Building Legacies that Last Estate Planning and Elder Law

So, You Think You Can Retire?

Group of people clapping and smiling with one another

“The most common need of those preparing to step into retirement isn’t what you think: it’s confirmation that all the hard work, discipline and saving was enough.”

People getting ready to retire really want to be reassured that they did a good job and were good stewards of their money, according to Investopedia’s article “Determining If You’re Prepared for Retirement.” They also want confirmation that the retirement assets they’ve built over a lifetime will last for the rest of their lives and that they’ll be able to live in comfort.

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.

Don’t forget to prepare an estate plan, unless you have already done so. A will, power of attorney, healthcare directive and other documents will help protect you and your loved ones. You need an estate plan, regardless of the size of your portfolio. A qualified estate planning attorney can help you prepare this part of your retirement.

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


Why Is a Power of Attorney So Important?

Elderly couple looking concerned

“……we often receive community questions surrounding powers of attorney (POA), so we decided to take a look at some of the most common misconceptions surrounding a POA.”

Most people understand the basic concept of a last will and testament: a document that directs how assets are to be distributed after someone dies. However, according to an article from A Place For Mom, “5 Misconceptions About a Power of Attorney,” there’s a lot of confusion over this legal document.

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.

Power of attorney is an important part of an estate plan and requires the specific knowledge of an estate planning or elder law attorney. Don’t wait until it is too late for a family member (or yourself) to have this document prepared and signed.

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


Estate Planning Fundamentals You Need to Know

Fortune cookie broken open

“It’s easy to put off because it can be morbid and often doesn’t kick in until late in our lives, but it’s an important piece to be thinking about for those of us who want to make sure our families are provided for.”

A well-prepared estate plan can help you and your family reach many different goals. You may know that your estate plan provides for your spouse and children, including what should happen to them, if they are minors and need someone other than you and your spouse to rear them. In addition, says the Brainerd Dispatch in its article “Wealth Column: Estate Planning Basics,” an estate plan can also be used to dispose of the family business, minimize tax liability and empower an executor and trustees to act on your behalf.

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.

Once you have all this information together, you and your estate planning attorney can begin to put together a plan that will serve you and your family. Remember that an estate plan is not a one-and-done document. Over time, as your life and tax laws change, you’ll need to review the estate plan,  which includes beneficiary designations.

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

Will SAFE Act Really Make Seniors Safe?

Elderly woman looking serious

“In an attempt to take a step toward countering some of the negative impact of elder financial abuse, the government recently passed the Senior Safe Act in May 2018, as part of a bipartisan banking reform set of laws. “

Elder abuse costs millions of Americans an estimated $2.9 billion annually. The expectation is that these numbers are only going to increase, as the scams targeting the elderly become more and more sophisticated. This is according to Forbes in ““After SAFE Act Passage, The Battle Against Elder Financial Abuse Remains Far From Over.”

The aim of the Senior Safe Act is to encourage financial institutions of all kinds to play a larger role in fighting against elder financial abuse. The law, which was modeled after the Senior$afe program created in Maine, requires financial institutions to train employees on detecting activities that may indicate elder abuse is occurring. If the employees are trained, the Senior Safe Act also provides a reporting process and liability protection for those who report the possible abuse.  It is thought that the liability protection would make those individuals reporting the possible abuse more proactive.  However, there are still some problems with this.

Some advisors report being reluctant to report any client who seems to be suffering from mental deficiencies or elder abuse. The problem, advisors say, is that they are not trained and won’t feel confident in making a judgement about competency. Some court cases have put the onus on the advisor, when selling certain products or strategies but advisors lack both the training and the ability to make a medical diagnosis of senior clients. Without the ability to identify competency, it is very likely that any reporting will only take place well after the elder financial abuse has taken place.

Another issue is that family members or friends are typically the ones who commit elder financial abuse. The victim usually does not want to press charges, fearing that the person will become angry with them and withdraw their emotional support. Being dependent upon the same person who may have perpetrated financial abuse, puts the elderly person in a no-win situation.

