Please contact your Stifel Financial Advisor if you have any questions about the articles or for copies of the other materials mentioned in this newsletter.

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In This Issue

• Is an Irrevocable Trust Really Irrevocable? Part 2: My Trust Was Already Executed. Now What?

• Where to Save – HSA Over 401(k)

• Health Savings Account Fact Sheet 2017

• Social Security: Understanding Spousal Benefits Part II of III: Divorced Spouses

• The Cliffs Notes on Going Into Debt for Millennials

• Make Tax and Estate Planning a 2017 Priority

Wealth Planning NewsletterWinter 2017 Issue

501 North Broadway | St. Louis, Missouri 63102 | Stifel, Nicolaus & Company, Incorporated | Member SIPC & NYSE | www.stifel.com | PCR# 122216-36

Stifel does not provide legal or tax advice. You should consult with your estate planning attorney and tax advisor regarding your particular situation.

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Wealth Planning Newsletter Winter 2017

Is an Irrevocable Trust Really Irrevocable? Part 2: My Trust Was Already Executed. Now What?

In Part 1 of this two-part series, we discussed drafting techniques that an attorney can utilize to create flexibility in an irrevocable

trust. That article is helpful if you are creating an irrevocable trust, but what if you already have an existing irrevocable trust that

needs modification? Are you out of luck if you didn’t read Part 1 prior to executing the document? Thankfully, no. Part 2 will help

you assess your options.

Look to the Terms of the Trust

Whenever you have questions regarding a trust, you should first look to the trust document itself. Accordingly, an irrevocable

trust should be drafted to maximize flexibility. If circumstances change and the terms of the trust need to be altered, flexible

drafting can provide you, the beneficiaries, or the trust protector the power to make the necessary modifications.

Decanting Statutes

If the grantor, beneficiary, or trust protector is not given explicit authority to modify the terms of your irrevocable trust, things

become significantly more complicated. Fortunately, complicated does not mean impossible. Many states have developed

decanting statutes to accommodate those inevitable situations in which an irrevocable trust needs to be altered.1

Decanting is the process of transferring assets from one irrevocable trust to another irrevocable trust. Because the ability to

revoke or amend an irrevocable trust is severely restricted, decanting provides a way to modify the terms of the original trust

without revoking or amending it. The word “decant” originally referred to the process of pouring wine into a new container,

leaving unwanted sediment behind. Hence, decanting a trust allows you to “pour” trust assets into a new irrevocable trust,

leaving behind the unwanted features of the original trust.

There are many reasons to decant an irrevocable trust. Perhaps you want to delay a beneficiary’s future distributions because

you no longer feel that the beneficiary would be responsible with distributions at a younger age. Perhaps you need to amend

1 As of April 28, 2016, the following states have passed or proposed decanting statutes: Alaska, Arizona, Delaware, Florida, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin, and Wyoming. See http://www.actec.org/assets/1/6/Culler-Decanting-Statutes-Passed-or-Proposed.pdf.

the trust to include special needs trust provisions so that you do not disqualify a disabled beneficiary from receiving government

assistance. Perhaps you wish to change key terms to mitigate potential tax consequences for beneficiaries. Perhaps you simply

wish to correct drafting errors or ambiguous terms so that the trust can efficiently fulfill its original purpose.

Regardless of your intentions, the ability to decant an irrevocable trust is determined by state statute. Although decanting

statutes vary from state to state, there are some common themes that emerge when you compare the statutes. First, many states

only allow decanting when the trustee of the original trust has a discretionary power to make distributions of income and/or

principal.

The extent to which the trustee is required to have such a power varies by state. Second, generally at least one trustee of the trust

must not also be a beneficiary of the trust. Third, many states require that the trustee intending to decant provide the intended

beneficiaries of the new trust with written notice. Finally, many states prohibit the new trust from including beneficiaries who

were not also beneficiaries of the original trust. However, this restriction does not generally prevent a trustee from excluding a

beneficiary of the original trust from the new trust.

