Capital District - NY Estate & Elder Law

Generation X Is Facing Some Tough Retirement Challenges

 

Members of Generation X, who are still feeling the impact of the Great Recession, are facing some real challenges in saving for their retirement, according to TheBalance.com in “Retirement Milestones to Hit for the Gen X Years.”

According to a 2018 survey from AmeriTrade, 43% of Gen Xers say they’re behind on retirement savings and a just 33% of people 39 to 53 years old are confident about being financially secure when they retire.  That generation is also feeling the double-crunch of paying off their own college loans, while trying to save for their own children’s college education.

Getting past these obstacles is possible, as is getting retirement savings on track. However, you’ll need a plan.

Among the milestones to aim for, if you’re a Gen Xer:

Set a Target. You’ll want to know what you are aiming for in retirement and that means knowing about how much money you’ll need to accumulate. Consider what kind of a lifestyle you’ll want. Does retirement look like a lot of luxury travel or are you open to the idea of seeing the world from an Elder Hostel? What kind of housing will you want to live in and what kind of car will you want to drive? Will your children be self-supporting by the time you retire, or will you be first sending them off to college? All these questions will be important to figuring out what kind of a nest egg you’ll need.

Does Your Employer Offer a 401(k) Plan? This could be your greatest tool for retirement savings. You can save for retirement on a tax-deferred basis, while you are entering your peak earning years. If you’re really lucky, you work for a company that matches contributions, so your retirement savings will grow even faster.

If you haven’t already started using this employee benefit, start now. Are you saving enough to qualify for the full employer match?  You should do what you can to bring your savings level up to that point. If you are already getting the match, can you increase your own contribution?

If you can’t make an adjustment now, consider making a small increase to your savings, like 1% to 2% every year. If the gradual increase grows along with your paychecks, you won’t notice the difference.

Look into Other Tax Advantaged Accounts. As you move into your late 30s and early 40s, your earnings are most likely growing, so you need to look past your employers’ plans. Consider a traditional IRA (Individual Retirement Account) or a Roth, depending on your income level. If you qualify for a Roth IRA, the money is 100% tax-free when you withdraw it. The traditional IRA is taxable in retirement. However, you have the benefit of a tax deduction on your contributions.

Don’t Overlook the Health Savings Account. The HSA is not a retirement account.  However, it can be useful in funding retirement costs. HSAs are designed to be used to save for qualified medical expenses. Contributions to these accounts are tax-free, if they are used for health care but you can also tap into one of these accounts for other reasons. Withdrawals from an HSA are penalty-free after age 65.  However, you will have to pay regular income tax on the money. If your employer offers a matching contribution to an HSA, there’s no reason not to fully fund one of these accounts.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can help meet the challenges of your generation.

Resource: TheBalance.com (June 4, 2018) “Retirement Milestones to Hit for the Gen X Years”

 

You Can Include Your Pets in Estate Plan

 

 

If your pets are very important to you and your family, you can include and protect them in your estate plan, according to BravoTV.com’s Unleashed in “Don’t Leave Pets Out of Estate Planning.”

If you are considering including your pets in your estate plan, here are some considerations:

Think about what you have and what your pet needs. You should only include items of true value within your estate plan. You don’t need to include your pet’s favorite toy or walking leash.

It is important to choose a beneficiary. This involves listing a beneficiary or caretaker, who will inherit your pet when you pass away. If you make sure that person will bring your pet into their home, it will give you peace of mind. Check with your estate planning attorney to be sure this is an enforceable provision in your will. It is not lawful in all states.

If you don’t have someone who will take care of your pet, find an organization with a program that cares for pets once their owners have passed. Make sure to contact the organization and follow their guidelines in your estate plan. There may be a donation or fees involved. Don’t leave any details out.

Create a pet trust, preferably as part of a revocable living trust. It will make it more certain that your pet will receive proper care. It is critical that you fund this trust, so the trustee will be able to carry out your wishes to care for your pet. This is especially true for animals with long life spans, such as horses or certain breeds of birds.