Elder abuse prevention, financial and otherwise, should start years in advance, at the first signs of declining physical and mental health. It should begin with a plan for managing financial assets and having the proper legal documents in place, including a will, power of attorney, general durable power of attorney, healthcare directive and other estate planning documents.

By being proactive while the individual is still relatively well and healthy, it may be possible to create protections that will be crucial later in life. Speak with your estate planning attorney now, to make sure that your estate plan is in place, so you and your family are protected.

Reference: Forbes (July 23, 2018) “After SAFE Act Passage, The Battle Against Elder Financial Abuse Remains Far From Over”


Estate Planning with Blended Families Requires a Balance

Generational family smiling

“If you say “I do” a second time and have children, your partnership acquires new stakeholders—not necessarily willing ones. Adult children have expectations about how much they’ll inherit and how soon. A new spouse scrambles that calculus.

When you marry, you’re entering a partnership that is emotional and financial. When you marry again and when there are children from prior marriages, you are all entering a brave new world. The number one reason that stepparents and stepchildren fight is over money, according to the article “Don’t Split Heirs With Your Estate” from AARP.

If you and your spouse are each financially independent and leave your assets to your heirs, you’ll be less likely to run into the big money issues.  However, if one spouse depends on the other for support, assets will be needed for the other spouse’s lifetime. When there’s a big age difference, the children of the older spouse may end up waiting 10 to 15 years for their inheritance.

The couple’s first responsibility should be to their spouses. You can do this through your will, or a prenuptial or a postnuptial agreement. The goal is to make sure that the other spouse has enough money to live on. A surviving spouse does have the right to make a claim to a certain amount of the late spouse’s assets, in the absence of a will or a proper prenup. However, by taking care of this in the will, you can spare each other and your blended family from the time and delay that a claim will take. The award may be large or small, depending upon the laws in your state.

One way to head off some of the anger that may follow a first spouse’s death in a second or subsequent marriage, is to distribute at least a little bit of cash to all of the adult children in equal amounts. It’s not about the amount, but it is a signal that you are aware of them and their needs.

In blended families with good relationships, it would be ideal for children and stepchildren to be treated equally. If there’s a rational reason not to, like younger children who need college education funds, make it clear to all what the thoughts are behind the distribution.

Personal property is another source of conflict within blended families. If first-family heirlooms are claimed by second-family children, the whole family could be headed to court. Create a document that makes your wishes clear about which child should get what possessions and attach it to your will with the help of your estate planning attorney.

If you leave everything to your spouse, there’s no way to be sure your own children will inherit anything. There is a chance that after your death, the ties between children and stepparents could weaken. You may need to leave money for your children in a trust that provides income to the spouse for life.

Discuss your options with an estate planning attorney.

Reference: AARP (July/August 2018)

“Don’t Split Heirs With Your Estate”

Cohousing May Be the Answer for Many “Golden Girls” and Guys

Generational Family smiling

“Here’s one answer to the “Where to go next?” question being asked by those inching toward retirement, or those looking to escape the increasing cost of Seattle living and combine resources with a like-minded community.”

For those living in high-cost areas, like Seattle, San Francisco, New York, Los Angeles and other places where the cost of housing is astronomical, the idea of purchasing land and building tiny houses next to each other seems like something out of a movie. But according to an article in Seattle Times titled “Battling rising cost of living? Seeking a community? A look at the cohousing lifestyle,” this could be a very real and enjoyable solution for many retirees.

This past June, Charles Durrett, an architect who has been advocating for the cohousing lifestyle for years, presented a workshop for people who want to establish these types of communities. The idea is that everyone gets their own private home and living quarters, while sharing kitchens and other shared rooms. Neighbors share house items, meals, coordinate activities and make group decisions about how to manage their shared lives.

While he introduced the concept and phrase “cohousing” thirty years ago, he says that he’s now busier than ever before. The workshop was sold out.

