King & Wood, P.A.

Tighten Up Those Loose Ends in Your Estate Plan

 

“When executed properly, estate planning can minimize legal fees, decrease taxes and lower administrative expenses.”

Loose ends in estate planning can lead to lost opportunities, stress, last-minute fixes or—worst of all—failing to designate money to family, friends and charities. This can have a severe impact on your estate.

Kiplinger’s recent article, “5 Simple Steps to Decrease Your Estate Costs,” offers some steps to minimize your future estate costs. You should speak with your estate planning attorney if you haven’t already.

1. Update your beneficiaries. When you pass away, some of your estate may not pass by your will because retirement plans, life insurance and transfer on death (TOD) accounts go directly to your beneficiary. For example, if you name your sister as the TOD beneficiary of your bank account, she needs to only give the bank a copy of your death certificate for the funds to be transferred without probate. It’s the same for your IRA or life insurance policy.
2. Cash in any physical bonds and stock certificates. Physical securities and government bonds are all too often lost or forgotten—they can be left to mature without paying any more income. With a stock certificate, the stock may have split or paid dividends that weren’t collected properly. Unfortunately, these assets can appear after probate has been settled, which can result in the estate being reopened. Turn in stock certificates and keep them in electronic format.
3. Review property deeds. If you just had your estate planning attorney draft a trust without changing the deed to your real estate to reflect ownership by that trust, most states would not let the real estate pass through your trust. Instead, it will pass through your will and probate when you die. The results of this can be pricey. A trustee can list the house for sale within hours of your passing, but an executor of your will must first collect documents and procure family signatures to begin the probate process, then apply to the court and—in some states—even get court permission to sell the house. You'll have wasted thousands of dollars paying for real estate taxes, utilities and other carrying costs.
4. Consolidate your accounts. Too many accounts mean more work and more expenses. Consider keeping fewer, larger accounts. Leaving a distant nephew $500 in your will may cost you more than that to deliver it to him. Keep just a few, larger bequests in your will and use TOD accounts for smaller bequests.
5. Keep track of your family. Small families should name all of their nearest relatives because many states require a list of heirs under a will, despite certain family members not getting anything. For example, if a widow has no children but has 20 nieces and nephews living throughout the country, these relatives will all have to be found if she leaves any property to be distributed under probate. The costs for finding these folks may eat up all of her estate. Keeping track of family members and accounts will allow your estate to avoid paying extra expenses.

Reference: Kiplinger (July 2016) “5 Simple Steps to Decrease Your Estate Costs”

A Close Look at the Costs for End-of-Life Care

 

“The costs for end-of-life care for a person with dementia or Alzheimer's is often underestimated. It is substantially more than treating those with cancer or heart disease.”

A recent study showed that people in the U.S. fear developing Alzheimer's disease more than any other major life-threatening disease—including cancer, stroke, heart disease and diabetes. It also found if diagnosed with the disease, most have deep concerns about their inability to care for themselves. Burdening others by losing memory of life and loved ones was the second greatest concern, according to the MarketWatch article, “What to know about Alzheimer’s and retirement planning.”

A survey of about 1,000 adults by Harris Interactive showed that the percentage of people who fear getting Alzheimer's has risen much more since 2006 compared to other diseases. This means it’s critical to properly plan for your retirement years early in case you or a loved one becomes afflicted. Take a look at the breakdown in terms of dollars for care between three common diseases:

• Cancer: $173,400
• Heart disease: $175,100
• Dementia: $278,000

These potential medical expenses must be considered in retirement and estate planning. Some of it can be paid for by insurance, Medicare and Medicaid. However, a large amount needs to be paid out of pocket by the family. In most instances, the total cost of care by family caregivers isn’t included in estimates because much of that time is just "helping out," and there’s no cost figure against this. Similarly, there’s no estimate on the amount of lost income family-care providers would have earned if they weren’t involved in the care giving.

Financial planning often gets delayed, but there are many tasks that should be done to make things easier and to avoid complications down the road. Identify family members who should be included in financial plans, like those who can help with routine financial responsibilities. You also should identify the projected costs of care when it comes to Alzheimer's and dementia because those costs are so high. Review any available government benefits, along with Medicare and long-term care policies.