A trust ensures that your pet is the primary beneficiary of the entity and will receive whatever funds are placed into the trust.

Make sure to name a trusted caretaker who will give your pet the same kind of love and care that you would and make sure that they have the financial resources to do so. You don’t need to leave large sums of money, but by making sure there is enough money for food, veterinary care and other expenses, your pet will can be ensured of a loving and happy life.

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

Resource: BravoTV.com Unleashed (April 16, 2018) “Don’t Leave Pets Out of Estate Planning”

 

It Is a Good Idea to Have an Advanced Directive

 

While it may be difficult to come to conclusions needed to create an Advanced Directive, it is really a good idea to have one when you reach the age of majority, according to The Herald News in “Being Prepared: Advanced Directives.” An Advanced Directive lets your family and the medical community know what you would want, if you become incapacitated

An estate planning attorney can help you ensure that you have an Advanced Directive in place which conveys your wishes to your loved ones. Discuss this ahead of time and let your family members know what you would want to happen in advance.

Select a person you know and trust to be your healthcare agent. Tell them you have selected them to serve in that role. Don’t let this be a surprise to them at the last minute. They will need to fully understand your wishes and be willing to carry them out.

Be as specific as you can about what kind of treatment you would want and which you would not. That includes medical ventilation, a feeding tube, kidney dialysis and other treatments.

Do you want to be resuscitated if you stop breathing, or have CPR performed, if your heart stops working? You’ll want to have a DNR—Do Not Resuscitate—if you don’t want extreme measures to be taken to keep you alive.

Once you have made your decisions, meet with an estate planning attorney to complete a written advanced directive.

States have different sets of rules regarding advanced care directives, so an estate planning attorney in your state of residence is necessary.

 You should keep your advanced directive and DNR document where someone can get them, if an emergency occurs. Do not give it to a relative who lives two states away—they will not get to you in time. Be sure that everyone involved with your healthcare has a copy. This includes your primary care physician. Ask that your directive be maintained in your official medical file.

If you are wondering how or when to have this conversation about a loved one’s end-of-life preferences, the answer is now. Start by sharing your own wishes and then ask them to share theirs. Ask if they have made the proper preparations for their wishes to be carried out and discuss what must happen to have their wishes followed.

Resource: The Herald News (Aug. 10, 2018) “Being Prepared: Advanced Directives”

 

 

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?”

 

 

Just What Is a Power of Attorney?

 

While most people are familiar with a will in an estate plan, a power of attorney draws a lot of misconceptions, according to the article in A Place For Mom “5 Misconceptions About a Power of Attorney.”

Misconception #1–You can sign a power of attorney, even if you are legally incompetent.

Not true. This is one of the most common misconceptions. In fact, if you have a document from a medical doctor that says a person is not competent, that person is no longer able to sign any legal documents. Many people generally think about what they need to do, i.e., accessing a bank account when an elderly parent can no longer do so.  However, if Dad lost his legal capacity just before a power of attorney or living trust was signed, that’s no longer an option. You’ll have to go through a guardianship or conservatorship proceeding through the court to have any control over Dad’s assets.

Misconception #2—You can find a power of attorney document online.

You might find such a document online but it most likely will not be suited to your circumstances. You need to have a power of attorney custom drafted, so it is legal in your state and addresses your family’s needs. Many online documents end up being useless. It’s a big risk to take.

Misconception #3—A power of attorney lets the agent do whatever they want.

The agent under a power of attorney has a legal and fiduciary duty to make decisions in the best interests of the person who named them as power of attorney. They have not been handed a free pass; on the contrary, they have a big responsibility to do the right thing.

Misconception #4—There is one power of attorney.

This is why an estate planning attorney is needed for the power of attorney. There are two main types: a general power of attorney and a limited or special power of attorney. They are named correctly: a general power of attorney allows for buying or selling property or managing assets. A limited or special power of attorney refers to a specific transaction or task. Which one you need, depends on the laws of your state and the circumstances.

