Kansas and Missouri Estate Planning

What are My Options for Funding Future Long-Term Care Costs?

Long-term care costs will not pay for themselves.

Each year you are older.

As you age, so does your body.

And so does your mind.

Any aging body and mind means you will eventually need long-term care.

According to a recent The Detroit News article titled “What to know about aging and long-term care costs,” the cost of long-term care can be steep.

How steep?

The median annual cost of a private room in a nursing home is more than $100,000 per year.

Home health aid for a year averages $50,000.

Of the more than 50 percent of Americans who will require long-term care, nearly 15 percent will require more than $250,000 in costs.

Yikes!

How can this be?

On average men will require 2.2 years of assistance, while women will require 3.7 years.

You can see how these add up.

Can you simply rely on family to provide care?

Perhaps.

It is not a guarantee, and caregiving can prove costly for the caregiver.

Will Medicare cover these costs?

Nope.

Custodial care is not covered under Medicare.

Most Americans have a median of $126,000 in retirement savings.

This will be wiped out quickly by long-term care needs.

If you qualify for Medicaid, you may be leaving your surviving spouse in a dire financial situation.

What other options do you have?

Long-term care insurance.

If you are in fair health, long-term care insurance is a great option.

If you wait until you are older to get this, the premiums will increase.

What you pay and whether you qualify depends on your health.

On average couples at age 55 paid $3,050 on their policies in 2019.

Hybrid long-term care insurance.

What are these hybrids?

Typically they involve a life insurance policy or annuity with a long-term care benefits rider.

You may pay a significant sum of money upon purchase, but it will serve a similar function to long-term care insurance.

Home equity.

Selling your home should not be the first option.

In some cases, it is unavoidable when paying for nursing home care.

What if you want to remain in the home?

A reverse mortgage could be an option.

Contingency reserve.

If you are a wealthy family, you may be able to simply save and set aside money specifically for long-term care costs.

Medicaid.

For those with few assets and negligible or nonexistent retirement savings, Medicaid may be your best or only option.

This will require you to spend down until you are meet financial eligibility requirements.

If your spouse still needs to survive off what you have, there may be a way to make this happen.

It will require forethought and working with an experienced elder law attorney.

Long-term care costs are daunting.

Planning ahead for this expense will bring peace of mind when the time comes for this type of care.

Reference: The Detroit News (June 10, 2019) “What to know about aging and long-term care costs”

Do I Need a Financial Durable Power of Attorney?

Incapacity requires careful planning.

Tragedy can strike at any moment.

Through a horrible accident or a sudden illness, you could be left incapacitated.

What will happen in this situation?

According to a recent WMUR article titled “Why you need a financial durable power of attorney,” not planning could put you and your loved ones in a perilous situation.

How do you prepare for incapacity?

You should visit an experienced estate planning attorney to create a power of attorney.

What will this accomplish?

It will allow you to legally bestow authority upon a trusted agent to conduct financial transactions on your behalf.

These include paying bill, making gifts, collecting Social Security, accessing safe deposit boxes, filing tax returns, and overseeing retirement accounts.

What happens if you do not have this fundamental legal document in place?

Your loved ones will need to petition the court system for this authority.

This is costly in time and money.

Everyone of adult age should have a power of attorney to avoid this unpleasant, avoidable outcome.

There are a nuances in the types of powers of attorney you may need.

For example, one of the key nuances is when the authority you are given becomes legally operative.

The first is the general durable power of attorney.

Unless it provides otherwise, it begins working as soon as you sign it.

It is functional throughout your incapacity and ends when you die.

If you revoke the general durable power of attorney, then the agent will no longer have authority to act on your behalf.

Accordingly, this power of attorney is most helpful for a broad range of financial actions.

The second type of power of attorney is the "springing" general durable power of attorney.

What does this do?

It functions similarly, but only take action when certain conditions are met.

Often this condition involves a physician providing a written declaration of your incapacity.

Control is completely yours until you are unable to manage your own financial affairs and that fact is independently confirmed.

Do not attempt this alone, because there are other important nuances you need to know when it comes to powers of attorney.

These documents must comply with state law, too.

Work with an experienced estate planning attorney to set your affairs in order without delay.

Reference: WMUR (May 23, 2019) “Why you need a financial durable power of attorney”

Should I Claim Social Security Benefits Upon Eligibility?

Several factors determine when you should take Social Security.

You are nearing Social Security eligibility.

What should you do?

When should you claim your benefits?

According to The Beachcomber News of Brigantine article titled “When to claim Social Security,” your course of action should be weighed against several factors.

What are they?

Your health.

If you are in good health and expect to live longer, you should seriously consider delaying your claim to benefits.