What If You Don’t Live in a State That Allows Decanting?

If you do not live in a state that currently has decanting statutes or if you live in a state with prohibitive decanting statutes, you

may still have options. The terms of the trust or state law may allow you to transfer the trust to a different jurisdiction where

decanting is permitted or simplified.

As you can see, with proper drafting and the emergence of decanting statutes, your irrevocable trust is not really that irrevocable.

Therefore, if you don’t like something about your irrevocable trust, change it (with the help of a local estate planning attorney).

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Wealth Planning Newsletter Winter 2017

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Have you ever wondered, “What is the best method for tax-advantaged savings?” Some industry experts suggest maxing out your health savings account (HSA) before funding your 401(k) or IRA. Of course, it is important to factor in your company’s 401(k) match to ensure you are getting the most from your employer, but as future healthcare expenses are inevitable, funding an HSA could be as important to your retirement plan as your 401(k).

There has been a lot of hype surrounding HSAs in the past few years, as their popularity continues to grow. Questions about HSAs have also continued to grow. HSAs were approved by Congress in 2003 so that individuals with high-deductible health plans could receive tax-preferred treatment for saving money for future healthcare expenses. Unlike any other savings vehicle, if the funds are used for qualified medical expenses, there is no tax liability. The money goes in pre-tax, continues to grow tax-deferred, and comes out tax-free. What other savings vehicle offers all three?

To be eligible for an HSA, you must be covered by a high-deductible health insurance plan and not be enrolled in Medicare or any other non-high-deductible health coverage. A high-deductible plan for 2017 must have a minimum deductible of $1,300 for single coverage or $2,600 for family coverage. These plans generally have lower premiums than other health insurance options, and as an incentive of having a high-deductible health plan, many employers will contribute to their employees’ HSAs. The maximum contribution to an HSA for 2017 is $3,400 for an individual and $6,750 for a family. For those over age 55, there is an additional $1,000 catch-up contribution.

Besides going in pre-tax, growing tax-deferred, and being distributed tax-free when used for qualifying medical expenses, HSA funds can be rolled over from one calendar year to the next. If you don’t use it, you don’t lose it like you do with flexible spending accounts. You also do not have to withdraw money from an HSA in the same year in which an expense occurs. You can have a qualifying claim today, pay for it out of pocket, and reimburse yourself years later. In the meantime, you will have continued to accumulate growth and interest on the funds that remained in the HSA.

Many HSA custodians allow you to invest your HSA funds, giving them the opportunity to grow at a comparable rate to your other investment accounts. Funds from HSAs can be used at any age for qualified medical expenses, and there are no required minimum distributions like there are with IRAs. If you are at least age 65 and decide to withdraw any amount from your HSA to use for non-qualified medical expenses, you may do so penalty-free. Prior to age 65, if funds are not used for qualified medical expenses, a 20% penalty applies. Anytime you withdraw funds from an HSA for non-qualified expenses, ordinary income taxes apply.

There are many reasons HSAs are one of the most effective savings vehicles available. This does not mean you should exclusively fund an HSA, but the fact remains that contributing to an HSA has the potential for more beneficial tax treatment than any other type of account. Medical expenses are a certainty, so why not fund the best vehicle for handling them on your road to retirement?

Where to Save – HSA Over 401(k)

Wealth Planning Newsletter Winter 2017

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Health Savings Account Fact Sheet 2017

Wealth Planning Newsletter Winter 2017

A Health Savings Account (HSA) is a tax-exempt custodial account set up with a qualified trustee to pay or reimburse certain medical expenses.

Benefits• Your contributions are tax-deductible up to pre-set limits.

• Employer contributions may be excluded from your taxable income.

• Assets in your account grow tax-deferred.

• Distributions are tax-free when used for qualifying medical expenses.

