How Interest Rate Hikes Affect Personal Loan Investors – SmartAsset

How Interest Rate Hikes Affect Personal Loan Investors – SmartAsset

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In December 2015, the Federal Reserve raised the federal funds rate by a quarter of a percentage point. That was the first time the Fed had raised rates in nearly a decade. While federal funds rate changes don’t directly impact peer-to-peer (P2P) loan interest rates, lending platforms may begin increasing their rates. If you’re investing in peer-to-peer loans, it’s important to understand how that may impact your portfolio.

Rising Rates May Mean Better Returns

Personal loan investors make money by claiming a share of the interest that’s paid on the loans, in proportion to the amount that’s invested. If the platform you’re using raises rates for their borrowers, that means you’ll likely see higher returns.

That’s especially true if you’re open to funding high-risk loans. Peer-to-peer platforms assign each of their borrowers a credit risk rating, based on their credit scores and credit history. The loans that get the lowest ratings are assigned the highest rates. For example, Lending Club’s “G” grade loans (the loans that go to the riskiest borrowers) have interest rates of 25.72%.

Assuming borrowers don’t default on their payments, these investments can be more lucrative than lower-risk loans. Using Lending Club as an example again, F and G grade loans historically have had annual returns of 9.05%, which is nearly double the 5.22% return that investors earn from low-risk “A” grade loans.

The Downsides of a Rate Increase

While rising interest rates may put more money in investors’ pockets, there are some drawbacks to keep in mind. For one thing, it’s possible that as rates rise, borrowers could decide to explore other lending options. If that happens, there would be a smaller pool of loans for investors to choose from.

To compensate, peer-to-peer lenders may resort to issuing lower-quality loans as rates rise, but that could be problematic for investors who prefer to steer away from riskier borrowers. If the platform you use no longer offers the kinds of loan products you want to invest in, you’ll have to reallocate those assets elsewhere to keep your portfolio from becoming unbalanced.

Finally, rising interest rates could result in a higher default rate. Increased rates mean that borrowers have to pay a lot of money for taking out personal loans. If the personal loan payments become unmanageable, a borrower may end up defaulting on their loan altogether. Some platforms refund the fees that investors have paid, but they usually don’t refund their initial investments after borrowers default.

What Investors Ought to Consider

If you’re an active P2P investor or you’re thinking of adding P2P loans to your portfolio, you can’t afford to overlook the risk that’s involved. Financing the riskiest loans is a gamble, so it’s important to consider the consequences of putting money into those kinds of investments.

A good way to hedge your bets is to spread out your investments over a variety of loan grades. That way, if a high-risk borrower defaults you still have other loans to fall back on.

If you want more help with this decision and others relating to your financial health, you might want to consider hiring a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with top financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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5 Things to Consider Before Getting a Personal Loan

Consider This Before Getting a Personal Loan – SmartAsset

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It’s a new year and if one of your resolutions is to get out of debt, you might be thinking about consolidating your bills into a personal loan. With this kind of loan, you can streamline your payments and potentially get rid of your debt more quickly. If you plan on getting a personal loan in 2016, here are some key things to keep in mind before you start searching for a lender.

Check out our personal loan calculator.

1. Interest Rates Are Going Up

At the end of 2015, the Federal Reserve initiated a much anticipated hike in the federal funds rate. What this means for borrowers is that taking on debt is going to be more expensive going forward. That means that the personal loan rates you’re seeing now could be a lot higher six or nine months from now. If you’re planning on borrowing, it might be a good idea to scope out loan offers sooner rather than later.

2. Online Lenders Likely Have the Best Deals

The online lending marketplace has exploded in recent years. With an online lender, there are fewer overhead costs involved, which translates to fewer fees and lower rates for borrowers.

With a lower interest rate, more money will stay in your pocket in the long run. Lending Club, for example, claims that their customers have interest rates that are 33% lower, on average, after consolidating their debt or paying off credit cards using a personal loan.

Related Article: How to Get a Personal Loan

3. Your Credit Matters

Regardless of whether you go through a brick-and-mortar bank or an online lender, you  likely won’t have access to the best rates if you don’t have a great credit score. In the worst case scenario, you could be denied a personal loan altogether.

