August 16, 2018March 9, 2026

Estate Planning with Blended Families Requires a Balance

“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”

August 15, 2018March 22, 2019

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

“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”

August 14, 2018March 22, 2019

Think 61 is Your Golden Retirement Number? Think Again

“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”

August 10, 2018October 30, 2023

Women Living Longer but Saving Less

“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?”

August 9, 2018

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.”

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”

August 3, 2018December 13, 2025

Now Is a Good Time to Revisit Your Estate Plan

“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”

August 2, 2018December 13, 2025

Want to Give Away All of Your Money?

“Even if you’re not a millionaire, you may have reached a stage where you think, It’s enough. It could even be a bit too much. A second car may sit mostly in your garage. A beloved vacation home may have transformed from a place to relax to a place to maintain.”

You don’t have to be a millionaire to feel like you’ve got enough. How many cars, vacations or houses does anyone really need? If you’ve reached that point, congratulations. Now, what do you do about it? How do you share your resources in a way that is carefully thought out and doesn’t create a battle among family members? An article from AARP, “How to Give Your Money Away,” provides some good points.

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. Many states permit you to switch ownership to the parent, if the beneficiary remains the same.

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. You can direct grants from the fund to any non-profit organization you choose and whatever timeframe you like.

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. Sometime 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.

Talk with an experienced estate planning attorney about how to give away your assets in a way that will make sense for your family and gain useful tax benefits for your estate.

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

August 1, 2018December 13, 2025

Roth IRAs Aren’t for Everyone, So Check Your Retirement Income Tax Rate First

“Anyone saving for retirement has probably had to decide between saving in a Roth account versus a traditional retirement account.”

If you think your income in retirement will be higher than it is right now, that’s a reason to put retirement savings into a Roth IRA. However,, if you’re already saving for retirement and you expect to maintain the same lifestyle, you’ll want to be sure your retirement income does not exceed your current income, says USA Today in “Why more people should probably use pre-tax retirement accounts instead of Roths”

It’s all about the tax burden!

Comparing your current income as you are working to your expected retirement income, isn’t exactly apples-to-apples. Instead, you’ll need to include calculations of your tax rates for IRA withdrawals and other taxable accounts. People often pay a lower overall tax rate on withdrawals from traditional retirement accounts than they pay on Roth contributions today–even with a higher retirement income.

To fully understand this, you’ll want to understand the difference between marginal tax rates and effective tax rates. The marginal tax rate is the tax rate on your next dollar of income. For example, people say “I’m in the 22% income bracket”—that’s their marginal tax rate. Then there’s the effective tax rate, which is the total tax bill as a percentage of income. This number is always lower than the marginal tax rate.

For every dollar you add to a traditional retirement account, you’re reducing your taxable income and saving on taxes at the marginal tax rate. Every dollar saved in a Roth IRA account is effectively taxed at your marginal tax rate. You could have chosen to save it in a traditional IRA, but you chose the Roth.

Here’s an example: a single person who earns $60,000 annually is in the 22% tax bracket, after taking the $12,000 standard deduction. That single person will have to have an income of $195,105 in retirementto reach a 22% effective tax rate on a traditional IRA withdrawal.

It works better for someone in the 12% income bracket. A man who earns $50,700 annually is right at the top of that 12% bracket, after taking the same standard deduction. He’d have to withdraw $52,605 from a traditional IRA in retirement for it to be worth having a Roth IRA.

This decision requires making correct calculations about how much you intend to spend in retirement. You may not expect your retirement expenses to be higher than your current living expenses, but if you travel a lot or have high health care costs, you may find yourself spending more.

Reference: USA Today (July 8, 2018) “Why more people should probably use pre-tax retirement accounts instead of Roths”

July 31, 2018December 13, 2025

What Is the Fascination with Anthony Bourdain’s Estate Plan?

“Ever since his untimely death, the press and the public hasn’t been able to get enough of Anthony Bourdain. His name caused another commotion this week, when his will was probated in New York.”

