I am interested in getting my mom, who lives alone, a medical alert system. I would like to learn more about wearable options that will let her call for help if she falls or has a medical emergency. What can you tell me to help me choose one?

A good medical alert system is an effective and affordable tool that can help keep your mom safe and living in her own home longer. With all the different products and features available, choosing one can be challenging. Here are some tips that can help.

Three Key Questions

Medical alert systems, which have been around since the 1980s, provide a wearable help button – usually in the form of a neck pendant or wristband – that would put your mom in touch with a dispatcher who could summon emergency help or contact a friend or family member as needed.

To help you narrow down your options and choose a system that best fits your mom's needs, here are three key questions to consider.

1. Does your mom want a home-based or mobile system?

Medical alert systems were originally designed to work inside the home with a landline telephone, which is still an option. But since fewer and fewer households have landlines these days, most companies today also offer home-based systems that work over a cellular network. With these systems, pressing the wearable help button allows you to speak to a dispatcher through a base unit located in your home.

In addition, many companies offer mobile medical alert options. You can use these systems at home, but they will also allow you to call for help while the wearer is out and about.

Mobile alerts operate over cellular networks and incorporate GPS technology. These systems allow you to talk and listen to the operator directly through the pendant button. The GPS allows your location to be known in order for help to be sent.

If your mom does not leave the house very often, she may not need a mobile system. If she is still active, she may want added protection outside the home.

2. Should her system be monitored or not?

The best medical alert systems are monitored, meaning that the help button connects you with a trained operator at a 24/7 dispatching center.

You also have the option to choose a system that is not monitored. With these, when you press the help button, the device automatically dials a friend or family member on your programmed emergency call list.

These products can often be set up to call multiple people and to contact emergency services if you do not get an answer from someone on your list.

3. Should you add a fall-detection feature?

Most medical alert companies offer the option of an automatic fall detection pendant for an additional fee of $10 to $15 per month. These pendants automatically contact the dispatch center in the event of a fall, just as they would if the wearer had pressed the call button.

Be aware that this technology is not fool-proof. In some cases, this feature may register something as a fall that is not. The alarm might go off if you drop it or momentarily lose your balance but do not actually land on the ground.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

What are the IRS income tax filing requirements for tax year 2020 for retirees? My income dropped substantially when I was forced into retirement last March due to COVID, so I am wondering if I need to file a tax return this year.

Whether you are required to file a federal income tax return for the 2020 tax year depends on many factors, including how much you earned in 2020, the source of that income, your age and your filing status.

Here is a quick rundown of this tax season's IRS tax filing requirement thresholds. If your 2020 gross income was below the threshold for your filing status and age, you may not have to file. Generally, gross income includes all taxable income, except your Social Security benefits.

• Single: $12,400 ($14,050 if you are 65 or older by Jan. 1, 2021).
• Married filing jointly: $24,800 ($26,100 if you or your spouse is 65 or older; or $27,400 if you are both over 65).
• Married filing separately: $5, regardless of age.
• Head of household: $18,650 ($20,300 if age 65 or older).
• Qualifying widow(er) with dependent child: $24,800 ($26,100 if age 65 or older).

To get a detailed breakdown on federal filing requirements, along with information on taxable and nontaxable income, call the IRS at 800-829-3676 and ask them to mail you a free copy of the "1040 and 1040-SR Instructions for Tax Year 2020." You can also get it online at IRS.gov.

Other Filing Factors

There are, however, some other financial situations that may require you to file a tax return, even if your gross income falls below the IRS filing requirements. For example, you would need to file if you earned more than $400 from self-employment in 2020, owe any special taxes like the alternative minimum tax or get premium tax credits because you, your spouse or a dependent is enrolled in a Health Insurance Marketplace plan.

You will also need to file if you are receiving Social Security benefits, and one-half of your benefits plus your other gross income and any tax-exempt interest exceeds $25,000, or $32,000 if you are married and filing jointly.

To figure all this out, the IRS offers an interactive tax assistant tool on their website that asks a series of questions to help you determine if you are required to file, or if you should file because you are due a refund. It takes less than 15 minutes to complete.

You can access this tool at IRS.gov/Help/ITA. Click on "Do I Need to File a Tax Return?" You can receive assistance over the phone by calling the IRS helpline at 800-829-1040.