You can check your credit score for free. And each year, you have a chance to get a free credit report from Experian, Equifax and TransUnion. If you haven’t pulled yours in a while, now might be a good time to take a look.

As you review your report, it’s important to make sure that all of your account information is being reported properly. If you see a paid account that’s still showing a balance, for example, or a collection account you don’t recognize, you’ll need to dispute those items with the credit bureau that’s reporting the information.

4. Personal Loan Scams Are Common

As more and more lenders enter the personal loan arena, the opportunity for scammers to cash in on unsuspecting victims also increases. If you’re applying for a loan online, it’s best to be careful about who you give your personal information to.

Some of the signs that may indicate that a personal loan agreement is actually a scam include lenders who use overly pushy sales tactics to get you to commit or ask you to put up a deposit as a guarantee against the loan. If you come across a lender who doesn’t seem concerned about checking your credit or tells you they can give you a loan without doing any paperwork, those are big red flags that the lender may not be legit.

Related Article: How to Avoid Personal Loan Scams

5. Not Reading the Fine Print Could Cost You

Before you sign off on a personal loan, it’s best to take time to read over the details of the loan agreement. Something as simple as paying one date late could trigger a fee or cause a higher penalty rate to kick in, which would make the loan more expensive in the long run.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Are Social Security Disability Benefits Taxable?

Are Social Security Disability Benefits Taxable? – SmartAsset

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Social Security benefits, including disability benefits, can help provide a supplemental source of income to people who are eligible to receive them. If you’re receiving disability benefits from Social Security, you might be wondering whether you’ll owe taxes on the money. For most people, the answer is no. But there are some scenarios where you may have to pay taxes on Social Security disability benefits. It may also behoove you to consult with a trusted financial advisor as you navigate the complicated terrain of taxes on Social Security disability benefits.

What Is Social Security Disability?

The Social Security Disability Insurance program (SSDI) pays benefits to eligible people who have become disabled. To be considered eligible for Social Security disability benefits, you have to be “insured”, which means you worked long enough and recently enough to accumulate benefits based on your Social Security taxes paid.

You also have to meet the Social Security Administration’s definition of disabled. To be considered disabled, it would have to be determined that you can no longer do the kind of work you did before you became disabled and that you won’t be able to do any other type of work because of your disability. Your disability must have lasted at least 12 months or be expected to last 12 months.

Social Security disability benefits are different from Supplemental Security Income (SSI) and Social Security retirement benefits. SSI benefits are paid to people who are aged, blind or disabled and have little to no income. These benefits are designed to help meet basic needs for living expenses. Social Security retirement benefits are paid out based on your past earnings, regardless of disability status.

Supplemental Security Income generally isn’t taxed as it’s a needs-based benefit. The people who receive these benefits typically don’t have enough income to require tax reporting. Social Security retirement benefits, on the other hand, can be taxable if you’re working part-time or full-time while receiving benefits.

Is Social Security Disability Taxable? 

This is an important question to ask if you receive Social Security disability benefits and the short answer is, it depends. For the majority of people, these benefits are not taxable. But your Social Security disability benefits may be taxable if you’re also receiving income from another source or your spouse is receiving income.

The good news is, there are thresholds you have to reach before your Social Security disability benefits become taxable.

When Is Social Security Disability Taxable? 

The IRS says that Social Security disability benefits may be taxable if one-half of your benefits, plus all your other income, is greater than a certain amount which is based on your tax filing status. Even if you’re not working at all because of a disability, other income you’d have to report includes unearned income such as tax-exempt interest and dividends.

If you’re married and file a joint return, you also have to include your spouse’s income to determine whether any part of your Social Security disability benefits are taxable. This true even if your spouse isn’t receiving any benefits from Social Security.

The IRS sets the threshold for taxing Social Security disability benefits at the following limits:

  • $25,000 if you’re single, head of household, or qualifying widow(er),
  • $25,000 if you’re married filing separately and lived apart from your spouse for the entire year,
  • $32,000 if you’re married filing jointly,
  • $0 if you’re married filing separately and lived with your spouse at any time during the tax year.

This means that if you’re married and file a joint return, you can report a combined income of up to $32,000 before you’d have to pay taxes on Social Security disability benefits. There are two different tax rates the IRS can apply, based on how much income you report and your filing status.