Reference: MarketWatch (July 7, 2016) “What to know about Alzheimer’s and retirement planning”

The Importance of Beneficiary Designations

 

“Beneficiary designations are critically important, but unfortunately they're often overlooked, mishandled or even forgotten.”

THV11’s recent post, “The importance of beneficiary designations,” explains that designating beneficiaries is a very important part of the proper handling of many documents—like life insurance, retirement accounts, bank accounts and investment accounts. Each of these may ask you to designate a beneficiary in the event that something happens to you. A beneficiary designation is your legal direction to the account administrator regarding who should get the money in your account if you were to die prior to using the money yourself.

Many name a spouse or a child as a beneficiary but don’t realize that there can be legal issues to consider when making this selection. Also, it’s important to keep these choices up-to-date with changing circumstances.

As an illustration, some folks who have owned life insurance policies for a very long time haven’t looked at their policies in many years. When they review the policies, items of concern often pop up—like an ex-spouse or a dead relative still named as a beneficiary.

Retirement accounts—like IRA accounts, 401(k)s, and 403(b)s—require up-to-date beneficiary designations to be on file with the plan sponsor. With retirement accounts, typically the best primary beneficiary will be your spouse and the secondary beneficiaries will be your children.

However, if you have a trust created as a part of your estate planning strategy, the trust may be a beneficiary of last resort. That’s because there’s a difference in tax treatment of living persons vs. trusts.

Also, a living person is generally the right designation for a beneficiary of a retirement account, but a qualified charity could be a beneficiary of a retirement account. Speak with your estate planning attorney for help naming beneficiaries.

Reference: THV11 (July 5, 2016) “The importance of beneficiary designations”

Look out: Medicare Changes on the Way!

 

“Big increases in some Medicare premiums are expected.”

Can you believe that Social Security’s 60 million-plus beneficiaries are scheduled to get a miniscule 0.2% cost-of-living adjustment next year? In addition, some Medicare recipients could be in line for some steep premium increases, according to the annual trustees reports about the financial health of Social Security and Medicare as reported in AARP.org’s article, “Social Security COLA Projected for 2017.”

The long-term outlook for Social Security old-age and disability benefits is still good, with promised benefits payable until 2034. Without any changes to the law, 79 % of promised benefits will be payable through 2090. However, the trust fund that finances Medicare’s hospital coverage is fully funded until 2028—that’s two years less than projected a year ago.

Social Security annually weighs whether to give beneficiaries a cost-of-living adjustment based on inflation compared to the last year that a cost of living allowance (COLA) was awarded. Beneficiaries didn’t receive a COLA for 2016 because the inflation rate fell, which is the third time since 2010 they didn’t get an increase in payments. The 0.2% COLA that the trustees project for 2017 still could change with inflation. We’ll need to wait for the final word to come in October.

Medicare beneficiaries want to know what will happen to the Part B premium in 2017. With no COLA for 2016, about 70% of Medicare beneficiaries were “held harmless” from cost increases and are paying the same standard premium as they did in the previous three years at $104.90 a month. The remaining folks are required by law to share the load of increased costs; they must pay much more. But Congress came through with a solution that limited the impact of the increases for this year.

The small COLA now projected for 2017 would still have an effect on Part B premiums. Standard premiums for most of those in the 30% not currently held harmless would jump by about $27.00 to $149.00 a month next year. The other 70 % would pay $107.60 a month in 2017, which is $2.70 more than they pay now.

Among the 30% impacted next year are those who didn’t have their premiums deducted from Social Security checks in 2016, including those new to Medicare in 2017, and those who already pay higher premiums because they have higher incomes. The higher-income beneficiaries would see even higher jumps in premiums next year. Those look to increase from $166.30 to $204.40 a month for the lowest affected tax bracket and from $380.20 to $467.20 for those in the highest.

One other group, which includes low-income people whose states pay their Part B premiums, aren’t personally affected. However, their states will face some additional costs.