The benefit amount per payment increases if you wait.

If you are not expected to live long, it is better to claim the benefits while you are alive to do so.

Your retirement savings.

Have you saved enough to sustain yourself while you delay benefits?

If yes, then this may be wise.

Why?

Your monthly benefit will grow by eight (8) percent each year you wait to collect.

If you have time, save now so you can afford to take advantage of this growth.

The benefits of your spouse.

[I know that subheading can be interpreted several ways, but stay with me.]

How much will your spouse expect from his or her benefits?

You can also include your ex-spouse in this consideration if you have not remarried.

This should influence your decision.

Your current and future lifestyles.

Talk with your spouse about your plans for retirement early on and later on.

If you plan to stay active and have a costly lifestyle, it would be good to have the extra monthly amount by waiting until age 70.

Again, this means you need to be able to afford your lifestyle now with the money you have in savings.

The future needs of your spouse.

If you die first, your spouse will receive the benefit from the higher income earner.

Waiting will allow your spouse to have a higher benefit when you die, if you were the main bread winner.

If you need have questions, work with an experienced estate planning attorney and financial advisor.

They will be able to provide guidance on your specific circumstances.

Reference: The Beachcomber News of Brigantine (May 29, 2019) “When to claim Social Security.”

Should My Intended and I Have a "Money Talk" Before We Wed?

Money is an important premarital conversation.

You are getting married.

Your life has become a flurry of planning for venue, food, florists, and clothing.

Certainly, the plans are important to the wedding.

However, it is also important to prepare for your marriage beyond the big day.

According to a recent Wealth Advisor article titled “How to Protect Your Assets Without a Prenup,” discussing finances is key to preparing for your marriage.

Marriage involves building a life together.

Unless you are getting married right out of high school or college, you probably will be building off of two distinct lives.

You may have assets saved.

Your spouse may have student debt.

If either of you were previously married, alimony and child support may be a reality.

In merging two separate lives into one, you may consider a prenuptial agreement.

You are not planning on divorce.

You are merely protecting what you have.

For example, keeping certain assets separate could protect at least one of your incomes from creditors.

It becomes a safety net for your life together.

If a prenuptial agreement is not an option, there are still ways to protect your assets.

How?

Keep separate accounts.

The money you brought can remain your money.

You can open a joint account together after marriage as your household "operating" account.

Any money you make after marriage can go to this account and be used for your life together.

Title property separately.

If the home is yours and you choose to keep it under your name, it should be your responsibility.

Any improvements and payments should be paid from your separate account.

Keep organized records.

This can help protect the property as your own.

Record Everything.

If you make acquisitions with your separate account, you should keep records.

This shows the acquisitions are yours alone.

Also do this with gifts or inheritances.

Showing separation of moneys and assets via a detailed paper trail will help establish and confirm ownership should it be required at a later date.

It should be noted that some appreciated assets could be deemed marital property.

How is this determined?

If the property appreciated passively such as a public stock, it is separate if under your name.

If the property appreciates actively, the appreciation could be considered marital property.

A house would be one example of active appreciation.

It is helpful to include others in your financial planning as a couple.

An experienced estate planning attorney or financial advisor can educate you on your options.

Reference: Wealth Advisor (May 19) “How to Protect Your Assets Without a Prenup”

Should I Tell My Children Anything About Their Future Inheritance?

Honesty is a good policy.

You have created an estate plan.

With the help of an experienced estate planning attorney, everything is in place and in alignment with your wishes.

You are done.

According to a recent Kiplinger article titled “To Prepare Your Heirs for Future Wealth, Don't Hide the Truth,” this is not necessarily true.

You should probably talk to your children about your plan.

People make many excuses for avoiding this crucial step.

Like what?

First, the topic is unpleasant.

People do not enjoy discussing death of a family member.

You cannot avoid death.

Why avoid talking about it?

It is a reality.

A second reason is fear of poor decisions.

Many parents believe if children know they will receive an inheritance, then they will no longer be motivated to work or go to school.

Discussing your wealth and your estate plan with your children can be a valuable time to pass along your wisdom and explain why you made the choices you made.

By doing so, you can help your children make informed decisions for their own future.

This can help with their own tax and estate planning, too.

Communication is key to any relationship.

Transparency in estate planning can help strengthen your family bonds, while setting your loved ones up for a successful transfer of wealth and wisdom.

Reference: Kiplinger (May 22, 2019) “To Prepare Your Heirs for Future Wealth, Don't Hide the Truth”

Are Reverse Mortgages a Good Idea in Retirement?

Sometimes borrowing money is necessary.

You need money.

You are at least age 62.

