Plan-2372176__340 (1)“What happens after you leave this world and pass on into the next one, whatever that may be? That depends on you! I’m not talking about what happens to your remains or whether or not there is an afterlife. I’m talking about what happens right here on earth after you depart.”

You should care about this, Forbes says, in its recent article, “What Will Really Happen After You Depart?”

No, not just because it’s the right thing to do and not just because you’re curious. It’s because you want your family to remember you for the awesome legacy you plan on leaving, not because of the horrible hot mess you left behind that they spent three years trying to figure it out, while trying to live their lives.

Estate organization is not the exact same thing as estate planning. An experienced estate attorney or elder law attorney can help you draft your will, your advance directive, your power(s) of attorney and a trust, if you need it. Your attorney most likely also has a copy of those documents.

However, the attorney has no power over what you do with your original estate planning documents, once you leave their office.

One idea is to develop a guidebook or “game plan” for your family and loved ones, while you’re alive. It’s known that there’s a strong correlation between how we face death and prepare our families—and their ability to survive, adjust and start the recovery process. Organizing your estate has been called a “gift of love” that goes far beyond when you can be around to take care of your family.

Answer these questions to start the estate organizing process:

  • Does a family member know where to find your advance directive, if you end up in the hospital?
  • Where are your legal documents and who in your family knows where to find them?
  • Who has access to your bank accounts and knows your login data?
  • Are you now caring for someone? Who’d assume that responsibility, if you’re unable to do so?
  • Have you made final arrangements for your death, funeral and burial or cremation?
  • Who knows about the plans and where the paperwork is located?
  • Where are your insurance documents, and who knows where to find them?
  • Who’ll take care of your pets, when you are no longer able?

Lastly, keep in mind that creating the plans and organizing documents is only half of the task. You also need to communicate. The more you’re able to communicate your wishes and what you have organized to your family, the more love you’re showing them while you’re around to enjoy each other. They will also be better prepared to grieve in a good way, embrace your memory and move on with their lives.

Reference: Forbes (September 13, 2018) “What Will Really Happen After You Depart?”

Will“Of course, you know you should have a will. Then why do so many people procrastinate on getting a will?”

There’s news of a celebrity dying without a will nearly every month.

Merrill Lynch and the consulting firm Age Wave found from their recent survey that about 50% of study participants age 50 and older didn’t have a will.

The Minneapolis Star Tribune’s recent article, “How to get started on making a will,” reported that many people don’t care to talk with close family members about important financial topics, like their level of financial security, plans for living arrangements in retirement, inheritance or long-term care.

The Merrill Lynch/Age Wave report, “Family & Retirement: The Elephant in the Room,” explains that some of this is due to time constraints and that people say they’ll do it eventually.

However, it’s easy to get started. You can draft an ethical will, also known as a values statement or letter. Do this in the next few weeks or month. The thought is to capture for your immediate family, as well as your grandchildren and great grandchildren, what you want them to know about your values, what mattered to you in life, what traditions you hold dear and how you’d like the world to become a better place.

Creating an ethical will begins with a family conversation. Once you begin recording your values and discussing them with your family, it’s a short hop to discussions about your estate plan.

A great benefit of starting the dialog with an ethical will, is that there’s less pressure on the family and more time to become comfortable with the topic.

These discussions will lead you to finally meet with an estate planning lawyer to write your will.

In addition to creating your estate plan, you’ll want to arrange your finances, so you can age comfortably, draft a durable power of attorney, in case you become incapacitated and write an advanced health directive.

These details will come out of those initial discussions about values, and not the other way around.

Reference: Minneapolis Star Tribune (September 8, 2018) “How to get started on making a will”

Directory-1334441__340“Delaying Social Security to full retirement age or later could cost you tens of thousands of dollars, maybe even more, in unnecessary taxes, if you live on your retirement savings while you wait.”

Many people overlook one of the most important parts of retirement planning. That’s the huge amount of taxes they may have to pay on their Social Security benefits. Kiplinger’s recent article, “Why Wealthy People May Want to Take Social Security at 62,” reminds us that Social Security rules of thumb aren’t perfect.