Part B premiums are to cover 25% of total costs. The federal government will contribute the remaining 75% out of general revenues. The increased income-related premiums are set to cover 35%, 50%, 60% or 80% of the costs, depending on income level. The increase in Medicare costs, which means increases in Part B premiums, is primarily due to the high prices of some recently developed prescription drugs.

“High cost drugs are a major driver of Medicare spending growth,” said Medicare’s acting administrator, Andy Slavitt. “For the second year in a row, the spending growth for prescription drugs dramatically outpaced cost growth for other Medicare services.”

Reference: AARP.org (June 22, 2016) “Social Security COLA Projected for 2017”

Legislation Introduced to Protect Financial Advisers from Calling in Potential Elder Abuse

 

“Help and a shield against liability may be on the way for advisers plagued with the dilemma of whether or not to report suspected elder abuse to authorities at the risk of breaching clients' privacy.”

The House of Representatives passed a bill recently seeking to protect elderly investors. Industry trade groups urged the Senate to "quickly follow suit," as reported by nasdaq.com in “Advisers May Get New Tools to Combat Elder Financial Abuse.”

The Senior Safe Act would provide civil and administrative liability protection to advisers, broker-dealers and other financial professionals who report suspected abuse to an agency—such as Adult Protective Services, law enforcement authorities, and state and federal regulators.

The bill says that compliance officers and other firm supervisors would be immune from liability as long as they had received training on identifying elder abuse.

With millions of baby boomers retiring, additional efforts are needed to protect the nation's most vulnerable citizens.

There is companion legislation in the Senate authored by Susan Collins (R-Maine). That bill is awaiting consideration by the Senate Banking Committee.

Critics of the bill raise concerns that the shield from liability under privacy laws applies only to situations in which advisers report abuse to covered agencies. Frequently the best way to deter financial exploitation can be to alert the victim's family. Fraud happens from people outside the family, and getting the family involved may be all it takes to make it stop, they argue. They go on to say that reporting to these agencies can just cause more problems for the family.

Three states recently passed laws that are even more stringent and require financial advisers to report suspected abuse instead of just giving them legal protection if they chose to alert authorities. These states are Alabama, Indiana and Vermont.

Reference: nasdaq.com (July 8, 2016) “Advisers May Get New Tools to Combat Elder Financial Abuse”

Phoenix Inventors Create Digital Storage for Estate Planning Documents

 

“If you are proactive and execute the necessary estate planning tasks while you’re alive and well, the other challenge is that you'll end up with a thick file of important documents and a document-storage headache to match.”

Investopedia’s recent article asks “Should You Store Estate-Planning Documents Digitally?” The article reports that two Arizona entrepreneurs who’d had enough with the massive amounts of paperwork for their own estates created Document Trunk. It’s a digital estate planning document storage platform. For an annual fee, you can store up to 10GB of estate documents.

After your information is in the database, a search is conducted daily to ensure that you are still living. If the system detects your name in an obituary or death notice, it will be confirmed. The estate’s primary contacts entered during registration will then be automatically notified. The system lets you enter up to 14 primary recipients to be notified if you pass away.

You also have the ability to limit who can access the documents. Digital storage, the company says, ensures that your documents are kept secure through encryption.

However, one of the biggest obstacles to the use of this system is legal. Digital copies of your estate planning documents may not be legal in the county and state where your estate is located.

In addition, you need to be sure to update the contact information for your primary beneficiaries.

Whether storing your estate planning documents on a digital platform is the best solution for your needs is a topic you should discuss with your estate planning attorney. He or she may have other digital options for storing your legal papers. A number of financial institutions offer similar platforms, often with the ability to centralize all of your financial accounts—from credit cards to insurance policies and bank and investment accounts.

Even if you do use a digital system, there are always drawbacks with any computer or electronic storage. Be safe and make certain that your attorney has properly executed hard copies of your will and other estate planning documents—if he or she has undertaken the responsibility (and liability) to do so. You should also let your executor, family, or other loved ones know the location of these documents in the event that they may need them.