Your home is not heavily mortgaged.

Someone mentioned a reverse mortgage may be a good option for you.

Perhaps it was Tom Sellack.

What is a reverse mortgage?

According to a recent Fed Week article titled “Considerations for Borrowing in Retirement,” reverse mortgages allow seniors to receive tax-free cash with no payments due until you move or die.

The funds can be used for a variety of things.

You can use them to pay off your regular mortgage on the home, make repairs, pay health care bills, or take care of daily expenses.

For those who do not plan to pass the house to heirs, it can be quite helpful.

What if you want your children to inherit the home?

You will need to consider the implications.

They can keep the home, but they may need to take out a mortgage to pay off the reverse mortgage.

If you move or sell the home while alive, you will owe the money for the reverse mortgage.

What are things to consider?

Reverse mortgages are expenses.

Although your reverse mortgage is insured by the Federal Housing Administration (FHA), you will need to pay insurance, property taxes, and maintain the home according to FHA guidelines.

There may be other option than taking out a reverse mortgage, including taking loans again your securities portfolio or life insurance.

Before you act, discuss your options and your situation with your experienced estate planning attorney, elder law attorney, or financial advisor.

As with all things financial and legal, look before you leap.

Reference: Fed Week (May 16, 2019) “Considerations for Borrowing in Retirement”

What Are Some Common IRA Rollover Mistakes to Avoid?

IRA rollovers require special attention.

You have more than one IRA.

Maybe you established them.

Maybe you inherited one of them.

You are wanting to rollover funds from one to another.

According to a recent Investopedia titled “Common IRA Rollover Mistakes,” there are rules to be followed.

What are they?

The first is the 60 Day Rule.

How does this work?

Let us say you removed funds from one IRA.

You have exactly 60 days to roll these over into your other IRA.

Some people mistakenly believe this rule means two months.

It does not.

The rule demands 60 days exactly.

What happens if you fail to comply with this strict window?

If you get an extension or a waiver, you must make the transfer by the new deadline.

Otherwise, the funds will be taxed as normal income.

If you are under age 59½, you will also be charged a 10 percent early withdrawal fee.

Yikes!

The second rule is the One-Year Waiting Rule?

What does this mean?

If you have already made a distribution and rollover, you must wait one year before you can make another tax-free rollover.

There are a few exceptions.

What are they?

This rule does not apply for rollover distributions from an employer plan or from a rollover between a traditional IRA to Roth IRA.

A third involves your required minimum distribution.

If you are older than 70½, you must begin taking an annual required minimum distribution (RMD) from your IRA account.

This RMD cannot be rolled over.

Why?

It would then be considered an excess contribution.

What can you do?

Before you rollover one account, be sure to remove your RMD so it is not included in the transfer.

The fourth common mistake involves the Same Property Rule.

Essentially this means your rollover must enter into the new account the same as it left the old account.

If you took cash from one, the cash must go into the new account.

You cannot purchase new assets to then contribute them into the new account.

Finally, if you are rolling over from a qualified plan, 403(b) plan, or governmental 457 plan, you should choose to make the transfer a direct rollover.

Why?

If the funds are paid to you and then transferred, 20 percent of the amount distributed must be withheld by the payor.

In other words, you will unnecessarily forfeit money from your account.

When making the transfer closely coordinate with the plan administrator.

Taking these steps will help you protect your retirement savings from avoidable fees, taxes, and penalties.

Reference: Investopedia (March 29, 2018) “Common IRA Rollover Mistakes”

What Should I Know About the "Employer Match" to My Retirement Plan?

You should take advantage of a 401(k) employer match if provided.

You have a 401k plan as part of your employment benefits package.

Get excited.

This will help you plan and save for retirement.

Your plan has an employer match.

You should be even more excited.

This will help you plan and save even more for retirement.

How?

According to a recent Investopedia article titled “How 401(k) Matching Works,” there are a few ways employer matches could work.

The most common way is for an employer to match a percentage of your contributions up to a certain limit of your total salary.

For example, if your employer matches 100 percent up to 4 percent of your salary when you contribute 4 percent, you will have 8 percent of your salary placed into the account.

Another matching method is for an employer to contribute up to a certain amount for all employees.

The difference?

This match is not dependent upon your salary.

It is a flat rate match.

Taking advantage of a 401(k) match is essentially "bonus" money.

And who does not like a bonus?

Specific terms of 401(k) plans will vary.

All plans must comply with withdrawal regulations of the Employee Retirement Income Security Act (ERISA) and certain required contribution limits.

How much is matched and other details are left up to the discretion of the company.

Some companies will give a 100 percent match on your contributions up to a limit.

