Capital District - NY Estate & Elder Law

Set Social Security Aside when Planning Retirement

There are many, many variables when determining Social Security benefits, so it is probably best to plan for your retirement and leave it as an unknown factor, according to The Motley Fool in “Want a Solid Financial Plan for Retirement? Take Social Security Out of the Equation.”

Let’s start with the variables. When will you file? If you wait until your full retirement age, that will be different than if circumstances force you to file earlier. Will your spouse file first? Who has the larger income? You’ll need to look at who files first and when. And then? You’ll still have some unknowns.

Does Social Security have an iffy future? Despite the rumors that are floating around, Social Security is not going bankrupt. The program’s primary funding source is payroll taxes, so as long as there is a workforce, there will be benefits.  However, there are more workers leaving the workforce now than there are entering it, so the program may soon need to tap trust funds to keep up with obligations in the face of insufficient revenue.

There may be reductions in benefits. They could be as much, say some experts, as 21%. That would be a big hit for any household’s income.

If you know your Social Security history, you’ll know that Social Security was never designed to be a general retirement source. It was to help the aging and destitute. The goal for Social Security today is to replace about 40% of the average worker’s pre-retirement income. Most seniors need double that amount to keep up with expenses, so relying solely on Social Security is a bad idea.

If you really want to have enough money to support yourself in retirement, don’t bank so heavily on Social Security. Instead, save aggressively to build a nest egg that’s secure enough, so you don’t have to worry about what the government has in store for the future.

If you are under 50 and working, you can contribute up to $18,500 per year to a 401(k) and $5,500 to an IRA. Over 50? Make the most of a catch-up contribution that elevates these limits to $24,500 to a 401(k) and $6,500 to an IRA.

Even if you can’t max out your annual contribution, just setting aside an amount every month will give you a better chance for a healthy nest egg and enjoyable retirement.

There’s nothing wrong with assuming you’ll have some income from Social Security. However, if you don’t base your retirement income on it, then your Social Security money can be a buffer against unexpected expenses or a little extra breathing room in your budget.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, including retirement planning.

Reference: The Motley Fool (Aug. 22, 2018) “Want a Solid Financial Plan for Retirement? Take Social Security Out of the Equation”

 

 

Retirees Can Continue Support for Charities

 

A recent study, which took a close look at American households and support for nonprofits, found differences in giving among genders as well as marital status, according to CBS News’ Moneywatch in “How to fund your charitable giving in retirement.”

The study from the Women’s Philanthropy Institute (WPI) determined that married couples and single women tend to maintain the same level of charitable giving after retirement. Single men reduce their giving, as they leave the workplace.

The report also found that single and married women are not confident about their financial health during retirement and both groups are concerned about not outliving their savings. Since women tend to live longer than men, it is not an unfounded fear.

Can retirees continue to be generous to nonprofits they care about, without putting their retirement funds at risk? The answer is yes, but it must be done mindfully.

First, don’t think of your retirement savings as a giant pot of potential donations.

Consider, instead, that your retirement savings are a portfolio that must generate regular income. An important part of your retirement portfolio should be the monthly “retirement paychecks” that need to last a lifetime. Your portfolio should be structured in such a way that the funds will generate income, regardless of the stock market’s performance. You can then supplement these paychecks with monthly or annual “retirement bonuses” that will also last for life but may fluctuate depending on market performance.

Once your portfolio and your deaccumulation plan is in place, then you can pay for charitable giving with money from either the paychecks or “bonuses,” depending on your situation. Plan for charitable giving, so that you are not digging a financial hole.

Another planning method: if you are 70½ or older, you can make a “qualified charitable distribution” directly from your traditional IRA. The distribution won’t be included in your taxable income and in effect is deducted from your taxable income. The distribution can also be used as your Required Minimum Distribution (RMD).

Qualified charitable distributions have some limitations. They are limited to $100,000 per year and they cannot come from Roth IRA or 401(k) plans. If you have large 401(k) plan and want to use some of that money for charitable giving, you’ll have to roll those over to an IRA platform that does allow funds to be donated to charity.

