To-do List for 2019 Should Include These Documents

Don’t wait until you are under pressure, to create these safeguards.

If you don’t have documents that protect you, your family and your assets, you should consider doing yourself a favor and putting them on your list to accomplish in 2019, according to Fox Business in “3 financial documents everyone needs”

A Will. The essential function of a will is to ensure that your wishes are carried out, when you are no longer alive. It’s not just for rich people. Everyone should have a will. It can include everything from your financial assets to life insurance, family heirlooms, artwork and any real estate property.

A will can also be used to protect your business, provide for charities and ensure lifelong care for your pets.

If you have children, a will is especially important. Your will is used to name a guardian for your minor children. Otherwise, the state will decide who should rear your children.

Your will is also used to name your executor. That is the person who has the legal responsibility for making sure your financial obligations are honored. Without an executor, the state will appoint a person to handle those tasks.

A Trust. This one isn’t mentioned by Fox Business, but if you live here in California and own your home (even if there is still a mortgage on it), you need a revocable living trust. This is because in California, our probate process, which is the court administration of the estate of someone who doesn’t have a trust, is very lengthy, time-consuming, and expensive.

An Advanced Medical Directive. What would happen if you became ill or injured and could not make medical decisions for yourself? An advanced medical directive and health care proxy are the documents you need to assign the people you want to make decisions on your behalf. The advanced medical directive, also called a living will, explains your wishes for care. The healthcare proxy appoints a person to make healthcare decisions for you. As long as you have legal capacity, these documents aren’t used, but once they are needed, you and your family will be glad they are in place.

A Durable Power of Attorney. This document is used to name someone who will make financial decisions, if you are not able to do so. Be careful to name a person you trust implicitly to make good decisions on your behalf. That may be a family member, an adult child or an attorney.

Once you’ve had these documents prepared as part of your estate plan, you’re not done. These documents need to be reviewed and updated every now and then. Life changes, laws change, and what was a great tax strategy at one point may not be effective, if there’s a change to the law. Your estate planning attorney will help create and update your estate plan.

Reference: Fox Business (Dec. 19, 2018) “3 financial documents everyone needs”

Seconds to Leave Your Home? What Do You Take?

A “go-bag” can protect your family, until you can head home again.

With the recent wildfires affecting Ventura County, you never know when an emergency will arise that causes the evacuation of your home. If that should happen, do you have a “go-bag” that will protect your family until life returns to normal. If not, then you should have, according to The Union in “The most important ‘go bag’ item for emergencies is only 2 inches long.”

A “go-bag” protects your family with credit cards, cash, flashlights, flares, batteries, warm clothes, prescriptions and other necessities, is just one part of being prepared. That’s your “financial go bag.” It won’t feed you or keep you warm, but it will save you countless hours and headaches, when life returns to normal.

Here’s what you need to know:

  1. Gather all your important documents. That means your driver’s license, passport, birth certificate, social security card and Medicare card. If you own your home, you should include deeds to property and titles to cars, as well as insurance policy summaries for home, auto, medical, long term care, life, or umbrella policies. Include statements for checking, savings, investments, debt accounts with account numbers and federal and state tax returns from the last three years. Add estate planning documents (if you’re a client of ours, simply grab the USB drive we provide with instead of the physical documents themselves – much easier!). If you have a pet, include their license information, chip ID and vaccine records. If there is an 800 number for a service that can track your pet, make sure to include that.
  2. Create a physical list of important phone numbers and addresses for family members, professionals including your estate planning attorney, CPA, financial advisor, dentist, doctors and emergency contacts. Print it out and put it in your go bag. If you don’t have any power, your list on the phone will not be accessible.
  3. Create a video inventory of your home, including the contents of dressers, drawers, cupboards, collections. Don’t forget the garage and outdoor landscaping.
  4. Scan all this information and store it on two thumb drives (also known as memory sticks). Protect the information by using an encryption method to secure it in case it gets lost.
  5. Put one of these thumb drives into your safe deposit box and another in your go bag. Even a fireproof safe won’t survive a massive wildfire, so don’t put it in a safe in or under your house. Put the go bag somewhere near an exit point, where it blends in and is secure.
  6. Tell your family and closest friends that you have a financial go bag and where it can be found.

Reference: The Union (Dec. 23, 2018) “The most important ‘go bag’ item for emergencies is only 2 inches long”

How Do You Fill Void When Caregiver Role Ends?

What happens to the caregiver, when your loved one is gone?

Providing care for another adult can be difficult, because the caregiver often puts their life on hold.  They may find themselves facing a new challenge later, according to the AARP Bulletin in “What Happens When Caregiving Ends?”