There are many good reasons to wait and take Social Security at full retirement age to get the full benefit amount. In waiting longer to file, the benefit can grow 8% a year from full retirement age to age 70. However, this one-size-fits-all advice may not be appropriate for everyone, especially for the wealthy.

The issue is that everyone wants to up their benefits on the front end. However, if there is no plan to boost those dollars on the back end, by keeping more of your Social Security dollars for yourself instead paying taxes, it’s not worth it. For many seniors, by the time they see they’re going to be giving up to 20% to 30% of their Social Security away in taxes, it’s too late.

Of course, conventional wisdom says that, if possible, you should wait and claim bigger Social Security benefits at age 70. That’s something high earners in many instances can do, but there are an increasing number of couples who’d be better off filing at age 62, and using that income to preserve and build their nest egg.

Look at this example: say that a husband was retiring at age 62. Without his regular paycheck, he and his wife were both about to find themselves in the lowest tax bracket they had been in since their first jobs: the 10% bracket. The question for them, like many Americans, is whether to tap into their IRA and 401(k) in retirement. These are typically the most significant accounts in terms of amounts saved through the working years. If this couple didn’t start Social Security at age 62, they’d need to withdraw heavily from pretax retirement accounts. Based on the monthly distribution rate needed to maintain their budget, those dollars (which are taxed at current income tax rates) would immediately place them into a higher tax bracket (perhaps the 22% bracket under 2018 tax rates).

However, if they take their Social Security payments at age 62, the monthly distribution amounts needed from their retirement savings accounts would be much less. This couple doesn’t want to drain their retirement accounts early in retirement, because it can mean lost opportunities for compounded growth of assets over a 20-to-30-year retirement. If the couple were to take their Social Security at age 62—while in a 10% tax bracket from age 62 to 70—the amount of tax they’d pay on those Social Security benefits would be minimal, maybe even zero.

Social Security is a complex topic, so speak with an estate planning attorney who can help make sure that your Social Security strategy aligns with your estate plan.

Reference: Kiplinger (September 7, 2018) “Why Wealthy People May Want to Take Social Security at 62”

Life insurance“You need life insurance, if your death would hurt anyone financially. For many people, one policy is enough.  However, for some, two or more make sense. Your needs should drive the number and type of policies you buy.”

Nerd Wallet’s recent article asks, “Can You Have More Than One Life Insurance Policy?” So, just how many can you buy?

The article explains that you can own several policies from different companies. However, when you apply, insurance companies will inquire about your existing coverage to make certain that the amount you want is reasonable.

It’s not uncommon to purchase a lot of coverage without any problems. An insurance agent will usually ask why you need a great amount of coverage, if the total coverage would exceed 20 to 30 times your income.

A frequent need to purchase life insurance coverage is to replace income in the event that the main income-earner passes away prematurely. The answer to this is term life insurance. This policy will cover you for a certain period, like 10, 20, or 30 years. Hopefully, when the term expires, you won’t require that life insurance, because your debts are paid, and you’ve finished raising your family.

Rather than purchasing one large policy, you could get multiple policies of different lengths and amounts to match your family’s needs over time. As an example, instead of getting a single 30-year $1 million policy, you could buy three policies: a 10-year for $500,000; a 20-year, $300,000 policy, and a 30-year, $200,000 policy. This type of “laddering” strategy can save money, and it can work, if coverage needs decrease. This way, you can predict them accurately. At least, that’s the theory.

Note: if you decide to buy just a single policy and discover later that you don’t need as much life insurance coverage, most carriers will let you lower the coverage and pay less.

There are also other reasons to buy coverage, besides replacing income. These can include small-business owner needs, long-term care and estate planning.

Talk to an experienced estate planning attorney about how life insurance can fit in your plans.

Reference: Nerd Wallet (September 17, 2018) “Can You Have More Than One Life Insurance Policy?”

Empty-pocket-1-1536707“The National Institute for Retirement Security examines the retirement account balances, or lack thereof, for all working-age individuals.”

Can you believe that the “typical working American” doesn’t have any retirement savings? That’s according to a new report from the National Institute on Retirement Security.

Think Advisor’s recent article, “Most Americans Have $0 Saved for Retirement: NIRS” says that, using U.S. Census Bureau data, the report looked at median retirement account balances for those age 21 to 64. The report revealed that nearly 60% of all working-age individuals don’t have assets in a retirement account. That’s based on the Census Bureau’s Survey of Income and Program Participation data from the year 2014.