The WPI report also mentioned that single women and married couples are more likely than single men to volunteer their time in retirement. There is significant proof that volunteering at any age creates emotional and social benefits, while helping the community.

Planning for retirement should include an estate plan and a giving plan that includes giving your time as well as money. If you don’t already volunteer, now would be a good time to identify charitable groups that have meaning for you.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include continuation of charitable contributions.

Reference: CBS News Moneywatch (Aug. 22, 2018) “How to fund your charitable giving in retirement”

 

 

Long Life? Expect Some Challenges along the Way

 

The life expectancy for Americans is getting longer and longer, with the concept that the longer you live the more likely you’ll have an even longer life span, according to Kiplinger, in “Are You Ready for Longevity? 4 Steps to Take Now.” 

Given the happy fact that you should expect to live a long time, what can you do to protect yourself and your family? Here are four steps:

Have a plan for long-term plan. For a married couple, it’s likely that one of the two will end up in a nursing home. Plan for how you’ll manage to pay for that, long before you’ll need it. If you can purchase a long-term care insurance policy, while you are still healthy enough to qualify, you won’t need to use up all the household’s money to pay for the care. Long-term care insurance usually pays for both skilled nursing home care and in-home health care aides.

Traditional long-term care policies can be expensive. However, insurance companies have created hybrid policies that combine long-term care benefits with life insurance. If you don’t use the long-term benefits, your loved ones receive the life insurance proceeds upon your death. That takes a way the worry that you will pay premiums and get nothing back.

Plan for incapacity. You’ll need to have a medical advance directive, including a health care proxy and health care powers of attorney, so you can name another person to make your decisions when you are no longer able to do so. Do not assume that because you are married, your spouse will be legally able to make those decisions.

If you become incompetent and don’t have a medical advance directive in place, your family will need to go to court to get legal authority to make those decisions. This is a guardianship proceeding, which is expensive, time-consuming and stressful.

The same holds true for financial decisions. You’ll want a power of attorney, so someone else can sign on your behalf and access your accounts. This should be a trusted individual who will look out for you and your family.

If you die and assets are solely in your name, your family will need to go to court before they can access any of your assets. This is a process known as probate. If you have an estate plan in place, your plan should include having some accounts that are POD or Payable on Death, so your loved ones are not left without assets. Your estate planning attorney will recommend the right planning tools, so that your family is protected.

Finally, do your tax planning as part of your estate plan. You likely won’t be paying federal estate tax.  However, there is a good chance that your state has an estate tax or an inheritance tax.

Reference: Kiplinger (August 13, 2018) “Are You Ready for Longevity? 4 Steps to Take Now”

 

Roth IRA Conversion Is Popular but Not for Everyone

 

Americans have moved more than $75 million, since Congress approved the partial or full IRA conversion to a Roth IRA.  However, while it is popular, it doesn’t always work out for the best, according to The Wall Street Journal in “When to Ignore the Crowd and Shun a Roth IRA.”

Retirement funds that go into a Roth get tax-free growth and tax-free withdrawals, minus any required payouts based on age, which is a sticking point for IRA owners.

A traditional IRA grows tax free, but withdrawals are taxed as ordinary income. Those pesky Required Minimum Distributions (RMDs) are also a permanent fixture, even if you don’t need the money.

However, Roth conversions come at a cost. You’ll have to pay a tax to transfer your money from the traditional IRA to the Roth and you may lose valuable tax deferral, without gaining more valuable tax-free benefits.

This is a deadline to bear in mind: after tax year 2018, you won’t be allowed to undo a Roth conversion.

What are some further reasons to take a pass on the IRA Roth conversion train?

Your tax rate is probably going down. If your tax rate is going to be lower when you take withdrawals, the transfer will cost more. If you are going to convert, do so in a low tax-rate year when income takes a dive. For instance, if you are in your 20s and have an IRA and return to school, or if you’ve retired but aren’t yet taking IRA RMDs.

The same goes for someone who is about to move to a state where taxes are lower.

Where is the money coming from to pay the tax bill for the conversion? If you don’t have the money to pay the tax bill and plan on using money from the IRA to pay it, you’re using assets that could otherwise grow tax free.