Reference: Investopedia (June 9, 2016) “Should You Store Estate-Planning Documents Digitally?

Moving 529 Money Between Beneficiaries is a Piece of Cake

 

“Can I switch money from one grandchild’s 529 account to another, and are there any tax consequences or penalties?”

If you have multiple grandchildren with 529 college-savings accounts, can you move some money from one grandchild’s account into the oldest grandson’s account, since he’s starting college in the fall? Kiplinger says you sure can in “How to Transfer Money Between 529 College-Savings Accounts.”

As the owner of the account, you have the ability to change the beneficiary on the account from one eligible family member to another without any type of penalty or tax. The definition of an “eligible family member” is based on the individual’s relationship to the beneficiary. This will include the beneficiary’s spouse, child or stepchild, sibling or step-sibling, parent or stepparent, aunt or uncle, niece or nephew, an in-law, the spouse of any of those relatives, or a first cousin. You can review the entire list in IRS Publication 970, Tax Benefits for Education.

The way that you make the transfer will vary by plan, but in almost all cases, you should be able to move any amount of money from one beneficiary to another—such as transferring 50% of the money from one grandchild’s account to another grandchild’s account.

For example, at Fidelity, you’d need to complete a beneficiary change form with both of the account numbers. You would have to open up a new account if you didn’t already have one for the new beneficiary. Also, if you decide to do a partial rollover, you can designate the specific amount of money to move from each investment within the account. You also have the ability to say where that money should be invested for the new beneficiary’s account if different from the allocation directions on file for the account.

529 accounts don’t have a limit on how much you can transfer or how often you can transfer funds between beneficiaries, provided the account balance is within the plan’s maximum contribution parameters. The maximum contribution limit will vary by plan, but they’re typically between $235,000 and $370,000 in most states—with a few states having higher limits.

Be proactive and don’t wait until the last second when college bills are due to make these changes. Contact the plan administrator to talk about your options before you’ll need the money. You never know if the paperwork will be delayed longer than you expect or if there are unforeseen administrative requirements.

Reference: Kiplinger ( June 28, 2016) “How to Transfer Money Between 529 College-Savings Accounts”

How to Take that First Required Minimum Distribution from an IRA

 

“First-timers get a special grace period, but doubling up distributions in one year can lead to a bigger-than-expected tax bill.”

If you turned 70½ in 2015, you were required to take your first required minimum distribution from your IRA by April 1, 2016. But do you need to take another RMD by the end of this year?

Kiplinger’s article, “RMD Tips for Retirees Taking Their First Required Minimum Distributions,” explains that, generally speaking, you need to take your required minimum distributions by December 31^st every year. However, your first RMD may be delayed until April 1 of the year after the year you turn age 70½, but you have to take a second RMD (the one for age 71) in the same year by December 31^st.

If you have to take two RMDs in one year, as many do, it could cause an individual to experience an unexpectedly large taxable income for the year. This could put you into a higher tax bracket and also impact the amount of your Social Security benefits subject to taxes.

Also, note that if your adjusted gross income plus tax-exempt interest income rises above $85,000 if you are single or $170,000 if married and filing jointly, you’ll pay more for Medicare premiums—$170.50 to $389.80 per person each month for Part B premiums and an extra $12.70 to $72.90 per person each month for Part D.

The IRA required minimum distribution you take on April 1^st is based on the balance in your traditional IRAs as of December 31, 2014, and the second RMD of the year is based on the balance in your IRAs as of December 31, 2015.

Even so, you can decrease the taxable amount for the current year by making a tax-free transfer to charity of up to $100,000 from your IRA anytime during the year, but it’s too late to make a tax-free transfer for your 2015 RMD. That amount will count as your required minimum distribution for the year, but it isn’t included in your adjusted gross income.

The law allowing for such transfers has been extended permanently. As a result, you don’t need to wait for Congress to approve it at the end of each year before taking action. Speak with your IRA administrator and the charity for more information about how to make the transfer.

Reference: Kiplinger (March 31, 2016) “RMD Tips for Retirees Taking Their First Required Minimum Distributions”

Personal Finance Myths Debunked!