In essence, you will double your savings by maximizing the match.

Other companies may only match a percentage of your contributions up to a certain amount.

If you have a system where the employer only matches 50 percent up to 5 percent of your income, its contribution if you maxed out your match would be 2.5 percent of your total income.

You would likely need to contribute more to your retirement account to make up the difference.

There are IRS limits to deferrals.

What are they?

In 2019, limit to contributions to 401(k) accounts held by a single employee were 100 percent of compensation or $56,000.

The lower number of these two is the limit.

Elective salary deferrals by an employee are capped at $19,000.

Does the employer match count against your deferral limit?

No.

It does not.

Is there any wiggle room for employees nearing retirement?

Yes.

If you are over age 50, you can make additional "catch up" contributions.

How much?

In 2019, the catch-up limit is $6,000.

Another important aspect to check with your employer 401(k) plan is vesting.

Essentially, you need to know the degree of ownership you have over the employer matched funds.

If you worked less than a certain amount of time, you may forfeit all or part of the employer contributions should you leave.

Are your contributions at risk?

No.

Your contributions are your contributions and cannot be forfeited.

Talk with your HR department if you have questions.

If you have an employer match, maximize it.

This is free money for retirement you should not pass up.

Did I mention that this is "free" money?

Regardless whether you have a 401(k), start saving for retirement now.

You retired self will thank you later.

Reference: Investopedia (February 4, 2019) “How 401(k) Matching Works”

Is My Retirement Savings Plan on Track?

You need money in retirement.

Money is an important part of life.

You need it to buy food and a pay bills and, well, just about everything.

Did I note that there really is no "free" lunch?

And this need does not disappear in retirement.

Unfortunately, too many Americans save as though it does.

According to a recent CNBC article titled “These people are on the verge of retiring — and they have nothing saved,” 48 percent of American households over age 55 do not have anything saved for retirement.

Yikes!

These individuals are taking a pretty big risk.

Do not follow their lead.

Start preparing financially for retirement.

How?

Catch up on retirement plan contributions.

If your employer has a 401k plan, you can defer up to $19,000.

You can save $6,000 more in a 401k if you are over age 50.

IRA contribution limits are set at $6,000.

If you are over age 50, you can save an additional $1,000.

Have you delayed saving for retirement?

Take full advantage of these provisions to help you catch up on your saving.

Increase the funds in your health savings account.

Your HSA is a useful tool for many reasons.

First, the money you contribute is tax deductible or pretax.

Second, the money you contribute can accumulate tax-free.

Finally, the withdrawals are tax-free on qualified medical expenses.

Singles can contribute $3,500 a year.

Families can save $7,000.

If you are at least age 55, you can contribute an extra $1,000.

There is a caveat.

You cannot contribute when you are enrolled in Medicare.

Work a little longer.

If you are far behind in your retirement planning, delayed retirement or a part-time job could be a viable option for you.

Earmark your raise.

Did you get a raise?

If yes, you already know how to live on a tighter income.

Save at least two-thirds of it.

If your employer has a 401k plan, be sure to increase your deferrals there as well.

It is never too early to save for retirement.

If you are behind, take steps now to set aside money for retirement with the time you have left.

Reference: CNBC (April 5, 2019) “These people are on the verge of retiring — and they have nothing saved”

What Retirement Planning Mistakes are Baby Boomers Making?

Poor planning leads to greater stresses in retirement.

We you born between 1946 and 1964?

If yes, then you are a Baby Boomer.

There is a 47 percent chance you are already retired.

If you planned well financially, you will have set yourself up for success in your retirement years.

Congratulations!

According to a recent CNBC article titled “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations,” not everyone has done so.

What are the most common planning mistakes?

Not saving enough.

You cannot expect Social Security to supply all of your retirement income.

If your company does not have a pension plan (and very few do, outside of government), you are left with only one other income source—your personal savings.

Nearly 45 percent of Baby Boomers zippo in personal savings for retirement.

Yikes!

This leads us to the second major mistake.

Underestimating health care costs.

As you age, you will have more medical issues.

Many people do not account for these costs in requirement.

Instead, they assume Medicare will cover whatever they need.

Wrong again.

Anticipate and save for health care costs.

Purchase long-term care insurance as well.

In addition to underestimating health care costs, Baby Boomers often make another significant miscalculation.

Underestimating retirement income.

On average Americans ages 65 to 74 spend $55,000 annually.

Most people do not account for this.

The result?

Many must downsize, ask their children for help, or go back to work.

None of these options is ideal.

If you have not yet retired, make like a Boy Scout - and be prepared!

You will be glad you did.

Reference: CNBC (April 9, 2019) “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations”