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How to Navigate The Distribution Options For a Non-Designated Beneficiary
By: Denise Appleby, MJ, CISP, CRC, CRPS, CRSP, APA
The Ghost Rule and other important factors for non-person IRA beneficiaries.
When advising beneficiaries of distribution options for their inherited IRAs and employer plans (retirement accounts), one must know the category under which the beneficiary falls. Is the beneficiary a non-designated beneficiary? A designated beneficiary? Or an eligible designated beneficiary? The answer determines the pace at which the beneficiary must take distributions and whether they can roll over inherited employer plan accounts. In this article, we focus on non-designated beneficiaries.
What is a non-designated beneficiary?
To answer the question “What is a non-designated beneficiary?” we must first know “What is a designated beneficiary?”
A designated beneficiary is a person.
A beneficiary that is not a person is not a designated beneficiary. For the purpose of this article, we refer to such beneficiaries as non-designated beneficiaries. Examples of non-designated beneficiaries include estates and charities.
Please note: A see-through trust is a designated beneficiary for required minimum distribution (RMD) purposes. Trust beneficiaries are outside the scope of this article.
The distribution options for a non-designated beneficiary
The distribution option for a non-designated beneficiary depends on whether the participant died before their required beginning date (RBD). The required beginning date is April 1 of the year following the year in which the participants attained their applicable age, which is the year for which their first required minimum distribution (RMD) is due.
The applicable age is determined by the participant’s date of birth in accordance with the following schedule:
- For participants born before July 1, 1949, the applicable age is 70 ½,
- For participants born on or after July 1, 1949, but before January 1, 1951, the applicable age is 72,
- For participants born on or after January 1, 1951, but before January 1, 1959, the applicable age is 73,
- For participants born in 1959, the proposed applicable age is 73*, and
- For participants born on or after January 1, 1960, the applicable age is 75.
*The SECURE 2.0 Act is ambiguous regarding the applicable age for participants born in 1959. The proposed regulations for SECURE 2.0 define the applicable age for participants born in 1959 as 73. This rule might change when the regulations are finalized.
More SECURE Act 2.0 Changes: What 2025 Brings to Retirement Planning
Special rule for employer plans: An employer plan may provide that an employee’s applicable age is past the ages listed above until the year the employee retires from working for the employer. Beneficiaries should check with the administrator of an inherited employer plan account or benefit regarding whether the participant died before their RBD.
Death before the RBD-traditional and Roth account
If the participant dies before their RBD, the 5-year rule applies. Under the 5-year rule, distributions are optional until the 5th year after the participant’s death, when any remaining balance must be distributed.
Because there is no RMD for Roth IRA owners and—as of 2024, designated Roth accounts (DRA), this 5-year rule applies to such accounts regardless of the age at which the participant dies.
Death on or after the RBD—traditional accounts and DRAs inherited before 2024
If the participant dies on or after their RBD, distributions must be taken annually over the decedent’s remaining single life expectancy. The decedent’s life expectancy is colloquially called the Ghost Rule (a term I heard first used by Robert S. Keebler) because it uses the life expectancy of someone who is dead.
This rule applies to traditional accounts, not Roth IRAs. It also applies to DRAs inherited before 2024.
When a person is treated as a non-designated beneficiary for RMD purposes
When a retirement account’s only beneficiary is a non-designated beneficiary, the rules are straightforward—that beneficiary is subject to the RMD rules explained above under The Distribution Options for a Non-designated Beneficiary. However, complexity is added when a person shares beneficiary status with a nonperson.
While a person is generally a designated beneficiary, a retirement account is treated as not having a designated beneficiary if the person shares beneficiary status with a nonperson. This non-designated beneficiary status for the person can be changed if the nonperson beneficiary properly disclaims or takes a full distribution of its share by September 30 of the year that follows the year the retirement account owner dies. Beneficiaries should consult with their estate planning attorneys regarding eligibility to make disclaimers.
Example 1
65-year-old James died in 2024, leaving his daughter Suzanne and a charity as primary beneficiaries of his IRA to be split 50/50.
If the charity distributes its full share by September 30, 2025, the IRA will have a designated beneficiary, and Suzanne will be able to take distributions under the 10-year rule.
