Can You Answer These Three Retirement Questions?
“Countless questions arise as you're planning for retirement. How much do you need to save? Could you be saving more? When do you plan to retire? Can you actually retire at that age and live comfortably?”
Retirement planning can be downright exhausting and overwhelming. As Motley Fool’s recent article, “Don't Even Think About Retiring Until You Can Answer These 3 Questions” explains, this can also frequently result in people just avoiding these questions and hoping that all their retirement concerns will simply work themselves out.
Can you believe that just 38% of Americans say they have a long-term financial plan, according to a recent survey? There are plenty of questions to be asking yourself before you retire, but there are three that can significantly decide if you're actually ready to say goodbye to working. Let’s look at these three important planning questions.
When to claim Social Security. Many people think that retirement and claiming Social Security benefits occur at the same time. However, they don't have to. You could elect to retire at age 60, but wait to claim your benefits until you reach 65. Remember that the amount of money you get in benefits, is linked to the age at which you start claiming them. Age 62 is the earliest you can claim Social Security. However, if you do, your benefits will be reduced by up to 30% of what they could be. For every month you wait, you'll receive slightly more with each check up to age 70. Your full retirement age (FRA) is the age when you’ll get 100% of the benefits to which you’re entitled. Waiting can have its advantages, but there's no single right answer for when you should start claiming. It all depends on your personal circumstances.
Will your retirement savings last? Take a look at how far your savings will last during retirement. To determine how far your money will go, calculate the amount you'll need each year to get by during retirement. With a number in mind, you'll be able to better determine how long your current savings will last. You might realize that you need more than you anticipated, especially if you're going to be spending several decades in retirement.
Paying for healthcare costs. Healthcare costs are one of the largest expenses in retirement. Know that the average retiree spends about $4,300 per year on out-of-pocket healthcare expenses. A total of two-thirds of that is spent on premiums. It’s important to understand that Medicare will help cover many healthcare expenses you'll face, but it doesn't cover everything.
It's hard to know the perfect time to retire, and you may never be 100% certain that the time is right. That’s all right if you've thought it through and can answer these important questions you'll face during your retirement journey.
Reference: Motley Fool (October 9, 2018) “Don't Even Think About Retiring Until You Can Answer These 3 Questions”
Is a Trust the Right Solution for Me?
However, frequently families wind up becoming unhappy with their trusts because it’s the wrong solution, according to a recent article from Forbes, “Why You Might Need To Fix Your Family Trusts.”
There are several reasons why this happens. They include:
- Poor Set-up. The trust wasn’t created properly, and the lawyer drafting the trust didn’t truly understand the wishes of the family;
- Poor Writing. The language in the trust is inappropriate or too vague, which can cause issues; and
- Poor Planning. The trust isn’t viable anymore because situations change, and the document wasn’t created in a way to adapt to a shifting environment.
The law is constantly changing. As a result, there are new legal strategies and structures that are better for some situations than a trust. An experienced trust attorney should be consulted about all of the options for your situation.
For any family, there’s bound to be specific reasons why they need to fix their trusts.
Most problems, however, can be categorized in three areas:
- The trust doesn’t have provisions to provide necessary distributions to family members;
- The governance structure or rules of the trust may not provide for effective management or sufficient oversight; and
- The trust is tax inefficient.
When any of these situations occurs, there are ways to make sure the trusts work along with the needs and wants of the family. A trust that has any of these issues won’t be effective. The trust must be fixed or replaced to achieve the family’s goals.
It’s wise to periodically review trusts to be certain that they’re satisfying the intended objectives and taking advantage of all of the possible benefits. A trust attorney may be able to make some adjustments that are significantly advantageous to the family.
If a family has questions about the efficacy of their trusts, they should review them with an experienced estate planning attorney. It’s important to examine the trust with a sound understanding of the needs, desires and preferences of the family.
Reference: Forbes (October 17, 2018) “Why You Might Need To Fix Your Family Trusts”
Will My College Savings Be Counted as an Asset for Medicaid?
Whether your college savings can be counted as asset for Medicaid, depends on several factors:
- What type of account you used to set aside the college money;
- How and when you funded the account; and
- Whether you still have access to the money.