Converting to an IRA raises your income level for that year. Therefore, benefits that exist at a lower income tax level might lose value as your income takes a leap. Tax breaks for college or other deductions could be lost.

If you make frequent donations to charity, you can use your traditional IRA’s RMD to donate to charity. The donation can count toward your required payout, up to $100,000 per year from your IRA. You can’t do that with a Roth.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a Roth IRA conversion.

Reference: The Wall Street Journal (Aug. 17, 2018) “When to Ignore the Crowd and Shun a Roth IRA”

 

 

Have Young Children? Estate Plan Is a Priority

 

 

 

Many young families with small children do not have estate planning at the top of their list. However, it really should be a top priority, according to The Daily Sentinel’s in “What is missing from your estate plan?”

Some information in estate planning that should be known is a last will and testament. It is the document which parents need to legally nominate guardians to rear their children, if orphaned. While some people name one person to rear the children and handle the money, it’s a good idea to separate the two roles.

Without these instructions in a will, those left behind can have very different ideas about where the children should live and who should care for them. If the two parent’s families have very strong opinions, suddenly both families have hard choices to make about what will happen to the children.

No parent wants to leave a legacy of court battles and family division.  However, that’s what is likely to happen without a will.

There are other issues that estate plans address while you are alive.  It is also necessary to plan for incapacity. A living will, also known as an “advance directive,” is important because it helps pre-answer questions, regarding what treatment and care you would want if unable to speak for yourself. Do you want to be kept alive by artificial means? You do not want your loved ones making this decision during a time of great emotional stress, so this is an important document to have in your estate plan.

Finally, your estate plan should include a medical durable power of attorney to deal with all other medical decisions other than end of life. Without it, if you are not near death but not able to share your opinions about your care, your family and your medical providers are placed in a difficult position. In contrast, those who care enough about their family designate an agent and ensure that their wishes are made legally binding.

The big question everyone must face is “When should I start working on my estate plan?” If the answer is “Later,” then the real answer is “No time soon.” For young parents, that puts your minor children in a bad position, where a court may make the decision about who will rear them and how their lives will go on after you are gone.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, including families with young children.

Resource: The Daily Sentinel (Aug. 12, 2018) “What is missing from your estate plan?”

 

 

Children Can Contest Glen Campbell’s Will

 

Three of Glen Campbell’s children, who were intentionally left out of his will, have been given the right to contest the will by a judge, according to Wealth Management.com in “Glen Campbell’s Kids Come After the Rhinestone Cowboy’s Estate.”

Campbell, who recently passed away, left two wills from 2001 and 2006. The 2006 will names Campbell’s fourth wife Kimberly, who is the executor of the estate, and five of Campbell’s other children as his beneficiaries. Campbell went public with his Alzheimer’s diagnosis in 2011.  However, it’s not known how far back his illness began. The legal burden facing his children: prove that he lacked the needed capacity to execute both wills.

If the will is deemed invalid because of lack of capacity or undue influence, the immediately preceding will is resurrected, said one estate planning attorney who is not affiliated with the case. The previous will probably disinherited them also, which is why they must prove the invalidity of both wills.

Kimberly has told a local newspaper that she would not challenge the kid’s right to contest the wills and the judge’s decision noted the lack of opposition. She has also filed a claim seeking reimbursement from the estate for more than $500,000 to cover the cost of his medical care.

It was also reported that one of his daughters, Debbie Campbell-Cloyd, has filed for a complete accounting of all payments made by the estate, as well as payments to and from a previously undisclosed bank account. She alleges that royalties that should have been deposited into an account controlled by Campbell’s estate, were instead deposited into this account, which is now controlled by Kimberly. The singer’s former manager has power of attorney over the account.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include a blended family.

Resource: Wealth Management.com (Aug. 2, 2018) “Glen Campbell’s Kids Come After the Rhinestone Cowboy’s Estate”

 

 

Ready to Retire? Watch for Hidden Fees

 

 

 

You have saved for many, many years and are now ready for retirement. You need to accomplish  many tasks as you get ready to leave your job but one of the most important things to watch for as you go over your accounts is hidden fees, according to US News & World Report in a “10 Hidden Fees to Be Aware of in Retirement.”

Annuities. When you buy an annuity, the sales person receives a commission. There are also underwriting and management expenses. Annuities are generally understood to have higher fees than typical mutual funds, so be aware of the cost and the benefits before making a purchase.

Advisory Fees. In a non-fiduciary managed account, typically with a broker who is not a registered investment advisor or CFP, it may not be easy to discern the fees. Ask questions and make sure that you understand how much of your money is being invested and how money is being used on fees.

Inactivity Fees from Brokerage Accounts. Here’s money tossed away. Check the fine print on your online brokerage accounts to be sure you are not spending money because the account is not active.

RMD Penalties. Anyone over age 70 ½ is required to take a minimum distribution from their IRA and other retirement accounts. If you take the money by December 31st, you are fine.  However, if you forget, the penalty is steep:  it can be up to 50% of the required withdrawal amount. That is  an expensive mistake.

Mutual Fund Expense Ratios. These are fees charged to cover a fund’s annual expenses. If you don’t know what they are, find out what you are spending on an annual basis.

Home Costs. If your retirement includes aging in place, make plans to ensure that your home remains safe.  This can include changing out a tub for a walk-in shower, adding a downstairs bedroom or repairs.

Car Costs. If you’ve got two cars but only use one, you should consider becoming a one-car household.

Travel in Retirement. Make the most out of your travel budget and be more aware of additional costs in organized trips. If you’re savvier about spending, you’ll likely be able to take more trips.

Inflation. This basic economic occurrence has been historically low in recent years.  However, it does not go away. Make sure that you’re prepared, if and when it returns with a bang.

 In addition to going over your accounts, take some time and meet with your estate planning attorney.

Reference: US News & World Report (July 18, 2018) “10 Hidden Fees to Be Aware of in Retirement.”

 

Educating Your Children about Estate Planning

 

 

 

 

 

If you wish to pass your estate on to your children, it might be a good idea to spend some time educating them about the challenges and responsibilities they face, according to Kiplinger in “5 Financial Challenges Your Kids Will Face With Your Estate.”

Many parents don’t have the answers themselves to these questions, so they have to come up to speed first before they can talk about these matters with their kids.

Five things to pass on to the children:

Taxes and IRAs. Chances are your children won’t know that they will be paying taxes on IRA withdrawals. They will be likely to take a “stretch” IRA option and leave funds in the IRA for as long as possible, while taking RMDs (Required Minimum Distributions) based on their life expectancy. The stretch option is smart.  However, a child who wants a new car or a down payment for a house, may not understand the impact of taxes on their inherited IRA. Make sure they see the numbers and how much of a bite taxes will take.

Can they do an IRA rollover? A spouse can rollover an inherited IRA into their own IRA or 401(k) but a non-spouse beneficiary cannot. If they do, the entire amount of the IRA becomes taxable income. There are no second chances. Make sure that the IRA custodian who will administer the IRA for your heirs, automatically takes care of the RMDs, so they don’t have to worry about it. If they don’t take the RMDs, they’ll have to pay a hefty tax.

What taxes are due on an inherited annuity? Inherited annuities come with a variety of limitations and taxes. The insurance company will issue a 1099 for any untaxed growth to the heir.  This must be included as gross income for that tax year. If the recipient isn’t expecting it or doesn’t know it’s a tax, it could come as an expensive surprise.

What is a “step-up in basis”? This applies to stocks, bonds and real estate. The value of the asset on the day you die, is the cost basis to your heir.  It is not what you paid for it originally. Let’s say you bought a second home for $300,000 and it appreciates to half a million dollars in value. If your child sells the house for more than $500,000—its value on the day of your death—any capital gains taxes will be calculated on the $500,000—the “stepped-up basis”—and not the $300,000 original cost or basis.

Who will have the details? Set up a family meeting with your estate planning attorney and your adult children at a time that works for all of you. They’ll be more comfortable in the days and weeks after your passing, if they know who they’ll be working with to settle your estate.

Reference: Kiplinger (April 3, 2018) “5 Financial Challenges Your Kids Will Face With Your Estate.”

 

Giving Your Money Away? What Does the Family Think?

 

 

If you’ve reached a point in life where you feel you have enough and want to give your money away, it would be wise to consider what your family thinks about sharing your resources, according to the AARP in “How to Give Your Money Away.”

The following are some good points from AARP on giving your money away:

A grandchild needs a college education. Use a 529 college tuition plan to help your grandchild, by contributing to a plan created by the child’s parent. Financial aid formulas look at contributions from a grandparent’s plan but not a parent’s plan as student income. To allow your grandchild to be eligible for student aid or grants, make sure that the funds you contribute go to his or her parent’s 529.

You want to be philanthropic, even if you’re not Warren Buffet. You can use what’s called a DAF—donor advised fund. They are like charitable savings accounts. The tax deduction for any cash or investments placed in the fund is immediate, so you can front-load two or three years’ worth of giving into one year. You can also claim a charitable deduction for a year, when you intend to itemize instead of taking the new standard deduction.

One child is a smashing success, the other is a starving artist. Sometimes the disparity of incomes between children can be a result of choice or abilities. Nevertheless, you may not wish to leave the exact same amount to both kids. One of your children might have a disability and needs special planning. It’s your call and it’s also your call whether to share all the details with your kids. Logic prevails in some families and there’s no drama over these kinds of decisions. Less information about their inheritance is better for others. You could insert a no-contest clause in the will to forestall any litigation.

You have visions of generations enjoying your summer cottage. Sometimes this works out.  However, sometimes the kids have no interest in the property and just want to sell it. Have that conversation first. If no one wants it, sell it when the timing works for you. If one kid loves the house and the others don’t care, work out the numbers so the house stays in the family, but the child receives a smaller percentage of assets. If the family wants to keep the house, work with an estate planning attorney to create an LLC (Limited Liability Company) and give shares to the kids. You’ll need an operating agreement, including how the cost of maintaining the property will be handled and what happens, if someone wants to sell their share. Define the universe of eligible owners as lineal descendants and not spouses, to forestall an ownership battle in the case of a divorce.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include giving some money away.

Reference: AARP (May 1, 2018) “How to Give Your Money Away”

 

Take a Fresh Look at Your Estate Plan

 

There are many reasons to revisit your estate plan that don’t include the new tax laws that doubled the individual estate gift and GST tax exemptions to about $11.2 million per person (and doubled it for married couples), according to Forbes in “7 Reasons to Revisit Your Estate Plan, Trump Tax Law Aside.”

A will serves as the primary vehicle to convey your intentions for your assets and explain your legacy. The provisions of the will can be used to designate how assets will be transferred, whether outright to beneficiaries, to existing trusts or into a new trust that is created under the provisions of the will. If you use the will to create a testamentary trust, the will is where you specify the age for distributions to the beneficiaries and other important details. The will is also how you convey your wishes to make a gift to specific institutions and who should receive family heirlooms.

The executor or personal representative of the estate is the person or institution in charge of managing your affairs, after you have passed. The executor gathers all the information about your estate, including assets and debts, filing taxes, and administrative tasks. That person is named in the will.

If you have minor children, or a child with a disability, you want to choose a guardian and a successor guardian. If you do not, the court will appoint someone to rear your child(ren), and that may not be the person you would have wanted. Your spouse is always the obvious choice, but there are instances where both parents die unexpectedly, with no plans in place for their children.

There are many different types of trusts used to accomplish different things. They can be used to control assets and their distribution, which is particularly important when minor children are in the family. Trusts should be used when there is an individual in the family with a disability, an addiction or other issues who cannot manage their finances on their own.

Tax planning is a major part of any will. For a long time, estate planning attorneys focused on how assets were titled so that the first of a married couple to pass would be able to fully use their estate tax credit.  However, the relatively new concept of “portability,” which allows any unused credit from the first spouse to pass to be used for the benefit of the second spouse, eliminates the need for any unused estate tax credit to go into a bypass trust.

Not only do you need a will but this year you should consider reviewing your will, if you have not done so.

Reference: Forbes (March 15, 2018) “7 Reasons to Revisit Your Estate Plan, Trump Tax Law Aside”