If the charity does not fully distribute its share by September 30, 2025, Suzanne must take distributions under the 5-year rule because the account would be treated as not having a designated beneficiary.
Example 2
75-year-old Janet died in 2024, leaving her son Gary and a charity as primary beneficiaries of his IRA to be split 50/50.
If the charity distributes its full share by September 30, 2025, Gary will be able to make distributions under the 10-year rule. Gary must also take annual RMDs over his single life expectancy.
If the charity does not fully distribute its share by September 30, 2025, Gary must take distributions over Janet’s remaining single life expectancy.
You must ask a person if they are the only beneficiary
In the examples above, Suzanne and Gary must each transfer their share of their inherited IRAs to their own beneficiary IRAs. If you advise either of these beneficiaries about their distribution options, you must confirm whether each is the sole beneficiary or one of multiple beneficiaries for the IRA they inherited. If a person shared beneficiary status with a nonperson, you must also confirm whether the nonperson beneficiary withdrew (or disclaimed if eligible to do so) their share by the September 30 deadline.
The beneficiary’s confirmation helps you provide accurate information about their distribution options. Otherwise, your advice could be incorrect. For instance, if you assume that Suzanne is subject to the 10-year rule because she is a person and advises her accordingly, your advice would be incorrect if the charity did not meet the September 30 deadline. As a result, Suzanne will have RMD shortfalls if she does not withdraw any remaining balance by the end of the fifth year.
RMD shortfalls are subject to a 25% excise tax (reduced from 50% as of 2023).
No rollovers allowed
Assets moving from a decedent’s retirement account to the beneficiary’s account must be moved as a nonreportable transfer. This nonreportable movement means no tax forms would be issued, and the transfer would not be reported on the beneficiary or the decedent’s tax return.
Distributions taken by a non-designated beneficiary- whether from an inherited IRA or inherited employer plan account- cannot be rolled over.
Pre-death planning consideration
Many employer plans do not allow non-designated beneficiaries to keep inherited accounts under their plans. For example, the RMD regulations give a non-designated beneficiary 5 years if the owner dies before the RBD, to fully distribute an inherited 401(k). However, the terms of the plan might require the non-designated beneficiary to fully distribute the inherited 401(k) within a few months after the participant’s death.
IRAs are usually more estate-planning friendly, allowing distributions to be taken over the period available under the RMD regulations, the 5-year rule and the decedent’s remaining life expectancy.
If you have savings in an employer plan- such as a 401(k), check the summary plan description (SPD) to determine the distribution options available to your beneficiaries. The plan administrator can help you interpret any complex and unclear provisions. If the plan’s options are more restrictive than the RMD regulations, the participant can roll over eligible amounts to an IRA and designate the beneficiaries for that IRA.
A retirement account owner should have an estate planning attorney who is an expert on the RMD regulations and review their beneficiary designations as a part of their operable state planning.
Source: Horsesmouth, LLC
Horsesmouth, LLC is not affiliated with Lane Hipple or any of its affiliates. -
The Top Ten Common Estate Planning Mistakes
Avoiding these common mistakes can spare your family unnecessary stress
Estate planning is essential for anyone who wants their assets and possessions to be passed along smoothly to their chosen heirs. Beyond money, it’s about ensuring your wishes are clear and your loved ones are spared the added burdens of legal disputes or financial hardships after you’re gone. Here are some of the most common estate planning mistakes and how to avoid them, so you can create a solid legacy for your family.
What Is an Estate Plan?
An estate plan is a set of legal documents that determine how your assets will be handled after your death or if you become incapacitated. At its core, an estate plan typically includes a will, a trust, an advance healthcare directive, and power of attorney documents.
Even if you don’t have significant assets, an estate plan is still valuable, especially for expressing your wishes about medical care and potentially reducing family disputes.
Common Estate Planning Mistakes to Avoid
- Procrastinating – Far too many people delay estate planning, assuming they’ll get to it later in life. But life’s unpredictability means waiting can lead to unintended outcomes, especially in the case of sudden incapacity or death. Without an estate plan, your loved ones could face lengthy legal processes to access your estate, and they may not have clarity on your medical preferences if you’re incapacitated. Creating an estate plan sooner rather than later ensures you’re prepared, whatever life may bring.