 

“They have the slight ring of truth, with just enough ‘truth’ to make their unexpected twists or alarming implications seem real.”

You want to prosper by following tried-and-true principles of effective wealth creation and asset management—not myths passed down from older generations or heard around the office water cooler. Kiplinger’s “8 Urban Myths of Personal Finance” unravels several urban legends of personal finance that have gained credence over the years.

Myth: There’s No Need to Start Saving for Retirement Until You’re 40. Did you know that 25% of Americans ages 30 to 49 have saved nothing for retirement and that 59% say they plan to save more aggressively “later” to make up for that shortfall? The long-term effects can be disastrous if you don’t put away money in a retirement savings plan as soon as you start earning a paycheck. The truth is the sooner you start saving and investing, the better.

Myth: Social Security Won’t Be Around When I Retire. Many people in the U.S. (55%) have this fear. The truth is Social Security isn’t going away. But remember that Social Security was designed as a supplemental retirement insurance program, not a pension per se.

Myth: I Can Borrow from My 401(k) When Needed. More than 20% of 401(k) plan participants who are eligible to take loans against their retirement savings had outstanding balances in 2012. But there’s a problem in doing this—you’re borrowing pre-tax dollars set aside in your 401(k) and paying the loan back with after-tax money. That money will be taxed once again when you withdraw from your savings after you retire! If you quit your job, are laid off or are fired, you’ll need to pay the loan back—usually within 60 days. If you can't pay it back, the outstanding balance is deemed a taxable distribution, and you’ll get dinged with a 10% early-withdrawal penalty if you are under 55. The truth is that while you are permitted to borrow from your 401(k) to make a down payment on a home or in cases of financial hardship, you’ll take a huge hit on your nest egg.

Myth: Only Rich People Need a Will. About one half of all Americans ages 55 to 65 don’t have a will. If you should pass away without one, a judge will decide how to divvy up your assets and who will raise your children. The truth is everybody should have a will, even if it’s just to detail funeral and burial wishes.

Reference: Kiplinger (May 2016) “8 Urban Myths of Personal Finance”

Don’t “Just Wing It” When it Comes to Retirement Planning

“Too many people aren't really planning for their retirements—they're just winging it.”

After a lifetime of hard work, you want to enjoy a good retirement. You want to do more than just pay the bills and survive. If so, sound retirement planning is a necessity—not flying by the seat of your pants.

If there's any place where "just winging it" is a bad idea, it is retirement, says Kiplinger in its recent article “Americans Need to Stop Winging It with Their Retirements.”

Solid retirement planning is more sophisticated than just putting a few dollars into an individual retirement account or 401(k). Saving money is very important if you want to accomplish your retirement goals. However, if you want to keep as much as you can, saving money is just one part of a retirement plan.

If you are five to ten years away from retirement, consider these reminders to help you keep on track when working to meet your retirement goals:

Calculate if you'll have enough money to cover your expenses. Look at your income when you retire—like Social Security, pensions or rental income. Then calculate what your approximate monthly expenses will be. If you have more monthly expenses than monthly income, you’ll need to work to close that gap. Without enough income, there’s really no retirement.

Remember taxes and inflation. Unless your assets are in a Roth IRA, when you start withdrawing your money from other sources, there will be taxes. In addition, inflation can melt away some of your spending power. Take taxes and inflation into account.

Watch market volatility in your investment portfolio. As you get close to retirement, it's important to look at your risk tolerance when allocating your retirement assets. If you're younger, you can recover from a downturn in the market; however, if you're 60, you will have less time and more difficulty recovering from a major loss.

Create an estate plan. Way too many people don't have a thorough estate plan. Work with a qualified estate planning attorney to build in significant protection for the next generation. A properly created trust will help to avoid probate for the assets in that trust. Your attorney will have other strategies to help mitigate the estate taxes your beneficiaries might pay.

If you start thinking and planning well ahead of time, winging it won't be necessary.

Reference: Kiplinger (July 2016) “Americans Need to Stop Winging It with Their Retirements”