Check Your State

Even if you are not required to file a federal tax return this year, do not assume that you are also excused from filing state income taxes. The rules for your state might be very different. Check with your state tax agency before concluding that you do not need to file. For links to state tax agencies, see Taxadmin.org/state-tax-agencies.

Tax Preparation Assistance

If you find that you need to file a tax return this year, you can file for free through the IRS at IRS.gov/FreeFile if your 2020 adjusted gross income was below $72,000.

If you need additional help, contact the Tax Counseling for the Elderly (TCE) program. Sponsored by the IRS, TCE provides free tax preparation and counseling to middle and low-income taxpayers, age 60 and older. Call 800-906-9887 or visit IRS.treasury.gov/freetaxprep to find out about services near you.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Let's look at the "top five" reasons people give for not owning life insurance.

1. Too Expensive. "I just cannot afford life insurance right now."
2. Confusing. "We looked at proposals from three companies-page after page of numbers. What does it all mean? I haven't the slightest idea!"
3. Too Many Types. "I checked into term insurance, whole life insurance, universal life, variable life, single premium and survivorship insurance. But which one is right for me?"
4. No Trust. "Those big insurance companies claim to have billions of reserve funds. But one of the biggest insurance companies has been on the ropes for months. Who can you trust?"
5. Don't Plan to Die. "Someday when I plan to die, I will consider life insurance. But for now-don't worry, be happy!"

Five Reasons to Own Life Insurance

There are several reasons for you to purchase life insurance. If you were to pass away, the life insurance death benefits could provide resources that are quite important to your family. The various benefits include payment of your funeral and final expenses, paying off mortgages or other debts, living expenses or income for a surviving spouse, inheritance for children and payment of estate taxes.

1. Final Expenses and Funeral Costs. Usually there are medical expenses during the last weeks of life. These frequently will range from $5,000 to $10,000. Your memorial service preparation and costs can also easily exceed $10,000. Total final expenses can often be more than $20,000.
2. Pay Debts and Mortgages. The payment of debts or a mortgage is a one-time expense. Depending upon the amount of your mortgage, this could cost anywhere from a few thousand dollars to many hundreds of thousands of dollars.
3. Living Expenses for Spouse. The largest amount of insurance is typically purchased to provide both economic security and an investment that will add to the spouse's other annual income. A reasonable method is to estimate a 5% return on the investment. For example, if a spouse needed another $25,000 of income over and above the amount paid by retirement funds, Social Security and other earnings, then insurance equal to $500,000 invested at 5% would produce this amount.
4. Inheritance for Children. Permanent insurance is frequently used as a method of providing an inheritance for children. Many parents who make substantial gifts to charity plan to use life insurance as a means of providing additional inheritance for children or other family members.
5. Estate Taxes. If your estate is large, there may be a substantial payment of federal or state estate tax. If you own a family business or other assets that are intended to be transferred to family, then your estate could be subject to estate tax. Life insurance can be an excellent method to provide funds for payment of estate tax. Normally, for larger estates the life insurance is owned by an irrevocable life insurance trust so the insurance itself is not subject to estate tax.

Determining the Life Insurance Amount

A fairly simple way for you to determine the total amount of needed insurance is to add up your one-time expenses, then calculate the amount of insurance invested at 5% necessary to benefit a surviving spouse, children or other family members. For example, if your one-time expenses are $200,000 and your spouse desires additional income of $25,000, then the total insurance would be $700,000. This amount includes $200,000 for expenses and $500,000 invested at 5% to produce the annual income.

More sophisticated calculations are available online. Use your favorite search engine to look for "life insurance needs calculator," and select from the available free public calculators.

How Life Insurance Works

Life insurance started because individuals were concerned that they might pass away and not provide sufficient resources for family. Because young families typically need a substantial fund and lack the ability to save enough in a short period of time, the concept of life insurance was created.

If many thousands of individuals pay premiums and those funds are invested, then a pool of funds will be available to compensate individuals. The life insurance company hires actuaries who determine the probable number of individuals who will pass away in a given year. Especially for younger persons, out of a pool of 100,000 only a few will pass away in a given year. As a result, the insurance company is able to receive all the premiums and invest them in the insurance reserve fund. The earnings and a portion of the funds are distributed each year to pay claims for those who pass away.