- Creating an Estate Plan on Your Own – While DIY estate plans are increasingly popular, they often lead to complications when they’re incomplete or contain errors. An estate attorney can provide invaluable guidance, ensuring your plan covers all necessary elements and is legally sound. The cost of hiring an estate attorney can vary, but many offer free consultations or flat fees for specific services, like drafting a will. Investing in expert advice can prevent expensive and emotionally taxing issues for your family down the line.
- Leaving Loved Ones Uninformed – Estate planning involves difficult conversations, but they’re crucial. Openly discussing your intentions with relevant family members and heirs can help prevent confusion, potential conflicts, and the added stress that often accompanies these situations. Making sure your family understands your wishes – and has a roadmap of what to expect – helps avoid potential misunderstandings.
- Keeping Estate Planning Documents Locked Away – An estate plan is only useful if it can be accessed. Storing your documents in a safe or safe deposit box may seem like a secure option, but it can make them difficult to retrieve. Instead, share copies with your executor or trustee, a trusted family member, and your attorney, and ensure your family has contact information for these key individuals. This proactive step can ease the process for your loved ones when they need it most.
- Missing Key Documents – A complete estate plan includes several essential documents. Missing one or more of these can lead to disputes and unintended consequences. Ensure your estate plan includes:
- Last will and testament: Outlines your wishes for asset distribution and affairs management after your death.
- Beneficiary designations: For accounts like 401(k)s, IRAs, pensions, and life insurance policies.
- Durable power of attorney for medical care: Names someone to make healthcare decisions
for you if you’re incapacitated, often paired with an advance healthcare directive. - Durable financial power of attorney: Appoints someone to manage your finances if you’re
unable to do so. - Funeral instructions: Specifies your funeral or memorial preferences.
- Proof of identity and personal documents: Such as your Social Security card, birth
certificate, marriage/divorce certificates, and any prenuptial agreements. - Deeds or loan documents for significant assets: Includes properties, boats, or other valuable items.
- Living or revocable trust: Optional, but can help your heirs avoid probate and facilitate asset transfers.
- Overlooking Digital Assets – In today’s digital age, it’s easy to overlook the importance of planning for online accounts and digital assets, including social media profiles, cryptocurrency, and cloud storage. Appoint a digital fiduciary in your estate plan who can access and manage these digital assets after your death, ensuring they’re handled according to your wishes.
- Forgetting About Final Arrangements – Making arrangements for your funeral may not be pleasant, but it’s incredibly helpful for your family. Specify your preferences, set aside funds, and consider details like burial versus cremation and service style. With funerals costing over $8,000 on average in 2024 (according to the National Funeral Directors Association), planning ahead can alleviate both financial and emotional stress for your loved ones.
- Ignoring Taxes – Depending on the size of your estate, tax liabilities can be substantial. While the federal estate tax exemption is $13.99 million in 2025, this threshold could revert to a lower limit if current laws change. Additionally, many states have their own estate or inheritance taxes, so it’s important to research your state’s policies when creating your plan.
- Not Updating Your Plan – An estate plan isn’t a “set it and forget it” document. It should be reviewed after significant life events – like marriage, divorce, the birth of children or grandchildren, or acquiring new assets – to ensure it reflects your current wishes. In general, aim to revisit your plan every three to five years to keep it aligned with your circumstances and preferences.
- Choosing the Wrong Executor or Trustee – Selecting the right executor or trustee is as important as drafting the plan itself. Avoid choosing someone who may have a conflict of interest or who lacks the time or ability to manage the responsibility. Ideally, choose someone trustworthy, unbiased, and willing to serve in this role, and make sure you discuss it with them beforehand.
Taking Action for a Secure Legacy
Avoiding these common estate planning mistakes can spare your family unnecessary stress and help ensure your wishes are honored. An effective estate plan isn’t just for the wealthy – it’s for anyone who values peace of mind and wants to protect loved ones from additional burdens.
Start the planning process now, and revisit your plan as life evolves, to safeguard the legacy you’ve worked so hard to build.
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Smishing Scam Targeting Schwab Accounts
New “transaction verification” smishing campaign targeting clients with Schwab accounts
Charles Schwab has identified a new twist on the “smishing” fraud threat which is being used by fraudsters hoping to capitalize on market volatility and investor emotion to steal funds and data.
This version begins when the account holder receives a text message prompting them to “verify a transaction”—clicking the link leads the unwary investor to a fraudulent website that mimics Schwab’s login page, where they are prompted to enter their credentials. Once the credentials have been entered, the fraudsters use them to access Schwaballiance.com. The fraudulent website may also prompt the account holder to enter a two-factor verification code that they would automatically receive from Schwab, which once submitted allows the fraudster to complete the login process.
Once they have access, the fraudster will then change the security token on the account so that it points to a device in the hands of the criminals, instead of the account holder’s own device. At this point, the account holder is effectively locked out of the account, and the fraudster can begin initiating wire transfers that rapidly drain assets from the account.
Why this matters now:
Fraudsters exploit market conditions like those we’re seeing now—times of uncertainty and volatility—knowing that an anxious investor is less likely to think carefully about security measures when they’re worried about their investments. The best defense is heightened vigilance on the part of you and your clients.
Reminders:
- Do not click on links or attachments received via text message.
- Instead, visit the official Schwab site by typing the URL into your web browser manually.
- Or utilize Schwab’s mobile application.
- Do not enter Schwab credentials or other information into a page reached by clicking a link. The same applies to phone numbers received via text message. Use a verified number you’ve used in the past.
- Double check that the URL provided is not a subtle variation of the real one.
- Stay calm and verify using official verified channels.
If you suspect a smishing attack, follow these steps:
- Take a screenshot of the text and forward it to phishing@schwab.com (Be sure the phone number is visible).
- Delete the text message.
- If you clicked on the link, you should stop logging into your online accounts and immediately run an anti-virus/malware scan and remove anything identified in that scan. Next, verify the operating system on the device is updated, and then change all relevant passwords.
- Add security measures to your Schwab accounts, such as two-factor authentication and verbal passwords, which can help to secure against these attacks. See our brochure:
10 simple tips to protect your Schwab Account - Be sure to report any suspicious or fraudulent activity in your accounts as soon as possible, especially if you entered your Schwab credentials into a fake website.
- Do not click on links or attachments received via text message.
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In Case of Death
Managing Death Records and Addressing Fraud Concerns
SSA’s death master file has been in the news lately, first in connection with DOGE’s “discovery” that there were 120-year-olds in the system who could not possibly still be alive (they weren’t, they were just never marked as deceased because of coding quirks, and were certainly not receiving benefits), and most recently because the Trump administration is reporting certain immigrants as deceased in an attempt to get them to self-deport.
Once a person is listed as deceased in SSA’s master death file, they have no Social Security number and thus can’t get a job, open a bank account or get a loan, and pretty much have no financial life in America. The Administration is hoping people in such a position will voluntarily leave the country, never mind that some of them are here legally or that allowing immigrants to work actually strengthens the Social Security system because many of them pay into the system without ever collecting benefits. And heaven help anyone who gets placed in SSA’s death master file by mistake; they must prove to SSA that they are still alive and it can takes weeks to get their financial life back.
SSA’s master death file holds death records for some 83 million people, partly to assist financial institutions, insurance companies, and state and local governments in detecting fraud (they must have a subscription to access the database), and partly to allow survivor benefits to be paid to the spouse and/or children of a deceased number holder listed in the file.
Reporting a death
It is usually not necessary for a surviving spouse to report the death. Deaths are generally reported to SSA by the funeral home. However, if this is not done for some reason, a surviving spouse would need to call SSA at (800) 772-1213 and provide the name, Social Security number, date of birth, and date of death of the decedent.
Decedent’s benefit stops immediately
Once a death is reported, SSA will immediately stop benefits being paid to the decedent. The financial institution will place a hold on any benefits that are direct-deposited after the date of death and will return them to SSA.
To be entitled to a benefit for any given month, a decedent must be alive the entire month. But benefits are paid in arrears, so it’s possible for a decedent (his estate, really) to be entitled to a check that arrives after death. For example, the check deposited in April would be for March. If a decedent died on April 2, and if the check (for March) was deposited in the account on April 16, the estate would be entitled to that payment. Since the bank will likely put a hold on it, the estate would have to reclaim the benefit by filing Form SSA-1724. This form also takes care of any Medicare premiums withheld after the decedent’s date of death.
$255 lump sum death benefit
SSA pays a $255 one-time lump sum death benefit to the surviving spouse of the decedent. If there is no surviving spouse the $255 death benefit is paid to minor or disabled adult children. If there are no spouse or children, it may be paid to a former spouse who is eligible for survivor benefits (i.e., if they were married over ten years or she is caring for the decedent’s child). To claim this benefit the spouse or child would need to call SSA at (800) 772-1213. It cannot be claimed online.
Survivor benefits
Ongoing survivor benefits may be paid to a surviving spouse, any eligible ex-spouses, and any minor or disabled adult children. These benefits can be claimed by calling SSA at (800) 772-1213 and making an appointment with an agent at a local office. They cannot be claimed online.
If the decedent dies before his full retirement age and before he has claimed his own retirement (or disability) benefit, SSA establishes a “death PIA” approximately equal to the amount he would have received if he had continued to work and claim his retirement benefit at his FRA. This death PIA is held in the system and increased by annual COLAs until the surviving spouse is ready to claim it. If she remains unmarried she may claim it as early as age 60; however claiming that early will cause it to be reduced to 71.5% of the full amount.
If the decedent dies after his full retirement age but before he has claimed his benefit, the “original” survivor benefit will equal the amount he would have received if he had claimed as of the month of death, including any delayed credits earned up to the month of death. The “actual” survivor benefit will depend on when the widow claims it and may range from 71.5% to 100% of the amount depending on when, between the ages of 60 and FRA, that she claims it.
If the decedent was receiving benefits at the time of his death, the original survivor benefit will generally equal 100% of his benefit amount. (If he was receiving less than 82.5% of his PIA by virtue of having claimed at age 62, the original survivor benefit will be the special minimum of 82.5% of his PIA.) Again, her actual benefit will depend on when she claims it.
It will be important to coordinate the widow’s own retirement benefit with the survivor benefit, sequencing benefits to maximum advantage—that is, claiming one benefit and switching to the other. See this newsletter and use the Savvy Social Security software to analyze claiming strategies. A widow who remarries after age 60 may claim survivor benefits based on her former husband’s earnings record. If there is more than one deceased former husband, she may choose the highest benefit.
Surviving divorced spouses may also claim survivor benefits if they were married to the decedent over ten years and are currently unmarried (or remarried after age 60). The same switching strategies are available to surviving divorced spouses.
Source: Horsesmouth, LLC
Horsesmouth, LLC is not affiliated with Lane Hipple or any of its affiliates. -
ssa.gov/myaccount: What Clients Need To Know About Opening and Managing Their Social Security Account
Ever since SSA started offering Social Security accounts in 2012, the information and tools that people can access through their individual accounts have grown, making these accounts a very valuable resource for anyone who hopes to collect Social Security someday—in other words, everyone who works or is married to someone who works. And now that SSA is considering implementing certain anti-fraud strategies, it will be more important than ever for people to open and maintain their own Social Security account. This will enable them to verify their identity online and apply for benefits directly through the portal rather than waiting on hold for a telephone representative to take the application or traveling to a field office for an in-person appointment.
Under new anti-fraud measures, anyone applying for benefits or changing their direct-deposit information will need to do it through their Social Security account. If they are unable to do so, they would need to provide the necessary documentation in person at a field office. Now that most field offices are not taking walk-ins, this would require waiting on hold for a representative to make an appointment, and then traveling to the nearest field office to show the required documentation. I have to say that anyone who mistrusts the Internet for the purpose of verifying identity will just have to get over it. This is the way it’s done now, and it really should cut down on fraud compared to relying on human telephone representatives to verify identity.
This latest initiative reaffirms the fact that everyone needs to open a Social Security account at ssa.gov/myaccount.
Benefits of having a Social Security account
In addition to greater ease in verifying identity and applying for benefits, there are additional benefits to having an online Social Security account. By having an account clients can:
Download their latest statement. This, of course, is the first step in doing Savvy scenario planning for your client. They can either download a copy of their statement and send the PDF to you, or they can refer to their benefit estimate and give you the amount they are projected to receive if they file at their full retirement age. This is their PIA, which you will enter into the Savvy Software. The software will adjust for claiming age and COLAs based on the client’s projected filing date.