• The money is yours for as long as you live, and funds left over at the end of the year roll over automatically.

Contributions

Employer contributions count toward your annual contribution limit. Excess contributions and earnings must be withdrawn by the tax deadline for the year in which the excess contributions were made in order to avoid income taxes and a 6% excise tax. Contributions are allowed until the tax deadline for the year in which the contribution is intended. You cannot make contributions to your HSA if you are enrolled in Medicare, although the balance in your account can still be used.

Contributions to an HSA must be made in cash. Anyone can contribute to your or your family’s HSA, and you still get the tax deduction. One rollover contribution is allowed per year, and rollovers do not need to be in cash. You must roll over the amount within 60 days of receipt. Direct HSA-to-HSA transfers are unlimited and do not need to be in cash.

Once deposited, funds can be invested in a variety of investment vehicles, such as stocks, bonds, CDs, and mutual funds.

Qualifications To qualify for an HSA, you must be covered under a high-deductible health plan (HDHP), have no other “first dollar” health coverage except what is permitted (vision, dental, accident, etc.), must not be enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return.

Qualified Expenses In addition to a long list (see IRS Pub. 502), qualified medical expenses include, but are not limited to, long-term care insurance premiums, COBRA coverage, and Medicare premiums. Note, premiums for Medicare supplement insurance policies are not considered a qualified medical expense.Coverage

TypeContribution

LimitsMinimum

DeductibleOut-of-Pocket

MaximumSingle $3,400/year

*additional $1,000 if over 55

$1,300 $6,550

Family $6,750/year *additional $1,000

if over 55

$2,600 $13,100

IMPORTANT NOTES

• Recordkeeping is important to show that distributions were used to pay for or reimburse qualified medical expenses that were not otherwise reimbursed or taken as a previous itemized deduction. You can go back to your HSA account inception to reimburse yourself for qualifying expenses.

• You are allowed a one-time rollover from an IRA to an HSA limited to your maximum allowable contribution. You cannot borrow from an HSA.

• Once you turn age 65, you can use your HSA account to pay for anything you want penalty-free. You will just have to pay income taxes on the amounts used for non-medical purposes.

• Your account goes to your designated beneficiary at your death. If your surviving spouse is the beneficiary, the HSA can become his or her HSA. For non-spouse beneficiaries, the account is no longer an HSA and the balance at your death is taxable to the beneficiary. This taxable amount can be reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within one year following the date of death.

Understanding Social Security divorced spouse benefits is important for all ex-spouses so that they can be sure to receive all of the Social Security benefits for which they may be entitled. This article focuses on ex-spouse benefits. Part I in our series focused on spousal benefits for married couples. Part III will focus on Social Security benefits and strategies for surviving spouses.

In order for you to be eligible for divorced spouse benefits, your marriage must have lasted for at least ten years. If you divorce after fewer than ten years of marriage, no divorced spouse benefits are payable to either you or your ex-spouse. Additionally, you must be divorced for at least two years before divorced spouse benefits are payable. The two-year wait does not apply when you or your ex-spouse is already claiming a Social Security benefit based on your own work record.

Assuming a full retirement age (FRA) of 66, at age 62 a divorced spouse can claim 35% of the former spouse’s Primary Insurance Amount (PIA). An individual’s PIA is the amount he or she is eligible to receive at FRA. If a divorced spouse waits until FRA to apply, the divorced spouse benefit is 50% of the former spouse’s PIA. There is no benefit to waiting beyond FRA to claim divorced spouse benefits, as these benefits do not earn delayed retirement credits of 8% per year. Only an individual’s work record benefit earns delayed retirement credits.

A key difference with divorced spouse benefit eligibility is that a divorced spouse does not have to wait for a former spouse to file for benefits on his or her own work record before being eligible for divorced spouse benefits. As long as both ex-spouses are at least age 62, the marriage lasted for ten years, and they have been divorced for two years, divorced spouses are eligible for benefits from their former spouse’s work record.