With 59.3% of people not owning a retirement account, a worker in the middle of the overall workforce would have a goose egg in retirement savings. The National Institute on Retirement Security report found that nearly about three-quarters of workers in the 21-to-34 age bracket, over half of those ages 35 to 44, half ages 45 to 54, and also about half in the 55-to-64 age range don’t have a retirement account.

The report included in its definition of retirement accounts employer-sponsored plans like 401(k)s, 403(b)s, 457(b)s, SEP IRAs and Simple IRAs, as well as private retirement accounts—such as traditional and Roth IRAs. In the report’s analysis, an individual was deemed to own a retirement account, if her total retirement account assets were more than zero. There’s a significant gap between older and younger folks in retirement account ownership, and the report found that that this gap is much wider across income groups.

“Individuals with retirement accounts have a higher median income of $51,024, compared to $17,004 among individuals without retirement accounts—three times as large,” the report states.

The research also showed that the median account balances were insufficient, even among individuals with retirement accounts. In fact, for those approaching retirement (age 55 to 64) with retirement accounts, the average balance was $88,000. The report suggested this amount would only provide a “few hundred dollars per month in income if the full account balance is annuitized, or if an individual follows the traditionally recommended strategy of withdrawing 4% of the account balance per year (this amounts to less than $300 per month).”

In addition, the report found that 22% of working individuals age 21 to 64 with retirement savings had saved less than a year’s income. Among working individuals closest to retirement (age 55 to 64), just 17% of those with retirement savings saved this amount. That’s not many. Given these standards, early retirees would need to save retirement assets, equal to 14 times their salary at age 62. The savings target of 10 times income at age 67, is designed to enable income payments to last until a person is 93.

Reference: Think Advisor (September 18, 2018) “Most Americans Have $0 Saved for Retirement: NIRS”

Home-1221234“What’s the difference between property tax base and cost basis? When inheriting a home, understanding this is critical.”

A California law allows parents to transfer homes to their children, without a property tax reassessment. This creates some confusion on the difference between property tax base and cost basis, says the San Francisco Chronicle in its recent article, “Taxes on a home can be confusing: Here’s how to keep them straight.”

If parents transfer their home to a child, the child can keep the current assessed value and annual property tax. The transfer can be either while the parents are living or in their will. If the transfer is an inheritance, and the child keeps the low property tax base, the child will still receive the stepped-up basis and avoid a substantial capital gain, when the home is eventually sold.

In other words, if parents give their home to their child as an inheritance, can the child have both the continued low property tax and the stepped-up basis? Yes, provided the property is transferred at the parent’s death. If it’s transferred while the parent is still alive, the child will receive the property tax break. However, he or she will not get the step-up in basis, which is a huge tax break for highly appreciated homes.

People frequently confuse “property tax base” and “cost basis,” and property taxes with income taxes. They’re entirely separate systems. Property taxes are governed by state law. Cost basis, capital gains and the step-up in basis are part of the income tax system.

Under the income tax system, the cost basis in your home (if you’ve never rented it out) is generally what you paid for it, plus the cost of major improvements. If you sell your home for more than its cost basis, the profit is taxed as a capital gain. If you’ve used the home as your primary residence for at least two of the past five years ending on the sale date, the first $250,000 in capital gains, or $500,000 for married couples, is tax free. If you retain your home until death, your heirs could receive an even greater capital gains tax break.

When you pass away with appreciated assets, including a home, their cost basis is “stepped up” to the market value on your date of death. Your heirs inherit the assets with their new, stepped-up cost basis. This will eliminate any taxes on the appreciation that happened in your lifetime. If your heirs sold these assets immediately, they’d owe little or no capital gains tax.

Unlike the property tax break, this capital gains tax break is only for inherited property. If you give your home to a child while you’re still alive, the child takes over your cost basis and loses the stepped-up basis. In addition, if you give your child all or part of the home while you’re alive, you’ll have to file a gift-tax return for the value that exceeds the annual gift tax exclusion. Although you probably won’t owe gift tax on the home’s value, it will be subtracted from your combined lifetime gift and estate tax exemption, which is $11.18 million for any person who dies in 2018, or $22.36 million for a couple.