Use the Retirement Estimator. The benefit estimates shown on the statement presume continued earnings to claiming age. If a client plans to retire before claiming Social Security, the Retirement Estimator will allow them to see what their benefit would be if they were to stop working earlier. The Retirement Estimator taps into their existing earnings record, so all they have to do is enter projected earnings going forward (e.g., $0). Since this tool is accessible only through an individual’s Social Security account, you would not be able to run it for them, but you can help walk them through it. Be sure to have your clients enter a retirement date that corresponds to their FRA, otherwise the tool will assume they want to apply for benefits at 62 and the benefit estimate will incorporate the reduction for early claiming. The Savvy Software needs the FRA estimate and will make any adjustments for early claiming.
Check their earnings record. The statement shows annual earnings but it now batches earlier earnings by decade. By scrolling down to the bottom of the page on the Social Security online account, clients can access their complete year-by-year earnings. If there are any errors or discrepancies, they can contact SSA about correcting their earnings record. New earnings are reported each year, usually between March and October. It’s a good idea for clients to check in each year to make sure their newly reported earnings are correct. SSA gets this information directly from the W-2s that go to the IRS, so errors are rare. But if a client is self-employed, SSA uses net Schedule C income as reported on the client’s tax return. This is where errors sometimes occur, especially if a client gets an extension on their filing date.
Get a benefit verification letter. Clients who are already receiving Social Security can access their full benefit information via their account including the gross amount and any withholdings for Medicare or taxes. If they need to provide income verification for a loan application or other purpose, they can download their latest benefit verification letter showing all the information.
Get 1099s. For clients receiving benefits, each year’s SSA-1099 is posted on their Social Security account going back to 2019.
How to establish a Social Security account
SSA has adopted strict and effective cybersecurity measures for online Social Security accounts, so your clients need not worry about entering their personal information. Once they do it and the account is set up, interacting with SSA will be very easy as many functions such as address and direct-deposit changes can be done online. Once identity is verified, the account will tap into the information SSA has on file for them allowing people to see their personal earnings and benefit information and also update SSA’s records with any changes on their end.
Prior to 2021, setting up a Social Security account was simply a matter of establishing a username and password and answering a number of questions in an attempt to verify identity. SSA had teamed up with the credit reporting agencies to ask questions only clients would know the answer to, such as the street they lived on five years ago and to which bank they send their mortgage payments. This was not ideal, as clients often did not remember previous residences or otherwise were unable to answer the questions. Once the account was set up, clients would access it by entering their username and password—also not ideal because passwords can be stolen. Fraudsters could go in and change direct-deposit information and have their victims’ Social Security checks sent to them.
So SSA has switched to more effective identity verification methods paired with two-factor authentication for logging in. The two credentialing methods are Login.gov and ID.me. Anyone who has previously opened a Social Security account with a username and password can still access their account for the time being, but this login method will soon be retired, so everyone is encouraged to switch over to one of the other methods before that happens.
The main method for logging in is now Login.gov. Some clients may already have ID.me accounts for other government uses; if so, they can keep them and use them for their Social Security account. Anyone outside the U.S. would use ID.me. But most people will be starting from scratch with Login.gov, which is a U.S. government sign-in service that provides a simple, secure, and private way for the public to access government websites. Supported web browsers are Google Chrome, Microsoft Edge, and Apple Safari. Before starting, clients should make sure they have the latest version of their browser; if they have any technical difficulties signing up, clearing their cache and cookies may resolve the problem. Here are instructions for clearing cache and cookies for Chrome, Edge, and Safari.
Related: SSA Sign-In Process to Change Soon
To start, clients can refer to Login.gov instructions. They’ll need to enter their email address, wait for a verification link, and then create a username and create a strong password. In addition, they’ll need to set up a second layer of security such as face or touch unlock, an authentication application such as Google Authenticator or 1Password, or a physical security key. However, the easiest two-factor authentication method (which I use but which SSA says is not the most secure) is to simply have a code sent to your telephone via text message.
Once the Login.gov account is set up, SSA does require a photo ID to verify identity. Clients can simply take a picture of their driver’s license or passport and upload it to the site.
Most clients should have no trouble creating their Social Security account. It takes a little bit of time initially, but will save time in the long run and is very secure. Make this part of your checklist for all clients regardless of age.
Source: Horsesmouth, LLC
Horsesmouth, LLC is not affiliated with Lane Hipple or any of its affiliates.