Misconception #5—A power of attorney survives death.

All powers of attorney terminate on death. Once a person has passed, so has the authority for their agent to act on their behalf. A durable power of attorney allows the agent to act, in the event of incapacity but not death.

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

Resource: A Place For Mom (July 11, 2018) “5 Misconceptions About a Power of Attorney”

 

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”

 

 

Your First RMD May Be Looming

 

You have been fortunate over the years to grow your IRA tax free.  However, withdrawals from your traditional IRA is taxable income. You will have to make Required Minimum Distributions starting at age 70½. It is a good idea to be prepared financially, according to Kiplinger in “When Do I Have to Take My First RMD?”

If you miss that deadline, be warned: penalties are expensive. How does half of your required withdrawal amount sound? It is bad enough to be sure you won’t miss this deadline!

It’s not as hard today to find out when you must take your RMD, although in the past this was challenging. There are online calculators that can help, and you can always ask your estate planning attorney, just to be sure. The IRS gives you a little wiggle room for that first RMD–until April 1 of the year that you reach age 70½. However, here’s the kicker: the second RMD is due on December 31 of that same year. Therefore, you might end up taking two RMDs in one tax year, which could make your tax bill bigger than you had expected. You may be tempted to defer taking the first RMD, but don’t. Take it by the first calendar year in which you turn 70½ and avoid that double-RMD whammy.

There are a few factors that could change your RMD. One of them—if your spouse is more than 10 years younger than you are and is named as the sole beneficiary on at least one of your IRAs—the RMD will be less than what some online calculators show.

If you discover that you missed your RMD, don’t delay trying to fix the error. Figure out how much you should have taken and remove that amount as soon as possible from the IRA.

File Tax Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax Favored Accounts.” You can file this with your tax return or by itself.  If you are requesting that the 50% penalty be waived, payment does not have to be made when the forms are filed.

Last, attach a letter explaining what happened steps you’re taking to fix the error.

If you’re still working, you can delay taking RMDs from your current employer’s 401(k) until after you stop working in that job, unless you own 5% or more of the company. The important word here: current employer. You’ll have to take RMDs from prior employers, even if you’re still working. However, you might be able to delay your RMD, if your current employer lets you roll over money from other retirement accounts into the current employer’s plan.

After you’ve taken your first RMD, subsequent years get a little easier. They’re due by December 31.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can also make sure that your retirement and estate plans work well together.

Resource: Kiplinger (July, 2018) “When Do I Have to Take My First RMD?”

 

 

There are Many Reasons and Uses for an Estate Plan

 

Why should you have an estate plan? There are many reasons and many goals, including providing for your spouse and children, as well as dealing with a family business, minimizing tax liabilities and naming the people you want to act on your behalf when you’re gone, according to the Brainerd Dispatch in “Wealth Column: Estate Planning Basics,”

So, what do you need? First, you’ll need a will, which is the basic tool for estate planning. It prevents two very expensive and stressful issues: managing your wishes for your estate and possibly losing hefty sums through unnecessary taxes.  However, that’s just the start.

You may also need trusts, depending on your family’s situation. You’ll want to have life insurance policies with beneficiaries. Life insurance proceeds are not governed by the will, so your heirs will receive any funds directly. Benefits from retirement funds fall into this same category. That’s why making sure that your beneficiary designations are up-to-date, is so important.

Working with a team of trusted advisors, is productive for most people. Remember that your estate plan touches on taxes and investments as well as your will, power of attorney and medical directive. Consider these steps to get your entire estate plan in order:

• Gather personal data about yourself and your family,
• Create a balance sheet of your assets and liabilities,
• Review your will and any existing trusts,
• Evaluate all estate tax options, such as the best method of disposing of your share of community property—considering the unlimited marital deduction and the use of tax-sheltered trusts,
• Consider the optimal way to distribute your retirement plan benefits,
• Calculate potential estate, gift and income tax liabilities,
• Determine the availability of liquid assets to meet potential estate expenses and taxes.