The concept could be an ideal solution for seniors who don’t want to give up their privacy but would like to be part of a smaller community. Durrett recommends that each community have a caretaker unit, so someone who is able to take care of the residents, can live as part of the group.

The success of a cohousing community is not in the size or design of the house.  It is due to the enthusiasm of the people coming together, who believe their lives will be better, if they are living as part of a community. That’s the common denominator. The architect has lived in a cohousing community for 12 years with 30 adults—20 of them seniors—and 20 children.

Research has shown that people live longer, when they are socially engaged.  However, social can also turn to drama, especially in small groups. Therefore, people must learn how to get along and cooperate.

Is cohousing for you? You should do your homework before making a big decision about selling your home to live in a shared community. Your estate plan should also reflect your new position and be aligned with your new ownership. An estate planning attorney will be able to help you achieve that goal, while protecting your assets for your heirs.

Reference: Seattle Times (June 1, 2018) “Battling rising cost of living? Seeking a community? A look at the cohousing lifestyle”


Think 61 is Your Golden Retirement Number? Think Again

Elderly couple enjoying retirement

“There's nothing wrong with looking forward to retirement and even planning an early exit from the workforce.  However, Americans may be a bit misguided, when it comes to this particular milestone.”

If you work for a living, chances are good you like to daydream about what your life will be like during retirement. We all do it and so do younger workers who have yet to pay their dues.  However, according to a survey from Bankrate, as reported in The Motley Fool’s article titled “Americans’ Ideal Retirement Age–and Why It’s Not Realistic,” adults across the board think that 61 is the ideal age to retire.  Is that realistic?

Unless you can live without Social Security during retirement, 61 is not your magic number. Most American retirees can’t live on Social Security alone and those benefits have a major impact on the ability of most retirees to keep up with their bills.  However, eligibility doesn’t start until age 62. The people in the survey either didn’t know they can’t collect Social Security until they turn 62 or they are assuming they can get by without it.

The average Social Security benefit check is just more than $1,400, which adds up to about $17,000 a year. If you are among those who have little or no money set aside for retirement, that’s a lifeline.

A large number of working Americans are way behind in their retirement savings. It’s estimated that around 42% have fewer than $10,000 set aside for the future. How will they retire at all, much less retire at age 61?

Even if you can manage to keep working until age 62, filing at that age has its own issues. Today’s workers need to wait until their Full Retirement Age, or FRA, in Social Security’s terms, to receive their full monthly benefit. The difference is large enough to make it worth the wait.

Assume that your full retirement age is 67, but you retire at age 62. Instead of $1,400, your monthly benefit would be $980.

However, what if you are among those who really want to retire at 61? You’ll need to have started with saving and investing for retirement at a relatively young age and have been willing to take a very aggressive position in your investments. If you started at age 26, with a goal of retiring at age 61, and you are employed by a company with an employee sponsored 401(k), you’d have had to contribute $1,500 a month for thirty-five years to amass enough money—if your investments were earning a steady 7%.

If retirement is around the corner, one thing you can do is make sure your estate plan is in place. Therefore, whatever assets you have, will be distributed according to your wishes. Make sure you have also taken care of having a power of attorney and healthcare directive in place. Speak with an estate planning attorney to make sure these documents are prepared correctly.

Reference: The Motley Fool (July 18, 2018) Americans’ Ideal Retirement Age–and Why It’s Not Realistic”


Women Living Longer but Saving Less

Woman sitting looking out a window

“All working Americans need retirement savings, regardless of gender.  However, the need is particularly strong for women, since they have a tendency to live longer than their male counterparts. Therefore, they're also more likely to require paid care at some point—since a spouse may not be around to provide care.”

Women have a statistically longer lifespan than men. It’s unsettling to learn that women save about half as much as men for retirement. This disparity could put women in a very bad position, when they are most vulnerable late in their lives, says The Motley Fool in its article “Why Are Women Only Saving Half as Much as Men for Retirement?”