Remarriage disqualifies you from collecting divorced spouse benefits. If this next marriage ends in divorce, but did not last ten years, you can claim benefits from the former spouse of the marriage that did last at least 10 years. If both marriages lasted ten years, you should file for divorced spouse benefits on the work record of the former spouse that had the highest earnings. Your former spouse remarrying has no impact on your ability to claim divorced spouse benefits.

If you remarry after age 60 and your former spouse passes away, you are no longer eligible for divorced spouse benefits. However, you are still eligible for surviving spouse benefits. Stay tuned for more on survivor benefits in Part III.

As with married couples, Social Security’s “deeming provision” must be considered. This provision states that any time you apply for a benefit prior to your FRA, you are applying for both your own work record benefit (if you have one) and a divorced spouse benefit based on your former spouse’s work record. Social Security will look at both benefits and pay you only the larger of the two.

Divorced spouses born prior to January 2, 1954, have options for claiming divorced spouse benefits that other spouses born later do not have. For these ex-spouses, the “deeming provision” ends at FRA. This means once they reach FRA and their former spouse is at least age 62, they can file a “restricted application” for only divorced spouse benefits. This allows their work record benefit to earn valuable delayed retirement credits until age 70 while they collect divorced spouse benefits from FRA until age 70.

For individuals born on or after January 2, 1954, the “deeming provision” extends beyond FRA. Accordingly, anytime they apply for benefits, they are applying for both benefits simultaneously, and Social Security will only pay the larger of the two.

There are many misconceptions surrounding divorced spouse Social Security benefits. It is important you understand how they work so that you can receive all of the benefits for which you may be eligible.

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Wealth Planning Newsletter Winter 2017

Social Security: Understanding Spousal Benefits Part II of III: Divorced Spouses

For a generation that will be leaving college with more student loan debt than any before it, the notion that a certain amount of debt can be good may be difficult to grasp. There is a life outside of student loans, and chances are if you want to purchase a car or buy a home, you will not have the funds available to pay cash for these things. This means you will have to finance them, and when it comes to financing debt, it all comes down to your credit score.

Banks need to know you before they will lend to you. And the way that banks get to know you is through your credit score. This score lets them know how you handle debt, how responsible you are, and how much debt you have. The higher your credit score, the better the interest rates and the more credit you will have available. If you took out student loans while you were in college, you already have a credit score.

However, you may need to establish credit before you need student loans. Perhaps you were able to get through college without taking out loans. All is not lost, as there are other options for you. The first would be to apply for a secured credit card. This is a great option, especially if you are in your late teens or early 20s. With secured credit cards, you make a deposit of cash, which becomes your credit limit. For example, if you gave a lender $250 as collateral, then $250 would be your credit limit. Once you close the account, you get this money back. Another option would be to have someone with established credit co-sign a loan for you. Some credit card companies even have special lines of credit for college students. Generally, the more lines of credit (credit cards, auto loans, student loans, etc.) you have, the better. Keep in mind that each time you apply for a credit card or a loan, you will be subject to a credit inquiry. These credit inquiries can potentially lower your overall score if they become excessive. The exception to this is if you are applying for a larger purchase, such as a home, and you plan to compare rates with a few lenders first. As long as these multiple credit inquires happen within a relatively short span of time (such as one to two weeks), the credit bureaus will treat them as a single credit inquiry.