There’s something about a rebel who lives life on his own terms that is like a magnet: it’s sometimes hard to turn away and that’s how many are responding to celebrity Anthony Bourdain’s passing, according to the Forbes’ article “How Anthony Bourdain’s Estate Plan Reflected the Two Most Important Parts of His Life.”

Reports that his net worth was only $1.2 million grabbed a lot of attention. It shouldn’t have surprised anyone, because Bourdain regularly said that until his 40s, he lived paycheck-to-paycheck. What’s really interesting from the estate planning perspective, is how he expressed his wishes in his will. The details became public because it was probated.

Bourdain made provisions for his only child, who will inherit the bulk of his wealth. He also seemed to have been influenced by the enormous amount of travel his career required. What is interesting is that he passed his frequent flyer miles to his estranged wife “to dispose of, in accordance to what she believes to be his wishes.”

Those who travel often and have large frequent flier miles, award points and perks, often overlook them as part of their estate plan. They are often valuable and should be addressed in estate planning.

However, passing along airline points is not as easy as filling out a beneficiary form. Each airline has their own policies, so you may have to fill out a form for each one. Loyalty programs are basically contracts with a company and you’ll need to read the fine print, since not all airlines allow their points to be assigned. The selection of beneficiaries also may be limited by the airline.

Bourdain’s very public profile makes it unlikely any airline would refuse to honor his request to transfer those points. Because he carefully documented his desire to leave his frequent flier miles to a specific beneficiary, it’s even more likely his points will transfer without too much fuss.

Bourdain is proof that even rebels make sure to put estate plans in place.

His will reflects his personality of authenticity and relentless curiously about the world around him. The final message he leaves us with, is to take care of those we love, even as we travel the globe.

Reference: Forbes (July 6, 2018) , “How Anthony Bourdain’s Estate Plan Reflected The Two Most Important Parts of His Life.”

July 31, 2018December 13, 2025

Have These Documents Prepared for a Child Headed to College

“There are documents pertaining to health, money, and college records, that your child can sign to give you some peace of mind. Not all of these are required, but you may want to consider if you need them or not.”

There’s no end to what parents and grandparents can worry about, when their child or grandchild heads off to college. Will they make the right decisions, choose good friends and perform well in their studies? One thing you can do to help prepare your college-bound student, is to have certain legal documents prepared before they go, advises getintocollege.com in the article “Legal Documents Your Child Needs to Sign Before Heading to College.”

Once your child turns 18, your access to their medical records ends, unless they complete a form called a HIPAA Authorization. Your child must sign the form to give you access to their records, appointments, test results, etc. If your child is going to a school out of state, you may need a state-specific form. Keep these documents in a safe place, where you can access them quickly, in case of an emergency.

Chances are your student is heading off to college with a debit card and a credit card. However, do you have access to those accounts? Talk with your estate planning attorney about creating a Financial Power of Attorney form, so you don’t run into any roadblocks, if your child needs help handling their finances. Opening a bank account or having a credit card attached to your account makes it easier for you to transfer money to your student. It also makes it easier for you to keep a watchful eye on their spending. Make a copy of the front and back of all cards so you can easily report them if lost or stolen.

Colleges have a form known as FERPA (Family Educational Rights and Privacy Act), which you usually can obtain at some point during orientation. This is a document that gives you the legal right to your child’s academic and financial information through the college. Think of this as the college’s HIPAA law. It’s not the same, but it can create the same level of obstruction, if you do not address it in advance. With it in place, you’ll be able to discuss their finances with the bursar’s office, their grades with their academic advisor and many other offices in the college that will otherwise refuse to speak with you.

College is a transition time for both students and parents, as well grandparents. Having these documents properly prepared, with the help of an estate planning attorney, will give you some peace of mind, as your child leaves the nest.

Reference: getintocollege.com (March 29, 2018) “Legal Documents Your Child Needs to Sign Before Heading to College.”

Building Legacies that Last Estate Planning and Elder Law

Author: Profit Law Firm