When queried about why they think it is so difficult for women to save for retirement, most woman honestly said they are living from one paycheck to the next, with little to spare for savings. They are also paying back student loans. Men say much the same thing, so why is the average female saver saving so much less for her future?

In a recent Student Loan Hero study, women admit that they don’t know a lot about investment and retirement planning. Women are also more likely to take breaks in their careers to be caregivers, raising children and taking care of aging parents. This reduces their earnings. While some wage equity has been achieved and even made into law, most women do not earn the same as their male counterparts. Therefore, women face special challenges to their retirement savings.

What can be done to address the gap?

  • Start by examining your budget and cutting unnecessary expenses.
  • Make sure to maximize your employer’s 401(k) match.
  • Fight for raises throughout your career. To gain more info on what your position is worth, use websites like Glassdoor’s “Know Your Worth” tool to compare salary data.
  • Consider changing your investment approach. If you have steered clear of stocks over conservative vehicles like bonds, they may be a good way to catch up.

Finally, don’t forget that retirement includes estate planning. Sit down with an experienced estate planning attorney, who can help you prepare the necessary documents to protect you and your family. Make planning for retirement a priority. Your future self will appreciate it!

Reference: The Motley Fool (June 3, 2018) “Why Are Women Only Saving Half as Much as Men for Retirement?”


Help with Healthcare Costs in Retirement

“A financial planner’s client was traumatized in the dentist’s chair, but it was not the drill that scared her. It was the dentist’s bad news.” MP900182808

The frightening news was that she needed thousands of dollars of dental work, a cost she had not anticipated when she retired a few months before the appointment. What if this happens again, she thought. Am I going to run out of money? She was in good shape, her financial planner assured her. But not everyone is as fortunate, as reported by Reuters in an article titled “How to shockproof your retirement healthcare costs.”

Almost all retirees fear that a medical expense shock will decimate their savings. In a national survey by Brightwork Partners, as many as four out of five boomers agreed that they are worried about this.  However, they are too confused by all of the details, to actively plan for medical costs during retirement.

Help is on the way from national retirement researchers and investment companies. While most retirement healthcare research focuses on the big picture, like Fidelity’s recent estimate that a couple is likely to spend $280,000 on healthcare costs in retirement, a new study from Mercer Health and Benefits and Vanguard Research got a lot more granular.

The goal of the study is to develop a model that can be used by people before they retire, so they can create a budget that includes this admittedly staggering number. This model will be able to help set necessary saving goals and plan on how to achieve the goal.

An average 65-year-old woman retiring and using Medicare in 2018 will need $5,200 to pay for medical expenses. That’s including Medicare, additional health insurance and out-of-pocket costs. By 85, the cost jumps to $10,100 annually, or, for a less healthy person, $14,000. As they age, people need more health care and researchers say we should consider “healthcare inflation” as starting at 6.6% annually, with a rate of 4.5% over time.

Before retiring, experts say people need to be honest with themselves about their health and the costs that will ensue. If they have chronic illnesses like diabetes, cancer, heart disease or arthritis, they need to expect to spend more than the average amount.

The biggest medical care shock to retirement savings is long-term nursing home care.  However, these researchers found that only one in seven will face those costs for two years or more.

Rather than panicking, think about these issues in advance and prepare for the costs. You should also consider what you can do to address expenses. One option is to move closer to family members, who might be able to help with care at home.

Reference: Reuters (July 11, 2018) “How to shockproof your retirement healthcare costs”


Now Is a Good Time to Revisit Your Estate Plan

Bigstock-Vintage-brass-telescope-on-ant-44347372“There still are many sound nontax reasons to revisit estate planning and possibly update your prior documents.”

Even with the doubling of the individual estate gift and GST tax exemptions to about $11.2 million per person (and double the amount for married couples), you still need a will, says Forbes in a useful article titled “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. The new tax law may have eliminated or reduced some estate tax liability, but it has not eliminated the need for mindful and proactive estate planning.

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