The article concerns a 65-year old woman, who devoted two years of full-time caretaking for her mother. When her mother died, she was left with the process of grieving and a big void in her life.

When their duties as caregivers end, it takes a while to adjust. Some say it takes from six months to a year to start feeling like themselves again. Here are some lessons learned from caregivers:

Stay busy and don’t let yourself become isolated. If you loved to travel before becoming a caregiver, return to that passion. You can travel with friends, or colleagues—best to go with friends. Others find comfort in passions like writing, which can be soothing after years of coping with constant emergencies.

Expect unexpected emotions. Caregiving is an emotional process as well as a mental and physical one. A range of emotions, from sadness and grief to anger and frustration, often emerge when your daily existence includes free time. There’s also a lot of guilt, which is very normal. Years, months or weeks of not sleeping, giving up your own interests and enjoyment in life, can lead to frustration. Then, when the person dies, you feel terribly guilty about the relief you may feel.

Don’t expect the strong and often conflicting feelings to go away overnight. It often takes years for people to work through all of the emotions surrounding the loss of a loved one. That is especially true, if they were the primary caregiver. We tend to think in terms of one-year anniversaries, but for many people the first year is wrapped up on settling estates, distributing possessions and dealing with the business end of someone’s life. In the second year, when those tasks are done, or less time-consuming, the emotions can start flooding in. You might expect yourself to be “over it,” but you can’t force yourself to recover. It takes a very long time.

Delay any big decisions. If you’ve been putting off big decisions until after caregiving ends, give yourself permission to continue to delay them. You’re still in a fragile state and need to move slowly. Selling a house, getting a divorce or remarrying is best done when you are healed. Patience is not easy, especially when you want to make a fresh start, or move away from a home with painful memories. However, going slowly will provide you with time to heal, and to gain perspective that will allow for better decisions.

Give yourself permission to move on. When the time is right, you’ll be ready to move on.

Reference: AARP Bulletin (November 2018) “What Happens When Caregiving Ends”

Can Bankruptcy have an Impact on Your IRA?

Protection varies, according to state law.

IRAs are protected from bankruptcy. However, there are some limitations you should guard against, according to The Balance in “What is IRA Bankruptcy Protection?”

President George W. Bush signed bankruptcy protection into law in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA). This new law insulated retirement accounts from creditors, by providing that contributions to various retirement plans were excluded from the property of the estate. This was the first time that protection for individual retirement accounts existed.

Today, IRA bankruptcy protection includes all the retirement accounts: traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs and rollover IRAs. Protection is limited by the amount, which increases on a regular basis.

Here’s a look at the IRA bankruptcy protection from BAPCA:

Traditional IRAs and Roth IRAs: The most recent adjustment was in 2016, when the protection limit was increased to $1,283,025.

SEP IRAs and SIMPLE IRAs: These IRAs receive the same protection limits as traditional and Roth IRAs. They are used by self-employed people and small businesses.

Rollover IRAs: These are traditional and Roth IRAs that were funded by rollover transfers from an employer-sponsored retirement plan, like a traditional 401(k) or a Roth 401(k).

Inherited IRAs, also called Beneficiary IRAs: The Supreme Court determined in Clark v. Rameker that the above protections do NOT apply to inherited IRA’s. If protection of the IRA’s you leave your loved ones is a concern, an experienced estate planning attorney can help.

These protections are considered to be high enough to cover most American’s IRA accounts. There are some assets that are not protected. Some examples include general creditors, IRS levies and divorce.

General Creditors: There’s no federal protection for IRA owners, and the protection from general creditors varies by state law. In California, that protection is minimal.

IRA Assets and IRS Levy: If you owe past taxes to the IRS, they can levy your pay and your IRA. They’ll generally go after other assets first, but if necessary, your IRA is fair game.

IRA Assets and Divorce: What happens to your IRA in a divorce, depends upon a court order and other assets that are held. If IRA assets are divided, taxes can be avoided. According to the “incident to divorce” rules in the tax code, IRA assets can be transferred and split between spouses without taxation within one year of the formal divorce date. This is one where you want a skilled CPA and family law attorney on your side, so the tax liability is minimized.

What about 401(k)’s? Good news, under ERISA, the federal law governing 401(k)’s, these accounts are protected in both bankruptcy and from lawsuits without limitation, unlike IRA’s.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, as well as advise you on protecting your IRA assets.

Reference: The Balance (Dec. 12, 2018) “What is IRA Bankruptcy Protection?”

The Majority of Elderly End Up Needing Long-Term Care

Not having a long-term care plan, can put your family at financial risk.

A government report estimates a vast majority of those over 65 will end up needing long-term care. However, many people do not have plans to meet the expenditures, according to Westfair Online in “Keybank poll reveals clients aren’t planning for long term care.”

A U.S. Department of Health and Human Services report found that people age 65 and older have a very good chance—70%—of needing long-term care. Despite this, most people do not have plans in place.

This is true for people with assets exceeding $1 million and for people with more modest assets. In a study by Keybank, fewer than a quarter of high net-worth clients had plans in place for long-term care. This poses real financial risks, to the individuals and their families.

Consider the costs of long-term health care. One study from Genworth Financial reports that in 2017, the national median cost of a home health aide was roughly $49,000 a year, assisted living facilities could cost $45,000 (that’s not including medical services), and a private room in a nursing home came close to $100,000 annually. Here in California, costs are often higher.

Why don’t people plan ahead for long-term care? Perhaps they think they will never become ill, which is not the case. They may think their health insurance will cover all the cost, which is rarely the case.  They may believe that Medicare will cover everything, which is also not true.

Everyone’s hope is that they are able to be at home during a long illness, or during their last illness. However, that’s often not a choice we get. This is a topic that families should discuss well in advance of any illness. Talking with family about potential end-of-life care and decisions is important for setting expectations, delegating responsibilities and avoiding unpleasant surprises.

The other part of a long-term care discussion with family members needs to be about estate plans and decisions about the disposition of assets. Everyone should have an estate plan, and all information including deeds, trusts, bank and investment accounts and digital assets should be discussed with the family. You’ll also need a power of attorney and advance healthcare directive to carry out your wishes. An experienced estate planning attorney can help create an estate plan and facilitate discussions with family members.

Reference: Westfair Online (Sep. 7, 2018) “Keybank poll reveals clients aren’t planning for long term care”

Saving for College Education? Trusts, 529 Accounts or Both?

You have options, when it comes to saving for those tuition bills.

What is the best way for one generation to save for the next generation to be funded for a college education? There are a number of ways to accomplish it, according to Penta in the article “There’s A Better Way to Fund a College Education.”

In the article, the matriarch of a New England family decided to give up the tax benefits of 529 College Savings Accounts and go with a trust. However, the the best method depends on the family and the circumstances.

The reason the matriarch made the trust decision was to have more flexibility. The 529 account limits how much can be invested, where the money can be invested and how the assets must be used. A trust provides far more options.

However, these two options—the 529 and the trust—can be used in a combination that offers the best of both worlds. Let’s look at them both.

The 529 plan is great for tax-deferred asset growth. Funds can be taken out tax-free, as long as they are used for qualified educational expenses. As a result of changes to the law from the recent tax reform, you can use 529 funds for qualified educational expenses for elementary, middle, and high school tuition. For families sending their kids to private schools, this was a great change.

Investment options for 529 accounts are mutual funds or pre-designed portfolios that become more conservative, as the beneficiary gets closer to attending college. Investment caps are generally about $300,000 for the entire life of the plan, as opposed to annually.

If the funds are used for expenses that are not qualified, like buying a car for a student who will be living off campus and needs a car to get to and from school, there will be a 10% penalty on earnings and taxes to be paid.

A trust offers far more flexibility for all concerned. If the money is not completely used for education, the trustees might wish to give the child money for a down payment on a home, or to start up a business. The rules are set by the person creating the trust. You can even require the student to maintain a certain grade point average. The owner of the trust also determines who will pay taxes on the appreciated assets in the trust—the owner of the trust, the trust itself, or the beneficiaries.

Another tactic is to use the annual gift-tax exclusion to fund a 529 plan and put the balance of the money dedicated to a child’s college fund into a trust.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include funding a college education.

Reference: Penta (September 2018) “There’s A Better Way to Fund a College Education”

Banks Have New Weapon in Fight Against Elder Financial Abuse

Early signs of the loss of a customer’s mental agility may be recognized by banking personnel.

New federal legislation gives banks and financial institutions new tools to join in the efforts to halt the ever-growing problem of elder financial abuse, according to The Wall Street Journal in “Banks Monitor Older Customers for Cognitive Decline”?

Financial elder abuse is on the rise. The Securities and Exchange Commission released a report this spring that says as many as 6.6% of elderly Americans had undergone financial exploitation in the last year.

Banking personnel see some of the early signs of cognitive decline, such as when a customer begins missing payments, sending duplicate checks, bouncing checks because of confusion over balances, or sending money to unrelated people. Does the bank have a legal, ethical and/or moral obligation to alert family members?

Until recently, financial institutions operated on the assumption that there were privacy issues that precluded them from informing anyone about these kinds of suspicions. The only questionable transactions that were reported, concerned possible illegal activities. Should they contact the local Adult Protective Services agency, or another social service agency?

A new federal regulation was signed into law this past spring that protects financial institutions from litigation if they report concerns about elder financial abuse to government agencies, although there is no requirement that such reporting take place.

Some experts would like to see financial institutions go further and share their concerns with each other. This is commonly done when commercial fraud is suspected, through a department of the U.S. Treasury.

Reporting on a client’s behavior is a grey area, but some companies are enhancing their ability to identify problems. The use of Artificial Intelligence (AI) allows banks to monitor and analyze massive amounts of data that may reveal cognitive declines. In addition to relying on AI, institutions are training staff members to watch for behavior markers that may indicate decline or fraud. It helps if the banks have contact information for other family members, which can happen if the customers will permit family members to access their accounts.

Reference: The Wall Street Journal (Nov. 20, 2018) “Banks Monitor Older Customers for Cognitive Decline”

Hold Accounts Jointly with Your Child? Give It Careful Consideration

Joint accounts can sometimes be a problem for your estate.

Making all of your accounts as Transfer on Death (TOD) or Payable on Death (POD) sounds like a simple solution in avoiding probate. However, sometimes it can become a complex problem, according to The Mercury in “Planning Ahead: Joint Accounts and Transfer on Death can torpedo an estate plan.”

In some states, probate is a complex and expensive problem. California is one of those states, having arguably the worst probate process in the country. Many people use TOD or POD designations to avoid probate, but don’t realize they’re creating additional problems, even though they’ve managed to skip probate.

Sometimes joint titling and payable on death does work, especially in families where there is only one child or one heir. This can be a good solution, if the POD or joint account owner is your spouse.

However, here is where things get dicey. Let’s say your spouse passes away, and you name one of your children as the joint or payable on death for all accounts. Let’s say you also do that on your real estate properties and other assets and accounts.

How your accounts are titled overrides anything that your will or trust says. If your will or trust directs that all your assets be distributed in equal shares to your children, but your one child has become the legal owner of your assets when you die, you have created the perfect estate litigation storm.

On your death, the adult child becomes the owner, and has no legal obligation to share any of those assets with his or her siblings.

To take the example further, if the child dies shortly after you, then the assets go to his or her spouse. If his or her spouse is not living, then all your assets go to the estate, and not to their siblings as you had intended.

This can also be a huge problem for blended families where there are step children involved. Leaving everything to your spouse might cause your children to be left out entirely from your estate.

Another issue that is not resolved through titling is the ability for the estate to pay expenses. If son John becomes the owner of all your assets, who is going to pay for any taxes, funeral expenses and other costs associated with settling an estate?

When it comes to real estate, things get even trickier. Imagine that you’ve added your son and daughter-in-law as joint tenants to your house, because you want to make sure the house doesn’t go through probate. Now, a few years later, your son and daughter-in-law are getting a divorce. She’s on the deed for your house, so all of a sudden your house becomes involved in their divorce proceeding!

A smarter move than taking a simple piece of advice and trying to apply it to a complex matter: make an appointment with an experienced estate planning attorney and create a plan for how you would like your assets to be distributed upon your death. Plan for expenses that occur, like funeral expenses and taxes. You can now rest easy, knowing that you’ve just spared your family the divisiveness and stress that can occur from well-intentioned but inappropriate advice.

Reference: The Mercury (Dec. 4, 2018) “Planning Ahead: Joint Accounts and Transfer on Death can torpedo an estate plan”

What Do You Really Know about Social Security Benefits?

It is your future and your money. Learn everything you can about the program.

Social Security is an entitlement and you have worked long and hard for it. It would be best to take the time to investigate what you will receive and when it would be best to take it, according to the AARP Bulletin in “12 Top Things to Know About Social Security.”

It’s not going bankrupt. The Social Security trust funds are near an all-time high, says AARP’s legislative policy director. However, it does have long-term financial challenges. For decades, the agency collected more than it paid out. The extra money was invested in Treasury securities. Today, the trust fund’s value is worth about $2.89 trillion. However, demographics come into play: boomers are retiring and the ratio of people retiring versus those in the workforce is changing. The program will continue, but benefits may decrease.

Congress is not likely to address reform soon. Partisan politics make it unlikely that there will be any efforts to engage the long-term funding issues facing Social Security. To make significant changes that will have a lasting effort, will require bipartisan support.