The insurance funds are primarily invested in bonds. The insurance company generally receives 1% to 1.2% to cover all of their overhead and costs. The balance is returned through insurance proceeds to beneficiaries.

Life Insurance Policy Categories

Insurance is generally divided into two categories-term insurance and permanent insurance.

Term Insurance

Term insurance is the least expensive type of insurance and is favored by younger people and many financial planners. The term insurance is available with an annual renewable term (ART) or with a fixed payment for five years, 10 years, 15 years or longer.

Because term insurance does not include any investment or cash value, it enables the largest potential policy to be purchased for the least cost. Due to intense competition within the insurance industry, prices on term policies and level-pay term policies have moved lower in recent years.

Some types of term policies also include the ability to convert to whole life or universal life at a future time. If the conversion is elected, then there will be a substantial increase in the premium.

Permanent Insurance

Permanent insurance includes several types. The traditional favorite is whole life insurance, but there are also universal life, variable life and survivorship life insurance.

Whole Life. The traditional whole life policy involves both insurance and a cash value. The premiums are substantially higher than term insurance because the policy will build a savings element or cash value. During the first year, much of the cash value may be used by the insurance company to cover the commission payment to the sales representative, but over time the cash value may increase. The owner of the policy has the right to borrow against the cash value at favorable rates.

Whole life is frequently fixed in terms of premiums paid and death benefit. The insurance company is determining the probable return of its reserve fund and, based on the age and health of the insured person, calculates and commits to a fixed benefit in exchange for a certain premium.

Universal Life. Universal life was created to provide an option for people who would consider purchasing term insurance and invest an additional amount in mutual funds. With universal life, the policy is invested and a cash reserve is built up. The insurance reserve growth covers the cost of the insurance policy. Universal life policies may include flexible options for increasing or decreasing premium payments. Of course, the cash value of the policy will change with a modification of the premium schedule.

Variable Universal Life. If the insured desires to own life insurance but also potentially gain from investments in stocks and bonds, a variable policy may be appropriate. With a variable policy the insured typically is permitted to invest in different mutual funds managed by the financial services company. If the mutual funds increase in value, the policy cash value will increase.

Survivorship Life. For a couple, an attractive option is to purchase a survivorship policy. This policy pays a death benefit after both husband and wife pass away. Because two persons are insured, it frequently is possible to obtain insurance even if one spouse is in poor health. Quite often, this insurance can be purchased at a more reasonable premium because two persons must pass away before the death benefit is paid. It is particularly useful for providing funds to pay for taxes if a business is to be transferred from parents to children after they both pass away.

Life Insurance Beneficiaries

In most estates, life insurance does not pass through the probate process. The insurance policy is a contract between the insured and the insurance company. The person who purchases the insurance has the right to name the beneficiaries. Normally, a primary and a secondary beneficiary are named. It's also possible to divide the insurance policy among several children or other beneficiaries.

A common beneficiary designation is for the spouse to be a primary beneficiary and the children to be the contingent beneficiaries with equal shares. If the spouse were to predecease the insured or they were to pass away in a common accident, then the children would receive the insurance proceeds.

Minor children should usually not be the beneficiaries of a policy. In many states, if a minor child receives a substantial inheritance, a conservator must be appointed to manage the assets. This is quite expensive and also has the disadvantage of transferring the assets to the minor child when he or she becomes an adult.

A much better arrangement is to transfer the policy to a living trust for the benefit of the minor children, or to create a trust and a will for the benefit of the minor children and transfer the policy to the estate to fund that trust.

Prudent Purchase of Insurance

Life insurance is an important decision, and it is helpful to learn about the different types of insurance. Most individuals will also visit with a chartered life underwriter (CLU) or other representative of a financial services company.

The representative can conduct an insurance needs analysis and suggest the appropriate type of insurance. It is helpful for you to do sufficient research to understand the reasons why many individuals choose term insurance or permanent insurance. In addition, the use of online calculators to determine insurance funding will also provide you with a better understanding of the appropriate amount of insurance. The amount of insurance recommended by online calculators can vary greatly, so understanding your probable needs is quite important.