If you can liquidate an account and get to the money that you deposited, Medicaid will typically expect you to do so to fund your own care for as long as possible.
A recent nj.com article asks, “Will my college savings be counted for Medicaid?” The short answer? Yes. Medicaid will also always penalize gifts. Odds are good that the funds you added to these college accounts are gifts.
However, there may be an exception: if the account was funded prior to the 60-month lookback period, the applicant can’t be penalized for making a gift.
Why is this important? If the money was put into a 529 plan, the funds aren’t part of the donor's taxable estate, and the assets aren’t includible. However, if the funds are invested in an account “ITF” (“in trust for”) a grandchild, then the funds would be includible. It its calculations, Medicaid examines all assets in the name of the applicant. Assets held in 529 plans—although the donor's name may be shown as the participant—are deemed to be a gift, when the assets are transferred and, therefore, are no longer the donor's asset.
To be safe, grandparents who set up 529 plans for their grandkids should change the participant to the grandchild's parent or guardian. This entirely disconnects the donor's name with the account.
If the grandparent just added a grandchild's name on one of his savings accounts, then that would be includable. This is true even if it were completed more than 60 months earlier, because it wouldn’t be deemed to be a completed gift.
Reference: nj.com (September 19, 2018) “Will my college savings be counted for Medicaid?”
It Looks Like Brad Pitt Has Done His Estate Planning
Wealth Advisor’s recent article, “Even Brad Pitt Has Prepared A Will (And A Post-Divorce Trust),” reports that 54-year-old Brad Pitt has decided to make a will and leave all his millions to his children. It appears that this high-paid actor wants to shield his fortune from his ex-wife Angelina Jolie, as they battle through their divorce. The money is going to be divided equally between his children, Maddox, Zahara, Shiloh, Pax, Knox and Vivienne.
A source, who’s a family friend commented, “Brad’s intent is that any money he doesn’t have to give Angie in a divorce settlement and for child support is well-protected. He’s setting up a firewall that is specifically intended to keep her hands off his cash.”
Jolie and her estranged husband Pitt are going through a lengthy divorce and custody battle. A judge recently expressed displeasure with Jolie, for keeping their children from their father.
The family friend continued: “Brad has a ton of money in the bank. Now, while he’s still got all his faculties, he wants to take steps to make sure his children get it, and it’s protected from their mother.”
It’s reported that Pitt’s millions will be put in a trust for Maddox, Zahara, Shiloh, Pax, Knox and Vivienne. Jolie won’t be able to reach those funds, even after Brad’s passed away.
“Brad has seen how spiteful Angie can be during this divorce,” the friend says. “It’s taught him not to trust her—especially with his money!”
According to Entertainment Tonight, Jolie has been working behind the scenes to rectify the situation with Pitt.
The publication reported that Pitt and Jolie set up a secret meeting at her house. This was the first time they had met to sincerely attempt to make things work, since their group therapy with the children.
Apparently, Brad and Angie’s meeting was successful, and they’re going to stick to the plan ordered by the judge in their divorce proceedings.
The family friend explained: “Angelina decided it was time to try to make things work and Brad was relieved and very ready for the offer. Brad has been dedicated to making peace throughout the process, and now it finally seems like they are at a point, where they can create a calmer situation for the kids.”
Reference: The Wealth Advisor (September 28, 218) “Even Brad Pitt Has Prepared A Will (And A Post-Divorce Trust)”
What Do I Do If I Think the Executor Isn’t Acting in the Best Interests of the Beneficiaries?
Blog last updated on June 21, 2021
Sometimes, when someone is named as the executor of a deceased person's estate, they think that role gives them free rein. In truth, the executor acts as a fiduciary, which means they have a legal obligation to act in the interests of the beneficiaries and in accordance with the intentions of the decedent. In other words, being named as an executor means you have a duty to serve in that role honorably, ethically, and in accordance with the law, to the best of your abilities.
The same rules apply when someone is appointed as the trustee of a trust established by the decedent.
Executors are responsible for notifying all beneficiaries and creditors of a will being probated. They must also perform a complete inventory and accounting of the estate. They are allowed to charge a small fee as compensation for the time and effort they have dedicated as an estate administrator, but there is a specific limit to what they are allowed to charge (see NJRS 3B:18-14).
If a fiduciary appointed in any capacity is failing in their duties, they can be compelled by the Surrogate Court to account for their actions (see New Jersey Court Rule 4:87-1(b)). Unfortunately, there are strict time limits to when such actions can be taken, and there may be a limit to what the courts can do to enforce good faith behaviors. The best course of action is to request an accounting of the estate as soon as possible (no later than one year after the appointment of the fiduciary) and to work with a New Jersey probate lawyer to look further into what's going on.
Van Dyck Law is available for consultations and assistance with matters of probate, inheritance, and fiduciary oversight. Call us today at 609.580.1044 or contact us online to discuss your case confidentially and risk-free.
Executors and Trustees Have to Provide Notice and an Accounting
The probate process begins no sooner than 10 days after the death of the decedent. The process starts by naming an executor for the estate. The executor could be designated by the will, but the court has to approve of the designation in any event. If there is no named executor or no one willing to serve as executor who has been named, the court will appoint someone deemed appropriate for the role.
Once probate has begun, the executor has a legal duty to notify all beneficiaries and provide a copy of the will as requested. They must respond to any contests to the will, as well. Anyone with a valid reason to do so can file a Caveat (or other action) within a set time frame. That time frame is four months for individuals living in New Jersey and six months for anyone living outside the state.
As part of the probate process, the executor is expected to assemble a complete accounting and inventory of all estate assets. This accounting is available upon request to all beneficiaries as well as creditors and other interested parties.
Likewise, a trustee is required to keep beneficiaries reasonably informed about the administration of the trust and the information necessary for the beneficiaries to protect their interests. The trustee must promptly respond to the beneficiary's request for information on the administration of a trust. If a fiduciary willfully neglects or refuses to render an accounting or breaches her fiduciary duties, you can ask the court to remove her as the executor or trustee.
New Jersey adopted the Uniform Trust Code (UTC) in 2016, which also means that trustees must keep beneficiaries reasonably informed about any administrative actions or material facts relevant to the beneficiaries' interests.
Taking Action Against an Executor or Trustee Acting in Bad Faith
Individuals appointed as an executor and/or trustee don't always act the way they should. They may purposefully take steps to sabotage the intentions of the will or the trust. This is especially common when the primary beneficiaries are siblings and one sibling, for whatever reason, feels entitled to a larger portion of the estate than others.
In the event a beneficiary or other interested party (with legal standing) suspects misbehavior, they can file a request compelling the executor or trustee to account for the estate's finances and all of their actions since probate began.
Any valid grounds for alleging misconduct and damages can be turned into a complaint, such as a breach of trust, allowing the affected party to seek restitution — as well as legal fees. The court may also order that the trustee/executor be removed, per the UTC.
Note that these actions must take place within six months of the required accounting being disclosed (or refused).
Act Quickly to Protect Your Interests Against an Unscrupulous Executor
Not all of us are as moral — or as self-aware — as the average person. Some individuals placed in charge of an estate or a trust will do everything they can to take advantage of the situation. They may even convince themselves that their actions are justified, both legally and morally.
The truth is that the courts can test whether someone has acted in the interests of the beneficiaries and the estate/trust as a whole. If their actions are deemed improper, they may be ordered to restore the value of assets that should have gone to the intended beneficiary.
However, time is of the essence! You must act quickly once probate has begun or the alleged misconduct has been discovered. Reach out to experienced probate attorneys in New Jersey to learn about your rights and to get to the bottom of what an executor has been doing with your loved one's estate.
Schedule a confidential, risk-free case review with no obligation when you call 609.580.1044 or contact us online.
The Realities of Dementia and Estate Planning
“I have read about the progression of dementia. I have talked about it and I have observed it in other families. My purpose today to emphasize to you that living through it is a whole other ballgame."
A compelling article from Financial Advisor, “The Limits of Financial and Estate Planning for Dementia,” provides a combination of personal experience with the estate and financial planning that is so critical, when dementia strikes a beloved family member.