An estate planning attorney can work with the information you have gathered to create an estate plan that fits your unique circumstances.

Resource: Brainerd Dispatch (Aug. 3, 2018) “Wealth Column: Estate Planning Basics”

 

 

Prepared for Retirement? Maybe, Maybe Not

 

You can put a lot of effort into saving for retirement and still have questions.  However, it is important to know that the success of your plan will often be your income to expense ratio, according to Investopedia’s article “Determining If You’re Prepared for Retirement.”  

Commonly asked questions are:

• Am I saving enough, or did I save enough?
• Can I retire, or did I make a mistake and retire too early?
• Were my investment decisions the right ones?
• How am I doing, compared to my peers?

The answers to these questions are important, but like so many things in life, there is no “one-size-fits-all” answer. Just because you’ve accumulated six, seven or even eight figure retirement savings, doesn’t mean you’ve “won” the retirement game. In this case, size doesn’t always matter.

One of the key factors to a successful retirement is your income to expense ratio. Can you generate enough income from all sources, without drawing down too much from your portfolio?

If you have a small to non-existent portfolio, but you have a good-sized pension, maybe you don’t need such a big portfolio. If you live very simply, it’s possible that Social Security benefits and modest withdrawals from your investments might take care of your needs.

Remember that just because you have a large portfolio, does not mean you don’t risk running out of money during retirement. If you spend lavishly on first-class vacations, drive luxury cars and live in a house that costs a fortune to run, you can easily get yourself into a tight spot.

Take a long hard look at all sources of income to determine how long your portfolio will last. You should include Social Security, pensions, retirement accounts and any other sources of income. It is important to figure out how much income you’ll need on annual and monthly basis. You’ll then have a better sense of whether you are prepared for retirement.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, as well as point out options on planning for your retirement.

Resource: Investopedia (July 19, 2018) “Determining If You’re Prepared for Retirement”

 

 

Retirement Can Bring Tax Shock

 

There are many financial strategies occurring as you save toward your retirement, including maximized annual contributions and compounding interest. This can cause a tremendous tax bite, unless you are careful, according to the Citizen Times in its article ““Try this strategy to save on taxes in retirement.”

Now that you’re retired, or near to retirement, you’ll want to use tax-efficient ways to withdraw money from your investment accounts. There was a rule of thumb from the financial investment community that said just leave those tax-deferred accounts alone and use the money from your taxable accounts until you reach age 70½. You can then start taking Required Minimum Distributions, or RMDs.

Here’s the problem: that equation assumes that your income has decreased in retirement and that simply may not be true.

RMDs are taxed as ordinary income at the time of withdrawal, so they could push you into a higher federal tax bracket than you expected. Let’s say a 63-year-old married woman born in 1953 has $1 million in tax deferred accounts. An example may be taking an RMD of nearly $47,000 at the age of 70½, combining it with $47,000 from Social Security or a pension or rental property income, and you could be bumped into a higher rate tax bracket.

Another impact could be the reduction of individual income tax rates that went into effect this year, because of the Tax Cuts and Jobs Act, which expires in 2025. Those tax cuts may not be extended or may be changed, so future tax rates might go up again in 2026. When that tax cut expires, you’ll need to review your tax burden again.

So, what can you do?

If you are a retiree between 59½ and 70½, consider a Roth conversion. Proactively convert a portion of your tax-deferred accounts into a Roth IRA on an annual basis. You’ll have to pay federal income tax on the amount you convert every year.  However, you’re taking advantage of lower rates before those provisions mentioned above expire and before the RMDs begin. The goal is to convert just what you need to keep you in your current tax bracket.

Be mindful that you must do this right. Work out the numbers so you don’t trigger a higher Medicare premium or the 3.8% Medicare surtax. There are a lot of moving parts.  However, this could save you a huge amount in taxes.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a careful look at your retirement income.

Resource: Citizen Times (July 29, 2018) “Try this strategy to save on taxes in retirement”