Some reform ideas are starting to form. There are a few proposals floating around, including one that proposes either raising or eliminating the wage cap on how much income is subject to the Social Security payroll tax. Another is to raise the age for full retirement benefits.

Washington cannot take funds from the trust fund for other uses. Any money remaining after benefits and expenses are paid is invested into U.S. Treasury securities. If money is used, it must be paid back with interest. Congress determines how much can be spent on administrative costs, and there have been much-needed increases recently.

Yes, it could be better administered. The Social Security Administration is a massive organization, with more than 60,000 employees and 1,200 offices nationwide. The rapidly escalating number of retirees has presented challenges for the agency, which has been underfunded for some time.

Your Social Security benefits may be taxed. If you have retirement income in addition to Social Security, you may need to pay federal taxes. Thirteen states also tax Social Security benefits. For many people, that is a critical part of their retirement income planning.

Social Security was never meant to be a national retirement fund for everyone. The program was designed to protect the elderly and the ill from dire poverty. It will only replace about 40% of your pre-retirement income.

Its purchasing power is shrinking. Cost of Living Adjustments (COLAs) are based on a formula that does not account for the increasing medical costs faced by seniors. These costs are rising faster than others, and the COLA just doesn’t keep up.

Working and collecting benefits—yes, you can. If you are younger than your full retirement age and your paycheck exceeds a certain limit, a portion of your benefit may be withheld. However, you’ll eventually receive this money, when you hit full retirement age. If you wait until full retirement age to start drawing Social Security, you can work as much as you want, and benefits will not be reduced.

Social Security is keeping up with the times. Payments are made electronically, there’s an online portal and people are encouraged to use the website to set up their accounts. This precludes checks being stolen in the mail, or seniors being targeted by thieves, when they cash their checks.

It’s not just about retirement. Social Security includes four benefits: disability, retirement, dependent and survivors. However, don’t count on receiving more than one type of benefit at a time. You should, however, ask about other programs for which you may be eligible. If the family breadwinner dies, you may be eligible for survivor or dependent benefits.

Here’s a nice surprise. Studies have shown that most people receive more in benefits than they pay into the program. Married couples are more likely to get more than they contributed than single people, and low- and high-income people generally receive more dollars from the program over their lifetime than the amount they contributed.

Reference: AARP Bulletin (Nov. 2018) “12 Top Things to Know About Social Security”

New Year Is a Good Time to Consider Estate Planning

An estate planning resolution can be beneficial to everyone.

There are many possible New Year’s resolutions. However, a good one to consider may well be creating an estate plan or taking a fresh look at your current plan, according to the Grand Rapids Business Journal in “Incorporate estate planning into New Year’s resolutions,”

Resolving to address your estate plan and wealth administration in the coming year, will be a big help to you and your family. It’s easy to become overwhelmed—how many accounts do I have? Who is the named beneficiary? Who will administer my estate? To make it easier, use this checklist:

Revisit your estate plan. Have you looked at your estate plan in light of the 2018 tax law changes? Have you updated your beneficiary names on any accounts? Do you have contingent beneficiaries named?

Develop or update your will or trust and don’t forget to sign it. If you pass without a will or trust, the laws of your state will determine how your property is distributed, and the court will assign a guardian to your minor children. Better—have your will and trust created or update it. Not having a will and/or trust may increase your family’s tax liabilities, not to mention the legal disputes or challenges that result when there is no estate plan in place. Don’t forget to finalize the document with your signature. Yes, that really does happen, and it leads to unnecessary problems.

Revise your charitable giving. Instead of annual charitable giving that may no longer be deductible under the new tax laws, consider donating a larger sum to a donor-advised fund. This lets you receive an immediate charitable deduction and distribute funds to carefully vetted charities over time. This also lets your money grow tax-free before it is donated.

Check on your insurance coverage: Just as your life changes and your estate plan changes, your insurance needs change also. Make sure there are no gaps in your coverage and that there’s enough liquidity to pay taxes, satisfy any buy/sell agreements and provide enough money to support any survivors. If you have young children, have you included their college educations in your insurance portfolio?

Business succession plan review. Business owners who pour their heart and soul into their businesses hate to think about succession planning, and as a result many do nothing, leaving partners, family members, and clients in a bad position. What would happen to the business, if something unexpected occurred to you? Does your retirement plan center on the sale of your business? It usually takes a long time to create a business plan, and then it needs to be reviewed on a regular basis to ensure that it still works for all involved.

Make an appointment with your estate planning attorney. An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances or take a fresh look at an old plan.

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