Reference: San Francisco Chronicle (September 1, 2018) “Taxes on a home can be confusing: Here’s how to keep them straight”

Million-buck-cheque-1-1240470“One report estimates that one in 10 seniors have suffered financial abuse.”

You probably know that we’re more susceptible to making bad decisions as we get older and our brain ages. Recent studies show that highly intelligent retirees (even those with no signs of dementia) find it more difficult to distinguish safe investments from risky ones. The probability of dementia rises with age: only 7% of over 60-year-olds have dementia, while nearly 30% of those 85 or older suffer from it.

If you’re a senior or you have one in your life, it’s critical to know how to prevent abuse. The Kansas City Star provides some helpful ways to prevent abuse in its recent article, “Five ways to avoid elder financial abuse.”

Communication. Speak with your elderly loved ones on a regular basis to check in on their health and their activities. Remind them to maintain safe practices, like shredding receipts and account statements. You should also remind them to be cautious about opening unknown emails and that they should never give out their Social Security number or banking information online or on the phone. Keep open communication, so you can see if they’re showing any signs of confusion or mental decline.

Stay attentive. Know how your loved ones are spending time and their money. If they hire outside help, try to be involved in the hiring process and try to know their health care aides. In addition, take a look at their monthly or quarterly statements to identify any unusual, frequent, or large payments. If your loved one is showing signs of decline, ask if you can pay bills for them, so you’ll know what’s going on.

Create a system of checks and balances. Make sure that your senior has the proper estate planning documents in place that will let trusted family members help them as needed. If you have siblings or other family members, divide responsibilities and then swap responsibilities every few months.

Build professional relationships. Ask your senior to let you come to meetings with them, when visiting advisers like their estate planning attorney.

Streamline accounts. Conduct an inventory of their financial documents. This includes their life insurance and long-term care policies, bank accounts and investment accounts. Try to make your loved one’s finances more manageable and consolidate their accounts where possible, which will make it easier to spot any unusual withdrawals or transactions.

Despite taking these and other steps, financial fraud and elder abuse may happen in your family. Seek help from law enforcement and talk to an experienced elder law attorney.

Reference: The Kansas City Star (September 8, 2018) “Five ways to avoid elder financial abuse”

Church-1442139“A new survey conducted by LifeWay Research for the Southern Baptist Foundation found more than half of Southern Baptist pastors, overall, do not have a will, trust, living will, electronic will, legacy story or durable power of attorney with health care directives.”

The Baptist Press reports in its recent article, “Young or old, many pastors lack a will, survey finds,” that 74% of the pastors surveyed think estate planning should be considered part of a person's complete financial stewardship.

However, executives at LifeWay Research say the survey shows a lack of awareness about estate planning and the laws which may be factors in pastors not having a plan in place. Procrastinating is common, but failing to have an estate plan in place can have a devastating impact on an estate.

Of course, basic estate planning saves a lot of trouble for family and loved ones. However, in addition, taxes can be minimized and assets protected.

According to the survey, pastors age 18-44 are the least likely to have a will (31%) or a durable power of attorney with health care directives (14%). Only about half of those pastors closest to retirement (age 55-64 and 65-plus) have a will (54% for both groups). Likewise, few of those closest to retirement (age 55-64 and 65-plus) have a health care durable power of attorney (25% for both groups).

It’s a bit of a surprise that so many pastors don’t have a plan for their families and property after their death, especially those that should be most likely to be thinking about this issue—the ones with young families. They seem to be the least prepared.

About 64% of the clergy surveyed, agree with a statement that the court decides who will care for a child, if the last parent dies without a will; 16% percent disagree, with 21% saying they didn’t know. When asked about assets, the survey showed that 48% of pastors said that if someone dies without a will, their family decides what happens with the assets of the deceased; 33% disagree, and 19% "don't know."

However, both with property and children, the court decides what happens to them, if there’s no will.

These estate planning questions were part of a mail and online survey of pastors conducted between April and June 2018. The mailing list was randomly drawn from a list of all Southern Baptist churches and included more than 1,100 completed surveys.

