Understanding the Benefits of a Special Needs Trust

Michele Morgan, Vice President/Trust OfficerMorganM_BUS003xqc

When you or a family member has a disability, protecting financial assets becomes a priority, especially when qualification for Medicaid and Supplemental Security Income (SSI) is involved. Fortunately, two types of special needs trusts (SNT) can help accomplish this.

Both trusts offer significant financial protection and can be used to pay for quality-of-life expenses, like wages for personal attendants and travel costs as well as for home furnishings, cars and even the therapeutic treatments not covered by Medicaid. The trusts differ in the degree to which these supplemental expenses are covered. This makes it essential to choose the right one for the job.

  • First-Party-Funded SNTs are funded using the disabled person’s own financial assets.
  • Third-Party-Funded SNTs are created using someone else’s money, not the disabled person’s assets.

While both types of trusts are exempt for Medicaid-qualification purposes, different rules apply to the way distributions can be made. This means the situations for their best use also differ.

First-Party-Funded SNT Rules

This type of trust is used when the disabled person’s own assets are sufficient to pay for the expenses Medicaid doesn’t cover. The disabled person, or someone acting on their behalf, creates the trust. That person is a parent, grandparent, legal guardian or the court. Funds typically come from a personal injury settlement, or inheritance that did not take a disability into account.

These trusts are irrevocable—once established, no changes are permitted. They must also include language that declares Medicaid has a lien on the trust’s assets. Any balances due to Medicaid for services received during the disabled person’s lifetime will need to be repaid to Medicaid before any other distributions may be made per the wishes of the disabled person’s estate.

Because Medicaid has this claim against the trust, all distributions during the trust owner’s lifetime are subject to review by Medicaid. The rules regarding those distributions are restrictive. For instance, a disabled person who wants to give a birthday gift to a sibling is prevented from doing so under this type of trust. The penalty for an errant disbursement can be severe. The disabled person is disqualified from Medicaid, becomes a private payer and needs to spend down the trust. Once that person’s assets reach $2,000 they may reapply for Medicaid.

Third-Party-Funded SNT Rules

This SNT is also exempt for Medicaid purposes because the money is not the disabled person’s and there is not a Medicaid lien. However, with no payback provision, the allowed distributions are less restrictive and determined by the grantor of the trust. Third-party trusts are typically funded with inheritances and bequests from family members who planned ahead and created the trust.

However, there are still rules. Chief among these is that the disabled person may not have any control whatsoever over the funds.

Hiring a Professional

Because the administration and investment of these trusts requires deep knowledge of the disbursement rules, typically either a corporate trustee or a combination of both a family member and a corporate trustee is chosen to oversee them. While naming only a family member is also possible, it puts undue pressure on that person. One false disbursement could strip a loved one of Medicaid coverage.

When hiring a corporate trustee, it’s important to find one who is willing to spend the time needed to understand and accommodate not just the rules but the needs and preferences of the disabled person.

If you, a friend or a family member might benefit from establishing an SNT—or from having a corporate trustee assume more responsibility for administering an existing SNT—we would be happy to talk to you about the options.

Call me at 630-844-3222. I am happy to help in any way I can.

Land Trusts: An Estate Planning Tool

Carolyn Swafford, CTFA, Vice President/Trust OfficerSwaffordC_BUS014qc

Land trusts are a versatile legal tool for holding title to real estate. Individuals, investors, businesses and families all use land trusts to accomplish specific goals regarding the acquisition, ownership and transfer of property.

Land of Lincoln…and Trusts

Illinois is among only a handful of states that allows the creation of land trusts. Although the legal precedent originated in England, land trusts also began popping up in the United States. They first appeared in Illinois in the late 19th century and were used by real estate developers to acquire multiple parcels of land needed to build large-scale developments.

Using Land Trusts

Privacy is a popular reason to establish a land trust. Property can be deeded into a land trust either at the time of purchase or anytime afterwards. The trust becomes the owner of the property. The individual then becomes the beneficiary with all the rights, avails and proceeds to the property. Since the trust is the owner of the property, the beneficiary is able to keep their name off all public records.

As a legal tool, therefore, a land trust can be used to accomplish very specific goals. Here are three of the most common uses.

