HOUSEHOLD
* A domestic partnership agreement or cohabitation agreement may
be advisable.
* Unmarried couples should carefully consider and prepare estate
planning documents

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16
Q

What are some concerns for planning for a Windfall recipient ?

A

FINANCIAL PLANNING RECOMMENDATIONS
FOR A FINANCIAL WINDFALL RECIPIENT:

  • Get educated.
  • Take time to decide what to do.
  • Find at least one competent CPA, financial advisor, and legal
    advisor.
  • Do not quit your job.
  • Do not invest in a new business.
  • Do not invest in illiquid assets.
  • Do not give others discretion over your money.
  • Do not forget the tax consequences, if any.
  • Do not incur debt or sign personal guarantees, for anyone
17
Q

What are 3 common Trust used for special needs planning ?

A

While there are more than three, the more common special trusts are discussed here and include:

  • Third Party Special Needs Trust, t
  • Self settled type trust that is established and exempt under 42 U.S.C. Sec. 1396p(d)(4)(A),
  • Pooled trust.
18
Q

What is a Third Party “ Special Needs Trust “ (SNT) ?

A

A third party SNT is sometimes referred to as a family trust :

  • Irrevocable Trust - for funds from a parent, guardian, or other family member.

-Dependent with special needs is NOT the owner of these trust assets, but rather the beneficiary of such a trust.

-NOT counted or considered for purposes of available federal or state benefits for the beneficiary.

-These trusts make it possible to receive federal, state, and local funds.

-Provide for benefits,: medical treatment, therapy, education, travel, computer equipment, or other opportunities allowing the individual with special needs to pursue new and enjoyable experiences.

-NOT for providing food, shelter, or any asset that could be converted into food or shelter, such as cash

19
Q

The grantor of a special needs trust can write a set of instructions to the advocate and to the trustee. This set of instructions frequently takes the form of a “:” ______________________”

A

The grantor of a special needs trust can write a set of instructions to the advocate and to the trustee. This set of instructions frequently takes the form of a “letter of intent.

20
Q

Define a Special Needs Trust under 42 U S C Sec 1396 ?

Can it accept ass from ligation , inheritance or life insurance ?

What happens at the death of the special needs person ?

A

Special Needs Trusts Under 42 U.S.C. Sec. 1396p(d)(4)(A)

  • self-settled in nature, are typically established by the individual with special needs (for trusts established on or after December 13, 2016), their parent, grandparent, legal guardian, or by a court, and will avoid disqualification of Medicaid and SSI benefits.
  • permits individuals with special needs or disabilities to establish a trust on their behalf or to direct that settlement proceeds from a personal injury case be protected in a trust for their benefit and still qualify for benefits under Medicaid and SSI.

-assets remaining at the death of the beneficiary must be paid to the State
to the extent funds and assistance from the State have been paid to or for the beneficiary. These trusts may also be referred to as payback trusts or self-settled trusts.

21
Q

What is a Pooled :
1. Managed by ?

  1. Funded By ?
  2. What happens to remaining of assets in the Trust after death of the disabled beneficiary ?
A

Pooled Trust (42 U.S.C. Sec. 1396p(d)(4)(C))
1. managed by a nonprofit association. While each beneficiary will have their own account, the assets will generally be pooled and managed together for investment purposes.
2, Trust can be funded by a parent, grandparent, legal guardian of the individual, or even by the beneficiary.
- Must be established solely for the benefit of individuals who are disabled.

  1. Amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State, from such remaining amounts in the account, an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan.
    - assets remaining at the death of the beneficiary will either go to the nonprofit association or to the State.
22
Q

ABLE accounts for a special needs person:
_____________________________________________________
1. Are contributions after tax or pre tax ?

  1. Do they grow tax deferred ?
  2. How are distributions treated ?
  3. Is there an income phase limit ?
  4. How many ABLE account can one disable person have ?
A
  1. Contributions made to the plan are made with after-tax dollars,
  2. grow tax-deferred,
  3. distributions are tax-free if used to pay for qualified expenses (disability-related expenses for ABLE accounts), and the earnings portion of non-qualified distributions are subject to tax plus a 10 percent penalty.
  4. (no phaseout limits).
  5. Each disabled beneficiary is permitted only one ABLE account, and the maximum contribution to the account is equal to the annual gift tax exclusion ($15,000 in 2021) per year for each beneficiary
23
Q

What are benefits is a Beneficiary of an ABLE account entitled to ?

A

Beneficiary of the ABLE account must be entitled to
- benefits under Social Security disability (SSDI) or
- Supplemental Security Income (SSI), or
- Individual has obtained a signed physician’s diagnosis for a disability that occurred before the age of 26, and that the diagnosis will be retained and provided to the ABLE program administrator or IRS upon request

24
Q

What are the qualified expenses that allow distributions out of an ABLE account tax free ?

A

Qualified disability-related expenses include :
Education, Hhousing (including mortgage payments, property insurance required by the mortgage holder,
real estate taxes, rent,
heating fuel, gas, electricity, water, sewer, and garbage removal), transportation, assistive technology and personal support services, employment training and support, legal fees, health care expenses, financial management and administrative services, basic living expenses, and expenses for oversight and monitoring, a

25
Q

Distributions from an ABLE account are tax free when the distribution occurred ___________________ as the expense ?

A

Distributions are tax-free when used to pay for qualified disability-related expenses during the year in which the distribution occurred

26
Q

How many ABLE accounts,,,,, can one disabled person have ?

How often can you change the investments with in the ABLE account ?

A

Only one ABLE account may be established for each eligible individual.

Investment selections in ABLE accounts can be changed twice per year

27
Q

What is a “ Letter of Intent “ within the Special Needs trust ?