If you’re single and file an individual return, you’d pay taxes on:

  • Up to 50% of your benefits if your income is between $25,000 and $34,000
  • Up to 85% of your benefits if your income is more than $34,000

If you’re married and file a joint return, you’d pay taxes on:

  • Up to 50% of your benefits if your combined income is between $32,000 and $44,000
  • Up to 85% of your benefits if your combined income is more than $44,000

In other words, the more income you have individually or as a married couple, the more likely you are to have to pay taxes on Social Security disability benefits. In terms of the actual tax rate that’s applied to these benefits, the IRS uses your marginal tax rate. So you wouldn’t be paying a 50% or 85% tax rate; instead, you’d pay your ordinary income tax rate based on whatever tax bracket you land in.

It’s also important to note that you could be temporarily pushed into a higher tax bracket if you receive Social Security disability back payments. These back payments can be paid to you in a lump sum to cover periods where you were disabled but were still waiting for your benefits application to be approved. The good news is you can apply some of those benefits to past years’ tax returns retroactively to spread out your tax liability. You’d need to file an amended return to do so.

Is Social Security Disability Taxable at the State Level?

Besides owing federal income taxes on Social Security disability benefits, it’s possible that you could owe state taxes as well. As of 2020, 12 states imposed some form of taxation on Social Security disability benefits, though they each apply the tax differently.

Nebraska and Utah, for example, follow federal government taxation rules. But other states allow for certain exemptions or exclusions and at least one state, West Virginia, plans to phase out Social Security benefits taxation by 2022. If you’re concerned about how much you might have to pay in state taxes on Social Security benefits, it can help to read up on the taxation rules for where you live.

How to Report Taxes on Social Security Disability Benefits

If you received Social Security disability benefits, those are reported in Box 5 of Form SSA-1099, Social Security Benefit Statement. This is mailed out to you each year by the Social Security Administration.

You report the amount listed in Box 5 on that form on line 5a of your Form 1040 or Form 1040-SR, depending on which one you file. The taxable part of your Social Security disability benefits is reported on line 5b of either form.

The Bottom Line

Social Security disability benefits aren’t automatically taxable, but you may owe taxes on them if you pass the income thresholds. If you’re worried about how receiving disability benefits while reporting other income might affect your tax bill, talking to a tax professional can help. They may be able to come up with strategies or solutions to minimize the amount of taxes you’ll end up owing.

Tips on Taxes

  • Consider talking to a financial advisor as well about how to make the most of your Social Security disability benefits and other income. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help. By answering a few simple questions you can get personalized recommendations for professional advisors in your local area in minutes. If you’re ready, get started now.
  • While you don’t have to reach a specific age to apply for Social Security disability benefits or Supplemental Security Income benefits, there is a minimum age for claiming Social Security retirement benefits. A Social Security calculator can help you decide when you should retire.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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What Is Medicaid Estate Recovery?

What Is Medicaid Estate Recovery? – SmartAsset

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Medicaid is a government program that can help eligible seniors pay for nursing home care. If you’re helping an aging parent navigate Medicaid because they don’t have long-term care insurance or you think you’ll need it yourself someday, it’s important to understand how the program works. For instance, you should be aware that the Medicaid Estate Recovery Program (MERP) may be used to recoup costs paid toward long-term care. Medicaid estate recovery is intended to help make the program affordable for the government, but it can financially impact the beneficiaries of Medicaid recipients. Make sure you’re handling this kind of situation in the wisest possible way by consulting a financial advisor.

Medicaid Estate Recovery, Explained

Medicare is designed to help pay for healthcare costs for seniors once they turn 65. While it covers a number of healthcare expenses, it doesn’t apply to costs associated with long-term care in a nursing home.

That’s where Medicaid can help fill the gap. Medicaid can help with paying the costs of long-term care for aging seniors. It can be used in situations where someone lacks long-term care insurance coverage or they don’t have sufficient assets to pay for long-term care out of pocket. You may also use Medicaid to pay for nursing home care if you’ve taken steps to protect assets using a trust or other estate planning tools.

