2016 Social Security Changes
Two Social Security claiming strategies that had given some couples the potential for higher lifetime benefits will no longer be available for those individuals who turn 62 on or after January 1, 2016.
1. File and suspend
The strategy: Typically, in “file and suspend,” one member of a couple would file and claim benefits—allowing his or her husband or wife to begin collecting spousal benefits (one-half of the other spouses benefit) —and then suspend his or her own benefit—allowing that future benefit to increase.
The change: Under the new rules, when an individual suspends his or her own benefits, not only will all benefits payable to that individual be suspended, but all benefits payable on his or her earnings record payable to other individuals will also be suspended.
What happens: Those who are receiving benefits now under this strategy will continue to receive them. The new rules limiting suspended benefits goes into effect 180 days after the budget agreement was signed into law on November 2, 2015. Once that deadline passes, no one will be able to elect this option.
2. Restricted spousal benefits
The strategy: At or after an individual’s official Full Retirement Age, a person could file a “restricted” application for “just” spousal benefits, while allowing his or her own future retirement benefit to grow.
The change: Social Security will no longer allow certain individuals to restrict an application to spousal benefits only; the individual will be required to file and claim all eligible benefits.
What happens: People age 62 or older at the end of 2015 will continue to have the option of restricting an application to spousal benefits only. People turning 62 in 2016 or later will have to claim all their benefits upon filing.
There is no one-size-fits-all when selecting the right Social Security income strategy. There are several variables that truly make this a custom decision.
Parent-Child Real Property Transfer Reappraisal Exclusion
Generally, transfers of real property that occur as a result of the death of the owner of the property trigger a reappraisal of the property for tax assessment purposes. In making the reappraisal, the transfer is deemed to be effective as of the date of death. However, a transfer of real property from a parent to a child (or from a child to a parent) may be excluded from reappraisal if an application claiming the exclusion is timely filed with the Assessor for the County where the real property is located, and the exclusion claim is granted.
To obtain the exclusion as to a transfer of real property upon the death of a property owner, a claim MUST be filed within the earlier of (a) three (3) years of the date of death; or (b) prior to the sale of the real property to a third party. Note that if a claim is filed after the legal deadline, the exclusion may be granted but no refunds will be issued for prior years.
According to the San Diego County Assessor, once their office is notified of the death of a property owner, either verbally or through the recording or filing of a document such as an Affidavit of Death or a Change in Ownership Statement – Death of Real Property Owner, it can take their office from one to two months to send out the Claim for Reassessment Exclusion for Transfer Between Parent and Child form. Therefore, there is a possibility that a reappraisal of the property with a corresponding reassessment for property tax purposes could occur before the County Assessor sends out the application form, depending on when the Assessor is notified of the death of the property owner. Thus, it is imperative that a transferee of property who can claim a parent-child transfer reappraisal exclusion file their claim application as soon as possible following the date of death of the transferor.
Federal Estate Tax and Gift Tax Exemption Amounts
For 2016, the Federal Estate Tax exemption amount, which is the amount a person can leave on death to his or her heirs without having to pay Federal Estate Tax, has increased to $5,450,000 per person (or $10,900,00 per married couple). The exemption amount for 2015 was $5,430,000 per person (or $10,860,000 per married couple).
The annual Federal Gift Tax exemption amount for 2016, which is the amount a person can give each year to another person during their lifetime without having to pay Federal Gift Tax, is still $14,000 per person (or $28,000 per married couple).
Successor Trustee Duties and Liabilities
As a reminder, the obligations of a successor trustee begin at the time the person who created the trust either becomes incapacitated or passes away. There are several duties with deadlines that are to be handled timely by the successor trustee, and it is important that he or she understand the steps that need to be taken. Additionally, in performing such actions, a trustee may incur liability if they are not handled appropriately and the proper protections are not put into place.
Should You Prepay for Funeral Expenses
Over the years many of my clients have asked me if it’s a good idea to prepay for funeral expenses so their children or heirs don’t have to make difficult and expensive decisions while they’re going through the grieving process. Unfortunately, not all pre-paid funeral contracts deliver on their promises and provide people with a false sense of security. If you decide to prepay your funeral plan here are some tips:
- Comparison shop: you don’t have to go to the closest funeral home or the funeral home your parents used as prices vary substantially for similar services. The Federal Trade Commission requires funeral directors to give you itemized pricing in writing, which you can then use to choose exactly which specific goods and services you want to purchase.
- Payments: Learn exactly what is going to happen with your money if you prepay. Do they place it into a trust fund account or purchase a life insurance policy that will be used for your funeral expenses? Do they pay interest on the money you’ve paid? If so, how much, and who gets it?
- Ask about refunds and cancellations: Find out which circumstances allow you to cancel the contract and what percentage of your money will be returned if you want to change your plans. Ask the funeral director: what happens if prices increase or whether you can transfer the funds to a different funeral home should you decide to move out of the funeral home’s service area. Also, make sure you get something in writing about what happens if the funeral home should go out of business or come under new ownership. If there is money left over will your beneficiaries receive it or does the funeral home keep it?
- Read the Contract (Yes, even the fine print): Contracts vary greatly and often not all the costs can be guaranteed. For example, if you die at a location outside the funeral home’s service area there may be an extra charge to transport you to the funeral home.
Please feel free to contact us if you have any questions or if I can assist you with any of your legal matters.
Do You Have a Plan For Your Future?
The Law Offices of Daniel M. Little has been serving California communities since 1986. If there’s one thing we’ve learned while doing business, it’s that the client’s needs are the needs that must be met. We focus on our clients needs and desires above all else in every case we handle. Even if that means taking a case to court. We do what is necessary.
We’re ready to take on your case. Contact us as soon as possible for an initial consultation!