A

The letter of intent is a “life plan” document. It describes the family of the individual with special needs and the individual with special needs wishes for the future once the initial caregiver is no longer able to provide care. It should include pertinent information about the history of the dependent with special needs, their medical needs, living arrangement preferences, and hobbies, as well as a list of contact persons (doctor, lawyer, accountant, guardians, etc

28
Q

What is a QRDO ?

What does it say ?

What happens if a withdrawal is taken out of a qualified account with a divorce and NO QDRO is presented ?

A

A Qualified Domestic Relations Order (QDRO)

  • Order made under state law that tells the administrator or trustee of a qualified retirement plan how much to pay out to the nonowner-spouse pursuant to a divorce.
  • Without a QDRO, a withdrawal by an owner-spouse from a qualified plan to pay a property settlement can trigger income and penalty taxes, even though the owner does not actually receive the proceeds. - Properly written QDRO ensures that a qualified plan can be divided as part of the property settlement in a divorce, without any negative tax consequences to either spouse
29
Q

What is a AMD ?

What type of proxy is it ?

What are the 5 wishes ?

A

-Advance Medical Directive (AMD) called Five Wishes

-medical proxy document designed with a focus on aging with dignity and providing peace of mind when difficult decisions must be made.

Five Wishes addresses “the personal, emotional, and spiritual needs of a person, not just the medical ones.” The five wishes that are communicated in the document are:

  • Wish 1-The person I want to make health care decisions for me when I can’t make them for myself.
  • Wish 2 - My wish for the kind of medical treatment I want or don’t want.
  • Wish 3 - My wish for how comfortable I want to be.
  • Wish 4 - My wish for how I want people to treat me.
  • Wish 5 - My wish for what I want my loved ones to know.
30
Q

What did the 2013 case of the US vs Windor do for non traditional households ?

A

2013 case, United States v. Windsor, the Supreme Court
effectively declared DOMA as unconstitutional.

There is no longer a distinction for federal purposes between marriages of heterosexuals and marriages of homosexuals.

Thus, if two people are married, regardless of sexual orientation, they are treated as married under federal law, including laws under the Internal Revenue Code.

31
Q

WHat are the 4 ways that property transfer at Death ?

A

Property Transfers at Death In general, all property owned by a decedent passes to the heirs or legatees in one of four alternative ways by way of :
1. State contract law (e.g., life insurance, annuities, TODs, PODs),
2. State titling law where there is a survivorship feature (e.g., JTWROS, TE),
3 State trust law,
4. State probate or succession law including both testate and intestate successions

32
Q

Health insurance becomes a major issue for the unemployed. What do companies have to offer with health insurance and for how long ?
WHo pays the premium ?

A

Health insurance becomes a major issue for the unemployed. COBRA, if available,
- Provide benefits from 18 months to 36 months,
- With COBRA, the individual is responsible for 100 percent of the premiums

33
Q

he financial planner should recommend that the client who has just lost a job should immediately start looking for work.

What other recommendations ?

A

-Immediately file for unemployment benefits and for any employer severance if possible.-
- client network with people in the same field

34
Q

What are unemployment benefits designed for ?

What is the eligibility ?

What is terms for disqualification of benefits ?

What are benefits based on and how long do they continue ?

A

designed to provide only modest income replacement.

Eligibility for benefits requires attachment to the labor force throughout a base period, typically the 52 weeks prior to the time of unemployment.
- Must be physically and mentally capable of working and available to go to work in suitable employment.

  • Disqualification for benefits may occur if the individual voluntarily leaves a job without good cause, is discharged for misconduct, is involved in a labor dispute, refuses to accept suitable work

-Benefits y subject to a one-week non-retroactive waiting period and usually continue for only up to 26 weeks. Benefit amounts are based on past earnings, but they are subject to a rather modest maximum, such as $350 or $400 per wee

35
Q

How are lottery winnings taxed?

How are structured settlements for personal injury taxed ?

How are payments rec;d from workers comp or lost wages ?

A
  • Lottery winnings are taxed as ordinary income.
  • Structured settlements for personal injury, wrongful death, and workers’ compensation payments for sickness or injury are tax free
  • payments received as a result of punitive damages or workers’ compensation to replace lost wages are taxable
36
Q

What assets within Special Needs Trust are NOT counted for purposes of available federal and state benefits for the beneficiary ?

A

-Money for the dependent in a special needs trust. This trust could take the form of an irrevocable life insurance trust (ILIT), or an irrevocable secular trust, with special needs provisions

-Any funds intended for the individual with special needs be directed to the trust and not to the individual, so as to preserve eligibility for government benefits.

  • NO more than $2,000 of assets in his or her name.
  • Section 529A ABLE (Achieving a Better Life Experience) account for the benefit of the individual with special needs
37
Q

Special Needs POOLED TRUSTS (42 U.S.C. SEC. 1396p(d)(4)(c))

A

POOLED TRUSTS (42 U.S.C. SEC. 1396p(d)(4)(c))

  • Managed by a nonprofit association
  • Each beneficiary will have their own account, the assets will
    generally be pooled and managed together
  • Funded by a parent, grandparent, legal guardian of the
    individual, or even by the beneficiary

-At death of beneficiary, assets go to non-profit or State

  • Established solely for the benefit of individuals who are disabled
38
Q

Special Needs Trust under 42 U.S.C

A
  • self-settled in nature,

-permits individuals with special needs or disabilities to establish a trust on their behalf or to direct that settlement proceeds from a personal injury case be protected in a trust for their benefit and still qualify for benefits under Medicaid and SSI.

  • Established by the individual with special needs (for trusts established on or after December 13, 2016), their parent, grandparent, legal guardian, or by a court, and will avoid disqualification of Medicaid and SSI benefits.

-* Established solely for the benefit of individuals who are disabled

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