Insurance Company Ratings

Insurance companies are rated by several sources. A.M. Best, Weiss, Moody's and other ratings services are available. You should be certain to ask for the ratings of any company if a representative suggests purchasing a policy from them. It is also easy to go online and do a search for "insurance company ratings" and obtain the actual ratings for most financial services companies.

Are there any resources to help individuals find and pay for affordable apartments? My aunt, who is 75 years old, needs to find a new place to live but has very little money. What can you tell me?

Finding affordable housing options can be difficult depending on where your aunt lives. Senior apartments are a good option for some retirees, and you will be happy to know that there are a number of government programs that can help financially. Here are some tips that can help you and your aunt find a low-income apartment that fits her budget and living preferences.

Housing Subsidy Programs

There are several different government programs available today that can help individuals who qualify to locate and pay for housing, including:

• Housing Choice Voucher Program (Section 8): This program allows an individual to find their desired housing. The government provides the voucher amount to the landlord each month.
• Privately-owned subsidized housing: HUD helps some apartment owners offer reduced rents to low-income tenants.
• Public Housing: These communities are generally apartment buildings or complexes that are overseen by a city or county public housing agency and are available to low-income families, the elderly and those with disabilities.
• Low-Income Housing Tax Credit: This program provides housing to low-income families and includes rents that do not exceed a fixed amount.
• Section 202 Supportive Housing for the Elderly: This initiative helps older tenants and the disabled. It offers housing for individuals who are able to live mostly on their own but need assistance with certain daily tasks like cleaning and cooking.

For more information about these programs and to locate apartments in your aunt's area, visit the U.S. Department of Housing and Urban Development rental assistance page at HUD.gov/topics/rental_assistance.

You can also locate nearby affordable housing options by calling your local housing authority. Call 800-955-2232 to get your local number. If your aunt lives near multiple counties, check with the housing authority in each one to compare.

How to Choose

If you or your aunt find several apartment choices that fall within her budget, she should consider what is important to her. She may want housing that is close to family, religious organizations, community centers, or places she visits regularly, like grocery stores, parks or gyms. If she has a disabling condition, it may be especially critical for her to find a living space that has easy access to important services, such as senior transportation and health care centers.

In your housing search, you may also come across some red flags that indicate a retirement community would not be a good fit for your aunt. Keep an eye out for extra fees that may be applied to everyday items or perks you normally would not think about, including laundry service, parking or pets.

You should also make sure the apartment is in good condition and then scout out the neighborhood. Ask yourself if the community is clean and well maintained. If you notice anything out of the ordinary, follow up with questions before your aunt signs a rental contract.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Is acupuncture a viable treatment for pain and is it covered by Medicare? Since the pandemic hit, I have a lot of lower back and neck pain and am wondering if it is worth trying. What can you tell me?

Many studies, including studies funded by the National Institutes of Health, have found acupuncture to be very effective in easing pain and potentially helpful with a variety of other ailments too. Here is what you should know.

Acupuncture Treatment

First used in China more than 2,000 years ago, acupuncture has become increasingly popular in the United States over the past decade. While acupuncture is not a cure-all treatment, it is generally a safe, drug-free option for relieving many different types of pain. It may relieve low back pain, neck pain, osteoarthritis, migraine headaches, fibromyalgia, postoperative pain, tennis elbow, carpel tunnel syndrome, dental pain and more. Studies have also shown that acupuncture can be helpful in treating asthma, depression, digestive disorders, menopause symptoms (such as hot flashes) and nausea caused by chemotherapy or anesthesia.

Exactly how or why acupuncture works is not fully understood. Most practitioners believe that acupuncture works because it stimulates the nerves causing the release of endorphins, which are the body's natural painkiller hormones. Acupuncture may increase blood circulation, decrease inflammation and stimulate the immune system.

What to Expect

During acupuncture, practitioners stimulate specific points on the body by inserting thin needles through the skin. The needles are as thin as a cat's whisker and are solid, sterile, disposable and for single-use.

The number of needles used for each treatment can vary anywhere from a few, up to a dozen or more. Placement of the needles depends on the condition being treated. The needles are typically inserted about one-quarter of an inch to one-inch deep and left in place for about 20 minutes. After placement, the needles are sometimes twirled, manipulated or stimulated with electricity or heat.

You may feel a brief, sharp sensation when the needle is inserted, but generally it is not painful. Once the needle is in place, you may feel a tingling sensation, numbness, mild pressure or warmth.

The number of treatments you will need depends on the severity of your condition. It is very common to have sessions on a weekly or biweekly frequency with a total of 12 sessions completed. It is also important to know that acupuncture can be used by itself or in conjunction with other conventional medical treatments.

Cost and Coverage

The cost per treatment typically ranges from $40 to $150, depending on your location and what style of treatment you are receiving.

An increasing number of private insurance plans, including some Medicare Advantage plans and policies provided by employers offer some type of acupuncture coverage.

You will also be happy to know that in January 2020, the Centers for Medicare and Medicaid Services announced that original Medicare plans will now cover up to 12 acupuncture sessions in 90 days for patients with chronic lower back pain. Eight additional sessions can be added if patients show improvement.

In order to receive Medicare coverage, you must use a licensed acupuncturist who is supervised by a medical doctor, physician assistant or nurse practitioner trained in acupuncture. Licensed acupuncturists cannot bill Medicare directly, so the supervising professional will need to process the acupuncture claim.

To find an acupuncturist in your area, you can search online or ask your doctor for a referral. The National Certification Commission for Acupuncture and Oriental Medicine and the American Academy of Medical Acupuncturists are two organizations that offer a directory of certified acupuncturists.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

What tips can you recommend for making a bathroom safer? My 78-year-old mother has mobility problems and fell getting out of the bathtub last month. I would like to modify her bathroom with some safety features that can help keep her safe.

More accidents and injuries happen in the bathroom than any other room in the house, this is a very important room to modify, especially for individuals with mobility or balance problems.

Depending on your mom's needs and budget, here are some simple tips and product recommendations that can help make her bathroom safer and easier to use.

Floor: To avoid slipping, a simple fix is to get non-skid bath rugs for the floors. If you want to put in a new floor, consider slip-resistant flooring or install wall-to-wall carpeting.

Lights: Good lighting is also very important. It is best to install the highest wattage bulbs allowed for your mom's bathroom fixtures and get a plug-in nightlight that automatically turns on when the room gets dark.

Bathtub/Shower: To make bathing safer, she may want to consider a rubber suction-grip mat or put down adhesive nonskid tape on the tub/shower floor. It is also a good idea to have grab bars installed in and around the tub/shower for support.

If your mom uses a shower curtain, install a screw or bolt-mounted curtain rod, versus a tension-mounted rod. If she loses her balance and grabs the shower curtain, the rod will not spring loose.

For easier access and safer bathing, consider getting your mom a shower or bathtub chair so she can bathe from a seated position. In addition, you should have a handheld, adjustable-height showerhead installed to make chair bathing easier.

If your mom has the budget for it, another good option is to install a curbless shower or a walk-in-bathtub. Curbless showers have no threshold to step over, and come with a built-in seat, grab bars, slip resistant floors and an adjustable handheld showerhead. While walk-in tubs have a door in front that provides a much lower threshold to step over than a standard tub. They also have a built-in seat, handrails and a slip resistant bottom. Some have therapeutic features like whirlpool water jets and/or bubble massage air jets.

Curb-less showers and walk-in-tubs run anywhere between $2,500 and $10,000 including installation.

Toilet: Most standard toilets are around 15 inches high and can be an issue as we age, especially for taller people with arthritis, back, hip or knee problems. If your mom has trouble getting on or off the toilet, a simple solution is to purchase a raised toilet seat that clamps to the toilet bowl, or purchase toilet safety rails that sit on each side of the seat for support. Alternatively, you can install a new ADA compliant "comfort height" toilet that is 16-to-19 inches high. It may also be worthwhile to have grab bars installed near the toilet for additional support.

Faucets: Consider replacing twist handles on the sink, bathtub or shower faucets with lever handle faucets or with a touch, motion or digital smart faucet. These are easier to operate, especially if your mom has hand arthritis or gripping problems. Also, note that it only takes 130-degree water to scald someone, so turn her hot water heater down to 120 degrees.

Doorway: If your mom needs a wider bathroom entrance to accommodate a walker or wheelchair, an inexpensive solution is to install swing clear offset hinges on the door. Offset hinges will expand the doorway an additional two inches.

Emergency assistance: As a safety precaution, you should also consider purchasing a voice-enabled medical alert system in her bathroom. This device would let her call for help by simple voice command, or by pushing a button or pulling a cord.

You can find all of these suggested products at medical supply stores, pharmacies, big-box stores, home improvement stores, hardware and plumbing supply stores, as well as online.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

I understand that a portion of Social Security benefits may be taxable even when I retire. Can you tell me how to calculate this?

The requirement to pay federal income tax on your Social Security benefits will depend on your income and filing status. About 35% of Social Security recipients have total incomes high enough to trigger federal income tax on their benefits.

To figure out if your benefits will be taxable, add up all of your "provisional income." This includes wages, taxable and non-taxable interest, dividends, pensions and taxable retirement-plan distributions, self-employment and other taxable income, then add half of your annual Social Security benefits and subtract certain deductions used in calculating your adjusted gross income.

How to Calculate

To help you with the calculations, get a copy of IRS Publication 915 "Social Security and Equivalent Railroad Retirement Benefits," which provides detailed instructions and worksheets. You can download it at IRS.gov/pub/irs-pdf/p915.pdf or call the IRS at 800-829-3676 and ask them to mail you a free copy.

If you are single and your total income from all of the listed sources is:

• Less than $25,000, your Social Security will not be subject to federal income tax.
• Between $25,000 and $34,000, up to 50% of your Social Security benefits will be taxed.
• More than $34,000, up to 85% of your benefits will be taxed.

If you are married and filing jointly and the total from all sources is:

• Less than $32,000, your Social Security will not be taxed.
• Between $32,000 and $44,000, up to 50% of your Social Security benefits will be taxed.
• More than $44,000, up to 85% of your benefits will be taxed.

If you are married and file a separate return, you probably will pay taxes on your benefits.

To limit potential taxes on your benefits, you will need to be cautious when taking distributions from retirement accounts or other sources. In addition to triggering ordinary income tax, a distribution that significantly increases your gross income can bump the percentage of your Social Security benefits subject to taxation.

How to File

If you find that part of your Social Security benefits will be taxable, you will need to file using Form 1040 or Form 1040-SR. You also need to know that if you do owe taxes, you will need to make quarterly estimated tax payments to the IRS or you can choose to have it automatically withheld from your benefits.

To elect withholding, you will need to complete IRS Form W-4V, Voluntary Withholding Request (IRS.gov/pub/irs-pdf/fw4v.pdf), and file it with your local Social Security office. You can choose to have 7%, 10%, 12% or 22% of your total benefit payment withheld. If you subsequently decide you do not want the taxes withheld, you can file another W-4V to stop the withholding.

If you have additional questions on taxable Social Security benefits call the IRS help line at 800-829-1040.

State Taxation

In addition to the federal government, 13 states – Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia – tax Social Security benefits to some extent too. If you live in one of these states, check with your state tax agency for details. For links to state tax agencies see TaxAdmin.org/state-tax-agencies.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Trusts are an excellent way to provide for the support and care of children while protecting them. Two important reasons to create a trust are to care for minor children or for a special needs child. In both circumstances, trusts can be an essential part of making plans to provide the best possible care.

How Trusts Work

There are several people and terms that you should know in order to understand how trusts work. Let's examine the different people or terms that will be useful in setting up and operating a trust for children.

Trustee: A trustee will be charged with managing the property under the terms of a trust document. The three choices for trustee are a bank or trust company, a private trustee or a charitable trustee for a trust that benefits charity.

A trustee has a particular name—a fiduciary. This means that the trustee is required under state law to provide appropriate management of the trust. Based on the trust document that you sign as the trust grantor, the trustee will do his or her best to follow your intent.

Property: The trust exists to hold and manage property. While in many states a trust is legally in existence after you sign the trust document, it doesn't actually have any purpose until it receives property. Your trustee refers to this as the "funding" of the trust. The trustee will manage the property according to the terms of your trust document.

Investments: Under state law, your trustee is required to follow the standards of a prudent investor. In most cases, the trustee will invest in a portfolio of stocks and bonds. Approximately 50% to 60% of the typical trust portfolio is invested in a diversified group of stocks, with the balance invested in bonds.

Under the prudent investor rules, the trustee is obligated to diversify. Through diversification the risk of loss will be reduced and the probability that the trust will function as you intend is greater.

Income: Income is defined under the law as either ordinary income or capital gain. The interest from bonds and mortgage notes is ordinary income. Historically, trusts have paid out their ordinary income. However, because many trustees now have more than half of the trust property invested in stocks, trusts now may pay out a portion of recognized capital gain as income.

Capital Gain: Capital gain is the other type of earnings of a trust. While a portion of the capital gain represents principal and will be retained in the trust to benefit the remainder recipient, part of the gain under modern investment strategies is typically allocated to income. The trustee will look at the trust document to determine who will receive the income. Normally, the trustee will pay out on a quarterly basis the ordinary income and part of the recognized capital gains.

Remainder: Under the trust document, the trust will pay income for a period of time, such as a life of a person or a term of years. After all of the income payments have been completed, the trust principal or remainder is usually transferred to the beneficiaries.

For example, a trust was funded with $300,000 and paid income to children Billy, Susie and Linda until they were age 30. At that time, the trust remainder value of $300,000 was divided between the three children. Because each received one-third of the remainder, the inheritance amount for each child was $100,000.

Trusts for Minor Children

Parents correctly understand that a minor child is not ready to receive a substantial inheritance. Therefore, it is very common for parents to create in their will or living trust a plan to set up a trust for minor children.

The trust for minor children frequently permits the trustee broad latitude to pay income and principal to the children or spend it for their healthcare or other needs. Because of this flexibility, the trustee of the trust for minor children is frequently a family member or professional advisor for the family. After all of the children reach a particular age, the trust is then usually distributed in equal shares to the then-living children.

Trust for Children Billy and Mary

Bill and Clara Jones are 36 and 34. They have two children—Billy (age four) and Mary (age one).

After visiting with their attorney, Bill and Clara signed their first will. If one of them should pass away, estate property and guardianship of the children will pass to the survivor. However, if they both pass away, then they have selected Clara's brother, Harold, and his wife as the guardians for the children. They also have selected Bill's sister, Susan, who is a CPA, as the trustee of their family trust for Billy and Mary.

CPA Susan has discretion under the trust instrument to make distributions of income or principal to Billy and Mary or to pay providers for their support or medical care. In order to provide maximum protection for Mary, the entire trust principal is retained until Mary is age 30. By that time, Bill and Clara believe that Mary will have completed her education and be well established in life. Even though Billy will be 33 and Mary will be 30, the trust principal will be divided equally between the two of them at that time.

With a family trust for minor children, the assets of the family are typically not large. Most trusts for minor children are funded primarily by term life insurance on the lives of Bill and Clara. Therefore, it is very common for the trust to continue in existence until the youngest child reaches the desired age. While this means that older children may have to wait longer for their inheritance, that is a secondary goal to making sure that the youngest children are all taken care of until they reach the selected age.

Special Needs Trust

A child with a disability or special need will require both a caregiver and financial resources.

During the lives of the parents, they are often able to provide the required care for a special needs child. However, after they pass away, there may need to be a more structured option that involves a special facility for that child.

To plan for the case when both parents pass away, arrangements for the care facility and financial requirements of a special needs child should be made in advance. A special needs child often has no major assets and therefore is qualified for the Social Security SSI Program or for Medicaid.

However, if the parents were to give the child an inheritance outright or a vested income stream, then those funds will all be expended before the child could receive federal benefits. As a result, the special needs trust was designed to allow parents to provide help for children, even though the child may be receiving federal or state benefits.

The key to the special needs trust is that the trustee has complete discretion over principal and income. He or she may add the income back to the trust corpus, or may make distributions to the child or for the benefit of the child.

Because the special needs trust depends on federal and state laws that regularly change, an attorney who specializes in these trusts is often used to draft the specific provisions. However, there generally are several items the trustee can provide the special needs child and still maintain his or her qualification for federal and state benefits. These include a vehicle, a home, home furnishings, property for self-support, medical care and educational expenses.

The special needs trust also should have an intention to preserve the trust for a remainder beneficiary. Even though the special needs child may receive income and principal that actually does exhaust the trust, the hope that another entity or person would benefit from the remainder is quite helpful.