The father was an extremely intelligent man, with a master’s degree in engineering and an MBA from a prestigious business school. When diagnosed with dementia, he and family members moved quickly to ensure that the correct documents were in place, working with a trusted estate planning attorney. The family’s plan worked well, as his father was able to be active for the early stages of the disease and never injured himself or anyone else.
The elderly, and especially those with dementia, are very vulnerable. They can make poor decisions and are targets of scam artists. There were attempts to scam this gentleman, but the damage was minimal, because there was good planning and good execution of the plan, as well as safeguards.
The man’s wife used the power of attorney to get the bank to maintain strict controls over their funds. There were offers of new credit cards, personal loans and home equity loans coming from the family’s bank. She was able to stop those offers from entering the house.
As his disease progressed and he spent late nights watching infomercials and surfing the net, things started to arrive at the house that were not needed. Limits were put on his credit card. He was removed as a co-trustee for the family’s living trust. The trust document simply required two doctors to remove him as a trustee, so he could not access brokerage accounts, write checks or do any online banking.
His living will was a huge help, when he entered hospice care. When a sibling from out of town arrived, she was outraged to hear that he was not being fed. At that point, he was expected to live only a few days, and that had been his request, which was documented in the living will. After reading it, she understood that this was his wish, and a potential problem was averted.
It wasn’t all neat and tidy. The bank process took time and there was a struggle over the power of attorney, as is commonly encountered. The POA is an important document and banks preferred, as do many institutions, to have their own forms done. Some of the doctors were not as respectful of his wishes, and some were hesitant about putting in writing a recommendation that he no longer drive.
However, despite the difficulties, three things got this family through their father’s journey. The legal documents were in place, the family was nearby and able to help out and there were friends and others who gave tremendous emotional support.
Don’t wait until a diagnosis of Alzheimer’s or dementia to start preparing the correct documents. An experienced estate planning attorney will be able to prepare you and your family for any eventuality.
Reference: Financial Advisor (September 25, 2018) “The Limits of Financial and Estate Planning for Dementia”
Do You Believe These Life Insurance Myths?
Investopedia’s recent article entitled “Top 10 Life Insurance Myths” looks at the top 10 misconceptions about life insurance. Hopefully, this information will answer some questions, dispel some incorrect notions and make the process of getting coverage a little easily.
- “I'm single with no dependents, so I don't need coverage.” Well, even single people need at least enough life insurance to cover the costs of personal debts, medical expenses and funeral bills. If you’re uninsured, you may leave a rash of unpaid expenses for your family or executor to deal with. It can also be a terrific way for low-income singles to leave a legacy to a favorite charity.
- “My coverage just needs to be twice my annual salary.” The amount of life insurance you need is based on your specific situation, due to the myriad factors to consider. You may need to pay off debts, like a mortgage, and provide for your family for several years.
- “I have term life insurance coverage at work, so I’m good.” That depends. If you’re single with modest means, your employer-paid or -provided term coverage may do it. However, if you have a spouse and/or children or you’re confident you’ll need coverage when you pass away to pay estate taxes, more coverage may be required.
- “I heard that the cost of my premiums is deductible.” In most cases, that is not true. The cost of personal life insurance is never deductible, unless the policyholder is self-employed, and the coverage is used as asset protection for the business owner. In that case, the premiums are deductible on Schedule C of Form 1040.
- “I gotta have life insurance at any cost.” That’s probably accurate for most of us. However, those who have sizable assets and no debt or dependents may be better off self-insuring. If you have your medical and funeral costs covered, life insurance coverage may be optional.
- “I should buy term and invest the difference.” Not necessarily. There are some distinct differences between term life and permanent life insurance—and the cost of term life coverage can become prohibitively high in later years. Therefore, if you know for certain that you have to be covered at death, look at permanent coverage. The total premium cost for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy. There’s also the risk of non-insurability. That could be disastrous for those who may have estate tax issues and need life insurance to pay them. This can be avoided with permanent coverage, because this policy becomes paid up after a certain amount of premium has been paid and remains in force until death.
- “Variable universal life policies are always better than straight universal life policies over the long haul.” Many universal policies pay competitive interest rates, and variable universal life (VUL) policies have several layers of fees for both the insurance and securities parts of the policy. Therefore, if the variable sub-accounts within the policy don’t perform well, a variable policyholder may realize a lower cash value than a person with a straight universal life policy. Poor market performance can generate substantial cash calls inside variable policies that mean additional premiums must be paid to keep the policy in effect.