But the benefits you or an aging parent receives from Medicaid aren’t necessarily free. The Medicaid Estate Recovery Program allows Medicaid to recoup money spent on behalf of an aging senior to cover long-term care costs. The Omnibus Budget Reconciliation Act of 1993 requires states to attempt to seek reimbursement from a Medicaid beneficiary’s estate when they pass away.

How Medicaid Estate Recovery Works

The Medicaid Estate Recovery Program allows Medicaid to seek recompense for a variety of costs, including:

  • Expenses related to nursing home or other long-term care facility stays
  • Home- and community-based services
  • Medical services received through a hospital (when the recipient is a long-term care patient)
  • Prescription drug services for long-term care recipients

If you or an aging parent passes away after receiving long-term care or other benefits through Medicaid, the recovery program allows Medicaid to pursue any eligible assets held by your estate. What that includes can depend on where you live, but generally, it means any assets that would be subject to the probate process after you pass away.

So that may include:

  • Bank accounts owned by you
  • Your home or other real estate
  • Vehicles or other real property

Some states also allow Medicaid estate recovery to include assets that aren’t subject to probate. That can include jointly owned bank accounts between spouses, Payable on death bank accounts, real estate that’s owned in joint tenancy with right of survivorship, living trusts and any other assets that a Medicaid recipient has a legal interest in. It’s important to understand the laws in your state regarding what can and cannot be used to recover Medicaid benefits when you or an aging parent passes away.

It’s also worth noting that while Medicaid can’t take someone’s home or assets before they pass away, it is possible for a lien to be placed upon the property. For example, if your mother has to move into a nursing home then Medicaid could place a lien on the property. If your mother passes away and you inherit the home, you wouldn’t be able to sell it without first satisfying the lien.

What Medicaid Estate Recovery Means for Heirs

The most significant impact of Medicaid estate recovery for heirs of Medicaid recipients is the possibility of inheriting a reduced estate. Medicaid eligibility assumes that recipients are low-income or have few assets to pay for long-term care. But if your parents are able to leave some assets behind when they pass away, the recovery program could shrink the estate that passes on to you.

It’s also important to note that while Medicaid estate recovery rules disavow you personally from paying for your parents’ long-term care costs, filial responsibility laws do not. These laws, though rarely enforced, allow healthcare providers to sue the children of long-term care recipients to recover nursing care costs.

So even if Medicaid doesn’t take anything away from your parents’ estate after they pass away, a nursing home could still sue you personally to recover money paid toward the cost of their care. The care facility has to be able to prove that you have the means to pay but this could add a wrinkle to your financial picture if you’re responsible for wrapping up a deceased parent’s estate.

How to Avoid Medicaid Estate Recovery

Strategic planning can help you or your loved ones avoid financial impacts from Medicaid estate recovery.

For example, you may consider purchasing long-term care insurance for yourself for encouraging your parents to do so. A long-term care insurance policy can pay for the costs of nursing home care so you can avoid the need for Medicaid altogether.

If you’re interested in long-term care insurance for yourself or an aging parent, compare the cost for premiums against the benefits the policy pays out. If you’re unsure whether you or a parent may need long-term care at all, you might consider a hybrid policy that includes both long-term care coverage and a life insurance death benefit.

Another option for avoiding Medicaid estate recovery is removing as many assets as possible from the probate process. Married couples, for example, can accomplish that by making sure all assets are jointly owned with right of survivorship or using assets to purchase an annuity that transfers benefits to the surviving spouse when the other spouse passes away.

It’s important to understand which assets are and are not subject to probate in your state and whether your state allows for an expanded definition of recoverable assets for Medicaid. Talking to an estate planning attorney or an elder law expert can help you to shape a plan for protecting assets.

The Bottom Line

Medicaid estate recovery may not be something you have to worry about if your aging parents leave little or no assets behind. But it’s something you should still be aware of if you expect to inherit anything from your parents when they pass away. If you’re targeted for estate recovery, you may be able to avoid it if you can prove that it would cause you an undue financial hardship. Again, this is where talking to an estate planning professional can help you avoid any unexpected surprises.