Once you have established some credit for yourself, how do you give yourself the best credit score possible? Your credit score can range from 300 to 850. A score of 620 is typically the minimum you will need to buy a home, and a score of 750 or above is considered excellent. It goes without saying that to raise your score you need to make payments on time. But how much of your credit should you actually be using? With credit cards, the answer is pretty straightforward, and it surprisingly is not 0%. To have the biggest impact on your credit score, you should limit the amount of outstanding debt at around 30% of your credit cards’ limits. If you don’t like the idea of paying interest every month, you could even make a small purchase every three months and pay it off. The idea is that you need to show lenders that you use credit and know how to do it responsibly. Generally, your total debt-to-income

including your mortgage (your total monthly debt payments divided by your monthly gross income) should not exceed 36%. Having a debt-to-income ratio under this amount will allow you to get the best interest rates. For

your mortgage payments alone, as a rule of thumb, you do not want these monthly payments to exceed 28% of your monthly gross income.

Now, how can you get the most out of your debt? One of the best ways is to find a credit card that offers a rewards program you like and pay the balance off every month. If you do not carry a balance, you will not pay any interest. This is a great way to earn rewards on your day-to-day purchases. A lot of credit cards will even offer you additional points just for getting one of their cards. And you can either carry a small balance on this card every month to build credit, or you can have an additional credit card (remember the more open lines of credit the better) that you carry this balance on and that offers you additional rewards.

Lastly, don’t forget to monitor your credit score for free at a web site such as Credit Karma. Your score will update monthly. If you order a credit report from one of the three credit agencies (Experian, TransUnion, Equifax), there will be no negative impact to your credit score for checking.

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Wealth Planning Newsletter Winter 2017

The Cliff Notes on Going Into Debt for Millennials

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Wealth Planning NewsletterWinter 2017 Issue

Now that we are off and running in 2017, it is important to not lose sight of your New Year’s resolutions. For many, those resolutions focus on physical fitness, but financial fitness is just as vital. Two important and oft-forgotten components of financial fitness are tax and estate planning. To help improve your financial fitness in 2017, be certain to follow through with the following tax and estate planning New Year’s resolutions.

1) Review (and revise) Form W-4. Form W-4 is the form that determines the amount of income tax withheld from your paychecks, and it’s a good idea to periodically review the Form W-4 you have on file with your employer. Life changes, such as a wedding, divorce, or new baby, can affect your tax liability for the year. Thus, consider reviewing Form W-4 annually to make sure the proper amount is being withheld.

2) Focus on qualified accounts. While it’s easy to adopt a “set it and forget it” mentality when it comes to your 401(k)s, 403(b)s, and IRAs, now is the perfect time to pay attention to these important accounts. If you are working and have earned income, think about increasing your contribution percentage. If you’re already maxing out these contributions, consider the benefits of making additional contributions to Health Savings Accounts (HSAs) or IRAs (Roth, traditional, deductible, or nondeductible). If you do not have earned income, consider the potential benefits of Roth conversions and starting distributions prior to age 70 ½.

3) Utilize annual exclusion gifting. In 2017, you can make annual gifts of up to $14,000 per recipient without estate or gift tax consequences.

4) Make sure core estate planning documents are in place. Everyone, regardless of net worth, should discuss with an attorney the need for the following documents: a will, a revocable living trust, a general durable power of attorney, a durable health care power of attorney, and an advance health care directive or living will. If you don’t already have these documents in place, consult an attorney.

5) Review existing estate planning documents with an attorney. If your estate planning documents are in place, have them reviewed by an attorney every three to five years or upon experiencing a significant life event. This ensures that the documents continue to reflect your intentions and comply with current law.

Taxes and investment advice go hand in hand. Be sure to familiarize yourself with the current income, estate, and gift tax frameworks. There are no major changes scheduled in 2017, but inflationary adjustments are summarized on Stifel’s 2017 Quick Tax Facts. Among other items, the 2017 Quick Tax Facts includes the 2017 IRS tax tables for individuals and trusts/estates, a summary of the updated phase-out thresholds, and information on both lifetime and annual exclusion gift limits. Ask your Stifel Financial Advisor for a copy today!

As the new year begins, the tax and estate planning teams in the Wealth Planning Department at Stifel are here to help you with these New Year’s resolutions.

Make Tax and Estate Planning a 2017 Priority