- “It’s just the primary breadwinners who need life insurance coverage.” Not so. Think of the cost of replacing the services that have been provided by a deceased homemaker. They’re higher than you think. Insuring against the loss of a homemaker may make sense, especially when it comes to the expenses of cleaning and daycare.
- “I always should buy the Return-of-Premium (ROP) rider on any term policy.” Well, there are typically various levels of return-of-premium (ROP) riders available for policies that offer this. Many financial experts say that it’s not cost-effective and should be avoided. The decision will depend on your risk tolerance and other possible investment objectives. A cash flow analysis will tell, if you might come out ahead by investing the additional amount of the rider elsewhere, instead of including it in the policy.
- “I'm better off investing my money than buying any kind of life insurance.” Until you reach the breakeven point of asset accumulation, you need life insurance coverage of some sort (except for those who can self-insure). When you have $1 million of liquid assets, you can think about discontinuing or decreasing your million-dollar policy. However, you take a big risk when you depend solely on your investments in the early years of your life, particularly if you have dependents. If you die without coverage for them, there may be no other way to provide for them after the depletion of your current assets.
This hopefully clears up some of the common misunderstandings about life insurance. Don’t leave life insurance out of your budget, unless you have enough assets to cover your expenses after you're gone.
Reference: Investopedia (July 2, 2018) “Top 10 Life Insurance Myths”
Build Your Retirement Confidence
A big part of the stress of retirement are all of the unknowns. There are still certain things you can do that will give you more confidence about your retirement, and help you make good decisions that are based on information, not hopes and dreams or fears. The Motley Fool has some suggestions in the article “3 Ways to Approach Retirement More Confidently.”
Start with a budget. The chances are that you don’t know how much money you spend every month. You’re working, money comes in and it goes out. However, if you know how much money you are spending, and what you are spending it on, you’ll be able to have a handle on how much money you’ll need for retirement. You’ll also be able to see where your discretionary dollars are going and make a conscious decision, as to whether or not those are dollars that should be going into long-term savings for your retirement.
Remember that while some expenses may go down—like commuting—others will stay the same. You won’t be going to the office every day, but you will want to enjoy yourself. What will your leisure and entertainment activities be, and how much will they cost? How will you handle health care costs? You should also remember that there will be quarterly taxes to be paid.
The more information you can pull together about your spending, savings and unavoidable costs, like taxes and health care, the better you’ll be able to plan for this next phase of your life.
How much income will your retirement accounts provide? We tend to focus on how much we need to save, but we should really focus on how much income our retirement savings will generate. How much will your IRA or 401(k) provide on a monthly basis?
Let’s say you’ve saved $500,000 in time for retirement. If you use an annual 4% withdrawal rate, which is the going rule these days, you’ll only have $20,000 a year generated for annual income. If you add Social Security to that amount, you may find that it’s not enough to enjoy the lifestyle you’ve anticipated for retirement. You may find that part-time employment can fill the gap, or you may need to work for a few more years.
Be smart about Social Security. Despite your years of saving, you will likely come to rely on Social Security to pay some of your bills. The smarter you are about your filing strategy, the better positioned you’ll be to maximize your Social Security benefits. If you wait until your Full Retirement Age, you’ll get the full monthly benefit you’re entitled to. If you can hold off claiming your benefits until age 70, you’ll max out as the monthly benefits increase every year you delay claiming.
Heading into retirement can be unnerving, as you move into new areas of financial management. Work with your estate planning attorney, who can give you guidance as you move into this new phase of life.
Reference: The Motley Fool (September 23, 2018) “3 Ways to Approach Retirement More Confidently.”
What Happens If I Don’t Have a Will?
With all the tributes and remembrances for Aretha Franklin over the past month, you may have heard that the Queen of Soul didn’t have a will. What does that mean for the star’s finances, her homes, and her music? Mic’s recent article entitled “How to write a will — and what happens when you die without one” explains that without a will, a deceased person’s family is left to wonder about their intentions, their emotions and their connections. Having a will is also an act of love for those you leave behind.