Protecting Business Interests

Land trusts are a great way to add a layer of protection between the beneficiary and the property that is contained in the trust. This protection ensures judgment claims against a beneficiary do not automatically become a lien on the real estate or otherwise cloud the title.

Bypassing Probate

If an individual or individuals are named to inherit the beneficiary’s interest after their death, the land trust is not subject to the probate process. This allows the remainder beneficiaries to manage or sell the real estate much faster.

Transferring Interests

When there are multiple beneficiaries in a land trust, there may be a time when one beneficiary buys another out. Individuals may also want to gift their share to another person. Transferring interests within a land trust is accomplished easily and quickly without the need to record public documents.

Flexible and Easy to Establish

Since a land trust is a legal entity, you will want your attorney to prepare the Land Trust Agreement and Deed in Trust. In cases where Old Second is named as the trustee, the necessary forms are downloadable from our website.

For more information on land trusts, click here or contact me directly at 630-906-5470 to discuss how this legal tool might benefit you.

 

 

Career Tips for the Class of 2017

Chris Lasse, First Vice President/Human Resource DirectorLasseC_IN097qc

With graduation comes a deluge of well-intended career advice from family, friends…and total strangers. Some of it will transcend the ages, while some may reflect a different time and employment environment. Other advice may simply not be right for you and what you want to accomplish.

As you sort through it all, here are six tips to help you make the most of your first career move and the opportunities that follow. They’re based on what we see as we pour through resumes, interview candidates and make hiring decisions.

  1. Choose passion over money. When you are excited about what you do, you tend to do it well. That passion will eventually lead to a higher paycheck over the long haul. Taking a job that holds little interest but offers a higher salary may seem like the responsible thing to do. However, it can lead to being stuck in a career path you can’t afford to exit. It can also leave you without the skills and experience needed to transition into the profession you aspired to in the first place.
  2. Know the tradeoffs of working for a large or small company. Large companies can be well-oiled recruiting and training machines. Often, however, in exchange for a company that looks good on your resume, you give up some control over the skills you acquire, what you get to do with them, the breadth of experience you gain and the positions open to you. Working for a smaller company can expose you to a wider variety of job duties. Many times, this means gaining exposure to senior-level executives and the work that they perform—things that can be off limits at bigger companies.
  3. Be realistic about the market value of your degree. As an English major, for example, your starting salary might be less than half of that of an engineering graduate. Realize your value as an entry-level candidate—don’t shortchange yourself, but be pragmatic. Factor in the long-term value of building skills and gaining experience. And, if you need a tie-breaker, always take the job with the better boss.
  4. Look beyond the title. Good entry-level jobs help train you for long-term success. For instance, we often have openings for Credit Analysts. These positions are vital to the lending process. More importantly, they can lead to any number of lucrative career paths since they offer employees the chance to build very marketable experience and skills that are currently in short supply. Consider these types of jobs, they are stepping stones to greater responsibility.
  5. Find a way to stand out. The numerous job sites—from Indeed to LinkedIn—make it easy to find and apply for positions. With one click, you and several hundred other new graduates with your same degree and level of experience can go after the same job. Find ways to be different.

When you are one in 400, make sure your resume stands out.

  • Find a way to become an employee referral. This will improve your odds of getting hired more than anything else you do.
  • Check LinkedIn for any possible connection you can make to the recruiter or someone at the hiring company.
  • Edit your resume for each job to include phrases from the posting. If an automatic parsing tool is used, you will be a perfect match. If not, you’ll catch the recruiter’s eye.
  • Craft a unique cover letter for each position to personalize your application.
  • Have a zero-tolerance policy for grammatical and spelling errors.
  1. Be strategic and have a long-term plan. This means thinking about where you want to be in 3–5 years or more. Mapping out your path will help you identify the type of experience you need and the skills you want to acquire. It not only makes you a more committed candidate, but it also keeps you focused and motivated.

Remember, the path you are on is long and likely to take unexpected turns. Our best advice is to use each stop to learn, expand your skills and gain the experience that leads to the next opportunity. We know you’ll do great.

If you are interested in making Old Second Bank your first stop after graduating, click here.

Taking the Stress Out of Closings

Alaine Bussler, Residential Closing Manager00001

David Kozuh, First Vice President—Residential Lending

Making the decision to buy a new home is thrilling, and the last thing we want is for the mortgage process to interfere with that. That’s why we make sure you know what to expect each step of the way. If you have a question or don’t understand something in a document you’ve been sent, we are here to talk you through it.

New Transparency

In the past, much of the stress in the closing process came from the way lenders were required to provide disclosure and loan documents to you. It made it harder to know how much your home—and your loan—would really cost after fees. That was typically something that came at the very last minute, without adequate time to review.

That has changed. The disclosure requirements are now much easier to read and understand. We are able to give you the first document, The Loan Estimate, three days after you apply for a mortgage, and the second document, The Closing Disclosure, three days before you close. This gives you time to review the terms and amounts you are agreeing to and enables you to ask questions if there is anything you are unsure of.

The Loan Estimate

Like its name implies, this three-page document summarizes the terms and price of your loan. It provides the information needed to develop a better understanding of your mortgage quote, including the amount you can expect to pay monthly based on the estimated closing costs.

The Closing Disclosure

The Closing Disclosure is an itemized account of the final settlement expenses and is provided three days before you close. Specifically, it confirms the final terms, how much cash you will need to bring to your closing, the loan details and the total cost of the loan. The Closing Disclosure also provides an accounting of any changes in the amounts that appeared in the Loan Estimate, along with reasons for them.

In combination, the two documents enable you to understand what, if anything, changed before agreeing to the final terms.

Big Numbers Shouldn’t Lead to Tense Times

The changes to the disclosure law essentially make the way we work with our borrowers—taking the time to answer questions and being transparent about what’s being agreed to—standard to the industry.

Give us a call, at 877-966-0202 and let’s talk about what we can do to keep your mortgage experience as stress free as possible.

 

7 Tips For Raising Money-Smart Kids

NiesmanC_BUS0013qc

Carrie S. Niesman, Vice President/Regional Manager

As parents, we work hard to protect our kids. Even before they cross their first street, we start teaching them how to assess and address the risks that come with daily living.

When it comes to money, this can be a bigger challenge. It takes patience, discipline and repetition to become financially savvy. But, the earlier you start teaching them, the more likely it is they’ll be ready to make money-smart decisions by the time they receive their first paycheck.

Here are some tips for where and how to begin:

1. Lead by example. Even as they are seated in the cart at the grocery store, let them see you take your time to comparison shop and check for coupons before you choose a product. Ask for their help conducting online searches when making larger purchases. Help them understand that it isn’t as much about the amount of money you spend—even if you can afford it—as it is the value you receive for what you get.
2. Encourage them to start saving when they’re young. By kindergarten, kids are able to understand that it takes time to get what you want. Piggybanks are good learning tools for reinforcing this.
3. Stress the difference between wants and needs. Both understanding the difference and training yourself to only buy what you can afford once a “need” is established are keys to leading a prosperous life.
4. Let them see how saving works. The jar concept helps make the difference between short-term savings and long-term savings concrete and visible. Kids can see where their money goes and watch it accumulate. They may use one jar to save for a specific goal, like a video game that will be coming out in a few months. Then, they may have a jar for long-term savings, like the car they said they want to be able to buy when they turn 16 or their college education, a goal you want them to aspire to. Some parents have another jar for giving to reinforce a family’s belief that it’s important to think of and share with others. In my own family, we’ve used jars to save for family outings, which helped my kids understand how much it costs to have fun at a carnival!
5. Insist they pay themselves first. As children start to receive allowances and learn that doing extra chores—at home and for neighbors—can lead to extra cash, teach them the concept of paying themselves first. Encourage them to add some portion of their earnings to savings before spending the rest.
6. Bring them to the bank. Today, most adults rely on electronic banking and ATMs to handle their personal finances. However, it can help children understand where the money goes when it gets deposited and to see how it is withdrawn by literally taking them to the bank. Once they get the mechanics of how money flows into and out of their accounts, making the switch to electronic transfers and the use of debit cards can be much easier and less likely to result in overdraft charges or unnecessary fees.
7. Exercise care when using credit cards around children. To a child, paying with a credit card resembles waving a magic wand to get whatever you want, when you want it. If you aren’t using cash in their presence, try to let your children catch you doing your monthly bills to help them understand that the money to pay for those charged purchases is quite real and comes out of your account.

Where We Can Help
Moving money from jars and into savings account deposits also reinforces the notion of how savings builds over time. Similarly, letting kids review their statements and encouraging them to use calculators, like those offered on our website, can also help them understand what saving—and investing—looks like and where it leads over time.

Being a community bank, we are always available to meet with you and your children to answer any questions they may have and talk to them about the best way to meet their financial goals. Together, we can achieve a money-smart future.

5 Ways to Benefit from an Annual Mortgage Review

Greg Kuda, Vice President—Residential Lendinggkuda1_600

If you’re like most people, you probably meet with your financial advisor at least once a year to review how changes in your life and in the securities markets could impact your invested assets. However, few people think to request a similar check-in with their loan officer to conduct a review of their mortgage. Yet, periodically ensuring your current loan terms remain in your best interest is an equally smart money management move.

Your Biggest Asset Is Usually Your Largest Expense

With the recent recovery in home values in our area, it’s likely that your home equity has also increased. That rise may enable you to strengthen your overall financial situation or help you realize other financial goals.

For instance, if you bought your home several years ago and took advantage of one of the low-down-payment programs, your home equity may be high enough now that you are no longer required to pay Private Mortgage Insurance (PMI) each month. Being able to eliminate that expense either by having your home re-appraised or through a refinancing can reduce payments by $100 a month or more.

Similarly, if your family is expanding and you are thinking of adding on to your house, buying a vacation property, or your children are fast-approaching college age and you are looking for money to help pay for college, it could be more affordable to access your home equity through a second mortgage or by refinancing than through other financing arrangements.

5 Potential Benefits of Refinancing

  • Eliminate mortgage insurance
  • Pay off faster
  • Lower monthly payment
  • Cash out
  • Potentially reduce taxes

Where You Started Versus Where You Are Today

It’s natural that after making a big decision, especially one involving a lot of paperwork, like a mortgage, to resume your regularly scheduled life and not give it another thought. However, given the amount of money you have invested in your home and the size of your monthly mortgage payment, proactively managing your home loan through periodic reviews has the potential to help you meet more of your financial goals even sooner.

When to Review Your Mortgage

  • Interest rate environment changes
  • Life changes (marital status, new baby, college-bound child, retirement)
  • Remodeling or have plans to
  • Home equity rises above 20%

To schedule your annual mortgage review, contact your loan officer here or call 1-877-966-0202.

What First-Time Home Buyers Need to Know Today

Jocelyn Retz, 1st Vice President—Home Loans jretz

There’s a first time for everything. When it comes to home buying, having a resource who can show you the ropes and guide you through your financing options isn’t just helpful—it can save you money.

You Have Options…Lots of Options

First-timers have choices. Each of the mortgage programs serving first-time home buyers in our area have different terms, benefits and uses. Some are more appropriate for new construction, while others can provide added benefits if you are buying a fixer-upper.

Probably the most familiar option is the Federal Housing Administration FHA mortgage. These often have less stringent standards than most conventional lending programs. However, not all homes will qualify. While FHA-insured loans used to be the choice for those seeking to make a low down payment (with a 3.5 percent minimum), some conventional loans now offer an even lower down payment option for borrowers with good credit at just 3 percent.

Veterans have access to even more flexible programs with no down payment requirement. The further away you are from the Chicago Metropolitan area, the likelihood increases that you may be able to borrow through the United States Department of Agriculture (USDA), which offers another zero percent down payment program with attractive terms for those settling down in rural areas.

The State of Illinois, through the Illinois Housing Development Authority (IHDA), is another source of financing for first-time home buyers who work with Old Second. Its 1ST Home Illinois mortgage offers generous down payment assistance to working class families.

While a lot of buyers today look to their friends and family members for advice, the features and requirements of some of the better known mortgage programs have changed recently. By working directly with a community-based lender who participates in a wide variety of programs—not every lender does—you can make a more informed decision about what would be most advantageous for your financial situation. In particular, you can find out how much it will cost you over time.

Don’t Just Get a Mortgage—Get Advice

While many lenders now take applications online and communicate via text and email—Old Second included—having a person to talk to as your application makes its way through the review process can help you understand how it works and what additional requests for information mean. That said, the mortgage process isn’t as complicated as most people think. Compared to what borrowers go through to receive and repay a student loan, for instance, this can be much simpler.

Many of the conventional mortgages Old Second makes continue to be serviced by us after they close. Some clients find it reassuring that after the effort they make to choose the right lender, they will have an ongoing relationship with that same lender over the life of their loan. That is not typical outside of a community-based bank. However, the way we see it, our reputation as a bank, as employees and your neighbors is on the line when we work with you. We want to be there for you from the beginning of the process through your closing—and for the party to celebrate your paid-off mortgage!

For more information on how we work with our first-time home buyers, visit us here or call 1-877-966-0202. We can’t wait to talk to you about what we can do to help you succeed with your first big move.

 

How to Prepare for the Spring Home-Buying Season

William Schumann, 1st Vice President—Mortgage Sales 

William Schumann, First Vice President, Head of Mortgage Sales

William Schumann, First Vice President, Head of Mortgage Sales

Ready to make your move? Whether you are trading up, downsizing or taking your first plunge into home ownership, preparation makes for a more efficient process and, ultimately, more livable results. What you’re preparing for is more than a financial transaction—it’s a purchase that will influence your overall lifestyle.

Choose a Neighborhood

A good real estate agent can help you understand what a neighborhood offers and how it might match up with your lifestyle preferences. There are also a variety of apps you can download to help you get acquainted with an area’s walkability, its schools, and how well it will serve your daily needs.

Determine What “Home” Looks Like

Once you decide where you want to look, consider the type of home you are looking for. Many online listings now have walk-through videos to provide previews. Although, until you start walking through homes, knowing what will feel comfortable may be hard to gauge, especially if this is your first purchase.

Find Your Financial Comfort Zone

Once you develop a feel for your preferences, it’s time to start thinking about what you are comfortable with financially. You should consider where you are today, given your current income and debt levels, and where you expect to be in a few years.

For an approximate idea of what will be affordable, you can take a DIY approach and use the calculators that banks like ours offer to help you run the numbers. However, it’s typically more helpful to sit down and talk to a banker. A banker can also prequalify you, which will improve your understanding of how much of a mortgage you can comfortably afford, giving consideration to both the monthly payment as well as the total loan amount.

Speaking with a mortgage professional also alerts you to any programs you may qualify for. Currently, there are programs with special incentives for first-time buyers. There are also programs that make buying a property that will need immediate fixing up more affordable.

Spring Ahead

Spring is considered the kickoff to the home-buying season. This year, however, there is some incentive for starting to prep for buying a bit earlier.

Recently, mortgage rates increased. The rise was not dramatic, and though additional increases are anticipated in 2017, mortgage rates are expected to remain at the low end of their historical range. However, each increase adds to the cost of buying.

Another reason to start preparing now is that home values in many areas have recovered to their prerecession levels. Realtor.com forecasts that prices in our area could rise another 1.95 percent this year.[1]

For more information on how we can help you prepare for your home purchase, visit us here or call 1-877-966-0202. We can’t wait to talk to you about what we can do to help you make your next move.

Sources:

[1] Joe Kirchner, “Realtor.com®2017 National Housing Forecast,” Realtor.com, posted Nov. 30, 2016, retrieved Jan. 4, 2017.

 

 

Tips for Keeping Your Financial Resolutions

Joseph Huml, Vice President/Retail Regional Manager huml_portrait

Whether you are among the 41 percent of Americans who typically head into the new year equipped with a list of resolutions or are among those who just want to get your finances in shape, knowing how to move the dial from intent to progress can be tough.[1]

Here are some tips to help you succeed in boosting your financial health in 2017.

  1. Conduct a credit cleanup. Sometimes it helps to clear the slate by consolidating high-interest debt into lower rate loans. Homeowners, in particular, often find financial relief—along with financing for home repairs or unexpected expenses—by using a home equity line of credit (HELOC). Not only is the interest rate on this type of debt more affordable than other types of personal loans, the interest you pay may also be tax deductible.
  1. Join the club. To avoid feeling overextended by holiday spending next January, open a Club Savings Account this January. Arrange to have a small amount ($10–$25) transferred from your checking account with each paycheck. In late November, the accumulated amount will be transferred back into your checking account just in time for you to start shopping for the 2017 holiday season.
  1. Get more than credit. Compare the rates and rewards you receive on your current credit card to see if there are more attractive deals out there. Also, with many issuers offering attractive introductory rates for new accounts, moving your outstanding balances could potentially save you money.
  1. Up your reserve. While having an emergency reserve equal to at least three months of your regular expenses is advisable, it can be hard to achieve. A more attainable goal is to try to build up your emergency reserve gradually. For instance, consider setting up an automatic deposit for a modest amount from each paycheck that will allow you to end up with an additional month’s worth of emergency reserve by year-end.
  1. Experiment with bursts of retirement savings. While it’s hard to hit the maximum contribution limit to your retirement savings account each month, try raising your contribution during the three months a year when your expenses are lighter. These short bursts can add up over time.
  1. Get a second opinion. Take advantage of free investment consultations when they are available. Sometimes, a banker can see a better way to save on fees or interest expenses and may be able to provide insights into ways of allocating your investments for expected market changes.
  1. Improve your score. Review your credit reports and scores at least annually. Since your score influences the interest rates you pay—and even employers and landlords look at them—it’s beneficial to make sure yours is as high as possible. When you review your credit reports, look for any errors or omissions. Pay attention to the timeliness of the payments you do make. Late payments and skipped payments are the biggest detractors to your score.

For more information on how we can help you keep up your resolve to improve your finances this year, visit us here or call 1-877-866-0202. We can’t wait to talk to you about what we can do to help you make this your best financial year yet.

The One Thing You Need to Know About Investing

Steve Meves, Senior Vice President/Chief Investment Officer, Wealth Managementmevess_bus009xqc

Investing is about using the money you’ve saved to purchase an asset that will hopefully appreciate over time. The key word in that last sentence is “time.” Giving your investments sufficient time to grow, regardless of what you are investing in, is the hard part. It’s also a key ingredient to building wealth.

Market Movements Are Noise

The financial markets go up and down, sometimes within the same day. But throughout history, they’ve kept climbing. The indexes we use to measure investment results—the Dow Jones Industrial Index and the S&P 500 Index—reflect this jagged climb. It’s this historical proof of resilience through wars, political mayhem and underperformance that allows professional wealth managers to remain calm in the face of sell-offs. They’ve seen the charts and looked at the data on market closes. And, they know that sell-offs end with recoveries. These recoveries may take time, but eventually they occur and have led to a resumption in the historical upward trend.

Go Long

The mistake many investors make is in assuming they need to do something when markets sell off. That’s only natural. It hurts to see your account balances decline, even if it’s a short-term occurrence. Our brains are hard wired to feel the pain of a loss—in this case money—more intensely than we feel the joy of a gain. It’s why we are intuitively risk averse. No one likes the way they feel when they lose.

When markets do sell off—whether during a day, over several weeks or even months—we all impulsively want to avoid further pain by selling. Some even want to anticipate the loss by selling before markets ever start selling off.

Taking evasive action may feel good in the short run, but it can destroy investment results in the long run, because you need to be right about the market continuing to go down when you are out of the market. More importantly, you also need to be in the market during its recoveries in order to benefit. It’s hard to know on any given day the kind of day it will be.

When Is the Right Time to Invest?

When you are an investor and take a long-term view, any time can be the right time depending on what you are investing in. Therefore, it’s advisable to have access to wealth managers who actively monitor markets daily to determine when it makes sense to pull back on investing in securities, or types of securities, and when to add more. It’s also our job to keep emotions like loss avoidance from endangering your overall goals so that your portfolio is diversified over different types of assets. That way, it’s better positioned to withstand volatility in any one type of asset.

In the end, the secret to successful investing is to remain focused on why you invest: to build wealth over time.

For more information on how our goal-driven wealth management services keep you on task over the long term, visit us here or call 630-801-2217. We can’t wait to talk to you about what we can do for you today.

 

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.