Tips for Estate Planning

  • Consider talking to a financial advisor about Medicaid and how to plan for long-term care costs. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors online. It takes just a few minutes to get personalized recommendations for financial advisors in your local area. If you’re ready, get started now.
  • Consider a living trust. It will let you transfer assets to the control of a trustee, who will manage them according to your wishes on behalf of your beneficiaries. Trust assets aren’t necessarily exempt from Medicaid recovery, but this could still be a useful estate planning tool for minimizing taxes and ensuring a smooth transition of assets to your beneficiaries.

Photo credit: ©iStock.com/FatCamera, ©iStock.com/FatCamera, ©iStock.com/Dennis Gross

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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What Is the Generation-Skipping Transfer Tax?

What Is the Generation-Skipping Transfer Tax? – SmartAsset

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Estate planning can help you pass on assets to your heirs while potentially minimizing taxes. When gifting assets, it’s important to consider when and how the generation-skipping tax transfer (GSTT) may apply. Also called the generation-skipping tax, this federal tax can apply when a grandparent leaves assets to a grandchild while skipping over their parents in the line of inheritance. It can also be triggered when leaving assets to someone who’s at least 37.5 years younger than you. If you’re considering “skipping” any of your heirs when passing on assets, it’s important to understand what that means from a tax perspective and how to fill out the requisite form. A financial advisor can also give you valuable guidance on how best to pass along your estate to your beneficiaries.

Generation-Skipping Tax, Definition

The Internal Revenue Code imposes both gift and estate taxes on transfers of assets above certain limits. For 2020, you can exclude gifts of up to $15,000 per person from the gift tax, with the limit doubling for married couples who file a joint return. Estate tax applies to estates larger than $11,580,000 for 2020, increasing to $11,700,000 in 2021. Again, these exemption limits double for married couples filing a joint return.

The gift tax rate can be as high as 40%, while the estate tax also maxes out at 40%. The IRS uses the generation-skipping transfer tax to collect its share of any wealth that moves across families when assets aren’t passed directly from parent to child. Assets subject to the generation-skipping tax are taxed at a flat 40% rate.

This tax can apply to both direct transfers of assets to your chosen beneficiaries as well as assets passed through a trust. A trust can be subject to the GSTT if all the beneficiaries of the trust are considered to be skip persons who have a direct interest in the trust.

How Generation-Skipping Transfer Tax Works

Generation-skipping tax rules cover the transfer of assets to people who at least one generation apart. A common scenario where the GSTT can apply is the transfer of assets from a grandparent to a grandchild when one or both of the grandchild’s parents are still alive. If you’re transferring assets to a grandchild because your child has predeceased you, then the transfer tax wouldn’t apply.

The generation-skipping tax is a separate tax from the estate tax and it applies alongside it. Similar to estate tax, this tax kicks in when an estate’s value exceeds the annual exemption limits. The 40% GSTT would be applied to any transfers of assets above the exempt amount, in addition to the regular 40% estate tax.

This is how the IRS covers its bases in collecting taxes on wealth as it moves from one person to another. If you were to pass your estate from your child, who then passes it to their child then no GSTT would apply. The IRS could simply collect estate taxes from each successive generation. But if you skip your child and leave assets to your grandchild instead, that removes a link from the taxation chain. The GSTT essentially allows the IRS to replace that link.

You do have the ability to take advantage of lifetime estate and gift tax exemption limits, which can help to offset how much is owed for the generation-skipping tax. But any unused portion of the exemption counted toward the generation-skipping tax is lost when you die.

How to Avoid Generation-Skipping Transfer Tax

If you’d like to minimize estate and gift taxes as much as possible, talking to a financial advisor can be a good place to start. An advisor who’s well-versed in gift and estate taxes can help you create a plan for transferring assets. For example, that plan might include gifting assets to your grandchildren or another generation-skipping person annually, rather than at the end of your life. Remember, you can gift up to $15,000 per person each year without incurring gift tax, or up to $30,000 per person if you’re married and file a joint return. You’d just need to keep the lifetime exemption limits in mind when scheduling gifts.

You could also make payments on behalf of a beneficiary to avoid tax. Say you want to help your granddaughter with college costs, for example. Any direct payments you make to the school to cover tuition would generally be tax-free. The same is true for direct payments made to healthcare providers if you’re paying medical expenses on behalf of someone else.

Setting up a trust may be another option worth exploring to minimize generation-skipping taxes. A generation-skipping trust allows you to transfer assets to the trust and pay estate taxes at the time of the transfer. The assets you put into the trust have to remain there during the skipped generation’s lifetime. Once they pass away, the assets in the trust could be passed on tax-free to the next generation.

This strategy requires some planning and some patience on the part of the generation that stands to inherit. But the upside is that members of the skipped generation and the generation that follows can benefit from any income the assets in the trust generates in the meantime. Trusts can also yield another benefit, in that they can offer asset protection against creditors who may file legal claims against you or your estate.

Another type of trust you might consider is a dynasty trust. This type of trust can allow you to pass assets on to future generations without triggering estate, gift or generation-skipping taxes. The caveat is that these are designed to be long-term trusts.

You can name your children, grandchildren, great-grandchildren and subsequent generations as beneficiaries and the transfer of assets to the trust is irrevocable. That means once you place the assets in the trust, you won’t be able to take them back out again so it’s important to understand the implications before creating this type of trust.

The Bottom Line

The generation-skipping tax could take a significant bite out of the assets you’re able to leave behind to grandchildren or another eligible person. If you’re considering using this type of trust to pass on assets or you’re interested in exploring other ways to transfer assets while minimizing taxes, it’s wise to consult an estate planning lawyer or tax attorney first.

Tips for Estate Planning

  • Consider talking to your financial advisor about how to best shape your estate plan to minimize taxation. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. It takes just a few minutes to get your personalized recommendations for advisors online. If you’re ready, get started now.
  • Creating a trust can yield some advantages in your estate plan. In addition to helping you minimize tax liability, the assets in a trust are not subject to probate. That’s different from assets you leave behind in a will.

Photo credit: ©iStock.com/ljubaphoto, ©iStock.com/baona, ©iStock.com/svetikd

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Accredited Asset Management Specialist (AAMS)

Accredited Asset Management Specialist (AAMS) – SmartAsset

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New financial advisors need something to help them stand out. Consequently, the AAMS does just that. Designed for newcomers to the financial advice business, the AAMS trains advisors to identify investment opportunities as well as help clients with other financial goals. It also gives more experienced advisors a fast and simple way to learn more about asset management and improve their credentials. Here’s how it works.

AAMS Defined

An Accredited Asset Management Specialist (AAMS) can advise clients on college savings, taxes, and retirement savings. The course and tests for this certification are designed to ensure advisors can assist clients with their complete financial needs. It emphasizes evaluating the client’s assets and making appropriate recommendations.

The AAMS certification is granted by the College for Financial Planning, a unit of the Kaplan Company. The college oversees a large number of financial certification programs, including the Certified Financial Planner designation, one of the most valued certifications in the field.

AAMS Certification Requirements

To receive an AAMS, students first have to complete a 10-module education program provided by the College for Financial Planning. Then they have to pass an examination. Finally, they must agree to abide by a code of ethics and promise to continue their education.

The courses are online and can be delivered in self-study or instructor-led formats. Courses are open-enrollment, therefore students can begin at any time without waiting for the next session.  The 10 modules cover the following material:

1.:The Asset Management Process

2. Risk, Return & Investment Performance

3. Asset Allocation & Selection

4. Investment Strategies

5. Taxation of Investments

6. Investing for Retirement

7. Deferred Compensation and Other Benefit Plans

8. Insurance Products for Investment Clients

9. Estate Planning for Investment Clients

10. Fiduciary, Ethical, and Regulatory Issues for Advisors

The College of Financial Planning provides everything necessary to study for and complete the modules and take the test. Students have access to the study materials and tests through an online portal.

Streaming video lectures, audio files, and interactive quizzes also can be found through the college’s site. Meanwhile, students can access live classes online and contact professors with questions and issues.

The AAMS Test

To get the AAMS certification, students have to pass just one test. However, they have to make their first attempt at the test within six months of enrollment and pass it within a year.

The fee for the first attempt at taking the test is included in the course tuition. There are no prerequisites for signing up to take the AAMS course.

Time and Money Requirement

Tuition for the AAMS courses is $1,300. This includes the fee for the first attempt at passing the certification exam. It also includes all needed course materials. Each additional attempt costs $100.