Everyone should set out their wishes in a will, so that no one is left guessing or with questions after the person dies. A will directs your executor what to do with your property, and you can name a guardian for your minor children. If you don’t have a will, your friends and family who are already in mourning, may be placed in a state of added grief or confusion. These issues and hard feelings have been known to go on for years. You can eliminate these troubles by drafting a simple will.
If an individual dies without a will, there are laws in every state that will dictate what will happen to his or her assets and property. Each state has these laws of intestacy, which are triggered for anyone who dies without a will. The typical line of distribution is based on your legal status. If you’re…
- Married with no kids, or with kids who are the children of both spouses, all the assets will go to your spouse;
- Married with children, a percentage (it’s different in every state) goes to your spouse, and the rest to your children if the children are not of both spouses.
- Single with kids, they get everything;
- Single with no children, your assets pass to your parents.
- Single with no children and no parents, then your assets go to your siblings; and
- Then down the line to nieces and nephews, cousins, etc.
In Aretha Franklin’s situation, since she wasn’t married but had four sons, it’s likely her assets will be divided among them.
In addition to drafting a will, another way to automatically distribute assets upon death is through a living trust. A trust will avoid the delay and hassle of the probate process, which is required under a will, and all the transfers can be done privately, without any court involvement. (Wills are public records, so anyone can pry into the details.)
Speak with an experienced estate planning attorney soon to help your family by putting your final wishes in writing. Ask your attorney if a will or trust is the better choice… it will depend on your specific situation. Get going now!
Reference: Mic (August 31, 2018) “How to write a will — and what happens when you die without one”
When It’s Time to Have the Talk with Aging Parents
It’s a good idea to talk with your parents on a regular basis about their wishes for the future, so that everyone can get comfortable with the conversation and the topics, says Next Avenue in the article “How to Have Difficult Conversations With Your Aging Parents.” You’ll all avoid a fair amount of stress and guesswork, if you can have these open and frank conversations.
Here are the conversations you need to have:
The Money Talk. What’s their financial situation? Do they have enough to pay their bills right now? What if they live another ten or twenty years? Do they have a will? Do you know where the will is, and the name of the estate planning attorney who created it? Do they have powers of attorney for finances in place?
The Health Talk. Medical issues that you’ve heard about but aren’t fully informed about need to be clarified. What medications do they take, and is there a list posted on the refrigerator, or located somewhere you can get to it, in the event of an emergency? Have they properly documented a power of attorney for healthcare?
The Aging Talk. Do they plan on aging at home, or are they considering moving to a continuing care facility? What senior living options should they consider, if and when they can’t live on their own anymore?
The End of Life Talk. This is the hardest one, but it is hard for everyone. If they should have a terminal illness, what do they want to happen? Do they have a medical directive, or a living will? How do they feel about extreme measures being taken to sustain life, if they are incapacitated?
The Family Legacy Talk. This is a warmer, happier conversation. What do they want the family to remember about them, and how can you work together to assemble the things that will help accomplish this? Are there family recipes, photo books, treasured heirlooms, videos or jewelry they want to pass along? Are there stories they want to share?
Note that these are not one-time conversations, but processes. Everyone will respond differently, and some parents may need more time to reflect and consider their answers than others. Your parents will need to be ready to have these conversations with you. Some conversations may touch on a raw memory and have to stop, to resume at a later point.
Depending on your parents’ personalities, you may want to speak with them together, if they are both living, or individually. One might be more comfortable discussing certain matters without the other present.
Take notes of the conversation. You’ll be able to review the notes with them if need be and share that information with siblings and family members. You can also see what’s left out. Your notes are not a legally binding document, but they can help when their wills are created or revised.
Speak with an estate planning attorney as part of this process. Estate planning attorneys are fluent in the issues of aging and will be able to discuss sensitive matters with your parents and you, bringing up issues you may not have considered. Choose an Estate Planning attorney who has the ability to create a true long term care plan, and has a person designated to assist families through this process as their loved one ages and their needs change.
Reference: Next Avenue (September 21, 2018) “How to Have Difficult Conversations With Your Aging Parents”