Reference: Baptist Press (August 31, 2018) “Young or old, many pastors lack a will, survey finds”

Usa-map-1172863“According to a caring.com survey, only 42 percent of U.S. adults have estate planning documents, including a will.”

Like many Americans, Aretha Franklin failed to draft a will. More than 58% of us are in the same boat: no will or estate planning documents, leaving our families and heirs in peril. The Chicago Tribune’s recent article, “Don't leave a mess for your heirs” reports that, what’s even more troubling, is the fact that for those with children under the age of 18, just 36% have an end-of-life plan in place.

Many of those who haven’t done any estate planning, say they just haven't gotten around to it. That’s understandable, but it’s important that you conquer your anxieties associated with this emotional subject and take control.

For Aretha Franklin's estate, Michigan (her state of residence) will decide who will get what. The local probate court will oversee everything from property, retirement accounts and the residuals that flow from her music catalog. It’s possible that her assets will be split among her four children. However, as many parents know, some kids are more prepared to manage financial distributions than others—a big reason why estate planning is so important.

If you have property you want to go to specific individuals, you should create a document with instructions as to who gets what.

Some people think that because they don't have a high net worth, they don’t need to worry about such things. However, estate planning isn’t just about money—anyone with young children should have a will, because a will names the guardians of minor children. You want to be certain that you, and not the courts, designate your children’s guardians.

When you’re ready to start or revisit the planning process, talk to a qualified estate attorney (yes, pay for a lawyer and don’t do it yourself), here are the basic documents to consider:

  • Will: A document that makes certain your assets are passed to designated beneficiaries in accordance with your instructions. The will designates an executor, who will oversee the distribution of your assets. If you have minor children, you must name a guardian for them.
  • Letter of Instruction: This may include the appointment of someone who will ensure the proper disposition of your remains. That can be important, if you’re choosing a method that’s contrary to your family's traditions.
  • Power of Attorney: This gives a person you select the authority to act as your agent, in certain circumstances.
  • Health Care Proxy: This gives a person you select, the power to make health care decisions on your behalf, if you lose the ability to do so.
  • Trusts: Revocable (changeable) or irrevocable (not-changeable) trusts may be useful, depending on family and tax situations. You need an experienced trust attorney to help you decide, if this is a sound strategy and to properly prepare the documents.

Reference: Chicago Tribune (August 30, 2018) “Don't leave a mess for your heirs”

Dependent-441408__340Independence is important for seniors. No one wants to give that up, until it’s absolutely a necessity. However, could a situation arise where a person has been appointed to be your guardian and no one told you about it? What if that happened in another state? Perhaps a niece wants to “help,” but she’s halfway across the country.

nj.com’s recent article, “Worried someone may want to be your guardian? Here's what you need to know,” first explains how guardianships work.

Guardians are appointed by a judge, for both minors and incapacitated individuals. An application is required to be made to the court in the state and county, where the minor or alleged incapacitated person lives or where his or her property is located. In either situation, once the minor becomes 18, she receives the property. If the incapacitated person returns to full or partial competency, the court (upon application) may restore that person’s rights, which would dismiss or limit the guardianship.

A guardianship can be of the person. This type is limited to making medical or similar decisions on the incapacitated person’s behalf.  A guardianship concerning the person's property is another option. A guardianship can also be limited. This means that the guardian is appointed to only make certain decisions, like financial ones. A guardianship can also be plenary, which means the guardian can be appointed to address all issues.

When a guardian of an individual's property is appointed, the property is usually re-titled into the name of the guardian for the benefit of the incapacitated individual. This gives third parties notice of the guardianship.

In New Jersey, prior to an individual being appointed as the guardian of an alleged incapacitated person, that person has to be given notice of the proceedings. That person is also appointed an attorney by the court to advocate for them or to report to the court on their situation. Therefore, in the questions raised above, a senior would be given notice and legal representation. The niece in another state couldn’t petition for a guardianship behind her aunt’s back.

The records of these types of proceedings aren’t open to the public, because of the confidential information in them, like certifications from physicians on the physical and mental condition of the alleged incapacitated person.

However, information on the name of the guardian for the incapacitated person should be available, so creditors and other third parties can know who to rely on, when providing services to the incapacitated person.

Reference: nj.com (August 24, 2018) “Worried someone may want to be your guardian? Here's what you need to know”

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