Students employed with certain financial services firms may be able to get tuition discounts. The college may also provide scholarships.

The College for Financial Planning recommends students plan to spend 80 hours to 100 hours on the course. Since the course is self-study, this amount of time is flexible.

To maintain AAMS certification students have to commit to completing 16 continuing education credits every two years. Also, continuing education has to cover one or more of the topics covered in the AAMS coursework.

AAMS certificate holders also have to agree to follow a professional standard of conduct. As a result, they have to maintain integrity, objectivity, competency, confidentiality and professionalism in providing financial services.

AAMS Certificate Holder Jobs

AAMS certificates are generally earned by entry-level workers in the financial advice business. Consequently, AAMS holders are typically trainees. In some cases, they may provide support services to more experienced and highly credentialed advisors.

The AAMS designation does not confer any special powers or privileges. Instead, it’s an optional credential that students may obtain to advance their careers and enhance their knowledge of financial advice.

Comparable Certifications

In addition to the AAMS, the College for Financial Planning offers an Accredited Wealth Manager Advisor (AWMA) certificate. This is a somewhat more advanced designation. As a result, it requires a course equivalent to three graduate level college credits and requires 90 hours to 135 hours to complete.

Chartered Mutual Fund Counselor (CMFC) is sponsored by the Investment Company Institute along with the College of Financial Planning. It is similar to the AAMS certificate except it focuses on mutual fund assets.

Accredited Financial Counselor (AFC) is a general personal finance advice certificate from the Association for Financial Counseling and Planning Education. First, it requires 1,000 hours of financial counseling experience. Secondly, it demands three letters of reference. Finally, applicants must both complete coursework and pass an exam.

Bottom Line

The AAMS designation is usually for newly minted financial advisors, but even experienced pros can use it to bulk up their credentials. The courses and tests associated with the AAMS teach advisors how to evaluate assets and make recommendations.

While this certification doesn’t give an advisor any real powers, it’s a sign that they can identify investment opportunities specific to their clients. Above all else, it can be a great relief to a client who has a child going to college or a retirement house on their wish list. As a result of obtaining an AAMS, and advisor can point them toward the right investments for their goals.

Investing Tips

  • If you’re looking to identify investment opportunities, consider using an AAMS as your advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • An AAMS can help you with college savings, taxes, and retirement savings if you know what your goals are. However, if you are unsure how much you want to invest, what your risk tolerance is, or how inflation and capital gains tax will affect your investment, SmartAsset’s investing guide can help you take the first steps.

Photo credit: ©iStock.com/SARINYAPINNGAM, ©iStock.com/fizkes, ©iStock.com/Suwanmanee99

Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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An Overview of Filial Responsibility Laws

Father in a wheelchair and son outsideTaking care of aging parents is something you may need to plan for, especially if you think one or both of them might need long-term care. One thing you may not know is that some states have filial responsibility laws that require adult children to help financially with the cost of nursing home care. Whether these laws affect you or not depends largely on where you live and what financial resources your parents have to cover long-term care. But it’s important to understand how these laws work to avoid any financial surprises as your parents age.

Filial Responsibility Laws, Definition

Filial responsibility laws are legal rules that hold adult children financially responsible for their parents’ medical care when parents are unable to pay. More than half of U.S. states have some type of filial support or responsibility law, including:

  • Alaska
  • Arkansas
  • California
  • Connecticut
  • Delaware
  • Georgia
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Mississippi
  • Montana
  • Nevada
  • New Jersey
  • North Carolina
  • North Dakota
  • Ohio
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Vermont
  • Virginia
  • West Virginia

Puerto Rico also has laws regarding filial responsibility. Broadly speaking, these laws require adult children to help pay for things like medical care and basic needs when a parent is impoverished. But the way the laws are applied can vary from state to state. For example, some states may include mental health treatment as a situation requiring children to pay while others don’t. States can also place time limitations on how long adult children are required to pay.

When Do Filial Responsibility Laws Apply?

If you live in a state that has filial responsibility guidelines on the books, it’s important to understand when those laws can be applied.

Generally, you may have an obligation to pay for your parents’ medical care if all of the following apply:

  • One or both parents are receiving some type of state government-sponsored financial support to help pay for food, housing, utilities or other expenses
  • One or both parents has nursing home bills they can’t pay
  • One or both parents qualifies for indigent status, which means their Social Security benefits don’t cover their expenses
  • One or both parents are ineligible for Medicaid help to pay for long-term care
  • It’s established that you have the ability to pay outstanding nursing home bills

If you live in a state with filial responsibility laws, it’s possible that the nursing home providing care to one or both of your parents could come after you personally to collect on any outstanding bills owed. This means the nursing home would have to sue you in small claims court.

If the lawsuit is successful, the nursing home would then be able to take additional collection actions against you. That might include garnishing your wages or levying your bank account, depending on what your state allows.

Whether you’re actually subject to any of those actions or a lawsuit depends on whether the nursing home or care provider believes that you have the ability to pay. If you’re sued by a nursing home, you may be able to avoid further collection actions if you can show that because of your income, liabilities or other circumstances, you’re not able to pay any medical bills owed by your parents.

Filial Responsibility Laws and Medicaid

Senior care living areaWhile Medicare does not pay for long-term care expenses, Medicaid can. Medicaid eligibility guidelines vary from state to state but generally, aging seniors need to be income- and asset-eligible to qualify. If your aging parents are able to get Medicaid to help pay for long-term care, then filial responsibility laws don’t apply. Instead, Medicaid can paid for long-term care costs.

There is, however, a potential wrinkle to be aware of. Medicaid estate recovery laws allow nursing homes and long-term care providers to seek reimbursement for long-term care costs from the deceased person’s estate. Specifically, if your parents transferred assets to a trust then your state’s Medicaid program may be able to recover funds from the trust.

You wouldn’t have to worry about being sued personally in that case. But if your parents used a trust as part of their estate plan, any Medicaid recovery efforts could shrink the pool of assets you stand to inherit.

Talk to Your Parents About Estate Planning and Long-Term Care

If you live in a state with filial responsibility laws (or even if you don’t), it’s important to have an ongoing conversation with your parents about estate planning, end-of-life care and where that fits into your financial plans.

You can start with the basics and discuss what kind of care your parents expect to need and who they want to provide it. For example, they may want or expect you to care for them in your home or be allowed to stay in their own home with the help of a nursing aide. If that’s the case, it’s important to discuss whether that’s feasible financially.

If you believe that a nursing home stay is likely then you may want to talk to them about purchasing long-term care insurance or a hybrid life insurance policy that includes long-term care coverage. A hybrid policy can help pay for long-term care if needed and leave a death benefit for you (and your siblings if you have them) if your parents don’t require nursing home care.

Speaking of siblings, you may also want to discuss shared responsibility for caregiving, financial or otherwise, if you have brothers and sisters. This can help prevent resentment from arising later if one of you is taking on more of the financial or emotional burdens associated with caring for aging parents.

If your parents took out a reverse mortgage to provide income in retirement, it’s also important to discuss the implications of moving to a nursing home. Reverse mortgages generally must be repaid in full if long-term care means moving out of the home. In that instance, you may have to sell the home to repay a reverse mortgage.

The Bottom Line

elderly woman in a wheelchair outsideFilial responsibility laws could hold you responsible for your parents’ medical bills if they’re unable to pay what’s owed. If you live in a state that has these laws, it’s important to know when you may be subject to them. Helping your parents to plan ahead financially for long-term needs can help reduce the possibility of you being on the hook for nursing care costs unexpectedly.

Tips for Estate Planning

  • Consider talking to a financial advisor about what filial responsibility laws could mean for you if you live in a state that enforces them. If you don’t have a financial advisor yet, finding one doesn’t have to be a complicated process. SmartAsset’s financial advisor matching tool can help you connect, in just minutes, with professional advisors in your local area. If you’re ready, get started now.
  • When discussing financial planning with your parents, there are other things you may want to cover in addition to long-term care. For example, you might ask whether they’ve drafted a will yet or if they think they may need a trust for Medicaid planning. Helping them to draft an advance healthcare directive and a power of attorney can ensure that you or another family member has the authority to make medical and financial decisions on your parents’ behalf if they’re unable to do so.

Photo credit: ©iStock.com/Halfpoint, ©iStock.com/byryo, ©iStock.com/Halfpoint

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