Putnam County Estate Planning & Medicaid

Responsible and Loving Adults Know the Importance of Life Insurance

Adults with spouses and children need life insurance to protect those they love. Maybe that's corny, but it is true. Don't let the complexity scare you; your family will thank you.
Just as we are still reluctant to discuss death, we still have a predilection to push back against discussions concerning life insurance. Too morbid. Too complicated. But in "10 Things You Absolutely Need To Know about Life Insurance," Forbes presents a compelling argument to go past any preconceived notions that cause anyone to avoid this important personal finance tool.
With the proper information, you can simplify the decision-making process and arrive at the right choice for you and your family.
Here are some of the things you absolutely need to know about life insurance:
You really need it if you are someone's spouse or the parent of dependent children. If you are retired or financially independent and no one would suffer financially if you weren't around—OK, you don't need life insurance.
Life insurance doesn't just slap a monetary value on your life. Rather, it helps compensate for the financial consequences that accompany the loss of a wage earner's life. It can help those left behind cover the costs of final expenses, outstanding debts and lost income. After an unexpected death, life insurance can lessen financial burdens at a time when surviving family members are dealing with great loss. It can also give peace of mind to the policy holder.
Life insurance is a risk management tool, not an investment. There are some life insurance policies that have an investment feature, but they're not really an optimal investment. There are usually better and more efficient strategies.
There are two kinds of life insurance—term and permanent, also known as whole life insurance. Term life is the simplest, the least expensive, and the most widely applicable. The life insurance company bases the policy premium on the probability that the insured will die within a stated term—typically 10, 20 or 30 years. The premiums are guaranteed for the length of the term, then the policy becomes cost-prohibitive to maintain—or you can decide to let it lapse. This means that you could pay premiums for decades and "get nothing out of it." That's good news because it means you were protected during that time.
Permanent life insurance includes the same probability-of-death calculations but also includes a savings mechanism, often referred to as "cash value." It's designed to help the policy exist into perpetuity. Whole life has an investment component, and variable life has investment options more like mutual funds. Universal life is a less expensive permanent life insurance alternative with added flexibility but increased interest rate risk for the owner.
Choosing the right life insurance policy doesn't have to be complicated. It's better to set up something you can work with and understand than to postpone such an important decision due to the policy's intimidating complexity. In many circumstance, a good rule of thumb is to purchase enough life insurance to replicate all or most of the insured's income for a term as long as the household expects to need that income.
We can't say it enough – it's better to discuss with your loved ones what would happen in the event of an untimely demise than it is to let them struggle through a terrible time with no planning or advance discussion. By meeting with an estate planning attorney and purchasing the appropriate life insurance plans, your loved ones will be prepared in some way – and they will be grateful to you for looking out for them.
Reference: Forbes (January 5, 2016) "10 Things You Absolutely Need To Know About Life Insurance"

Poor Tax Planning Could Hand Your Heirs a Financial Disaster

You might have the best of intentions, but a poorly structured estate plan could end up requiring your heirs to use much of their inheritance to pay taxes on that very same inheritance.
Even the most successful families create disasters for their heirs. Unless you are a tax lawyer or estate planning attorney, chances are you don't know how to properly plan for the taxes that are due on the sale of assets. A report from Fox 61 News, "Tips to avoid an income tax and estate planning time bomb," discusses how important planning and timing are to helping your heirs avoid inheriting a tax bomb.
For example, parents may decide to deed a home to their son while they are alive to protect it from long-term care costs or to avoid probate. Because the child didn't pay the parents the fair market value of the place, it's considered a gift, and a gift tax return may be required depending on the value of the home. The more the property is worth at the time of its sale, the greater the gain and the larger the tax bill will be.
These parents unknowingly planted an income tax bill bomb for their children by gifting property during their lifetimes instead of allowing the children to inherit the property after their deaths.
However, if the parents had used a revocable trust to own the home, then the residence would be passed on after death. In this scenario, the heir would not owe any income tax, provided the property was sold for what it was worth at the date of death. This works regardless of how much the property is worth at the time of the parents' passing.
Young or old—it doesn't matter—if you don't have an estate plan, have one created now. Start with the basics, and if you need to, do the additional planning as it applies to your situation. Speak with an experienced estate planning attorney. In addition, remember these tips:
• Review and update your beneficiary designations.
• Review and update your insurance policies. Check the amount of coverage and make sure it still meets your family's current needs.
• Consider purchasing long-term care insurance to help pay for the costs of long-term care in case you and/or your spouse ever need it due to illness or injury.
Plus, at a bare minimum, everyone over the age of 18 needs a Power of Attorney for Heath Care, a Living Will, and HIPPA authorizations. Also, a Revocable Living Trust may be better than a will at incapacity because it avoids the court's control over your assets. And while you are at it, review and update the guardian designation for any minor children.
All of these issues can be resolved with an experienced estate planning attorney. Be sure to discuss all relevant aspects of your life, including anticipated changes in health, finances and those of family members.
Reference: Fox 61 News (January 4, 2016) "Tips to avoid an income tax and estate planning time bomb"

New Baby's Arrival is a Good Time to Review Estate Planning Documents

You may not need a complete overhaul, but the arrival of a new member of the family should prompt a review to ensure that all of your children are protected.
Few things in life are more joyous than the arrival of another new baby in the family. Among the necessary tasks is a review of your estate planning documents. If you had a will prepared for your first child, it is possible that the existing documents simply need to be updated. But don't wait. Make sure that you also address guardianship issues, should anything tragic occur in your family.
In the post "Will another baby affect your current will?"New Jersey 101.5 advises checking on your will to see whether it identifies your "children" or "descendants" as your beneficiaries—and then defines those terms to provide that children born after you executed your will are included.
If it does, then it is probably not urgent to update your will to include your new child's name. However, if the will was drafted without that flexibility and only identifies your first child by name as the beneficiary, then you need to talk with your estate planning attorney and have your will updated.
While you're at it, review your beneficiary designations for your life insurance policies and retirement plans. In those documents, you may have named your first child specifically as a beneficiary. If so, an update may be necessary.
Also, be careful of naming your estate as the beneficiary of any retirement assets. If you do, it can have unintended adverse income tax consequences after your death.
If your estate includes significant assets, such as retirement accounts and trusts for your heirs, a new child in the family is also the time to sit down with your estate planning attorney to ensure that all of your wills and retirement account beneficiary designations are up-to-date and that tax planning has been optimized.
Reference: New Jersey 101.5 (January 12, 2016) "Will another baby affect your current will?"

When Your Legacy is Land, Estate Planning is Especially Important

When the family business is farming, estate planning can protect your heirs and your land, creating a legacy for generations to come.
Farmers are well versed in the cyclical nature of life, particularly those who deal with livestock. But thinking about your own demise is different than considering the eventual end of animals bred and raised solely for consumption. Talking about death among family members is difficult. But planning in advance for the next generation will help with survivors' ability to work the land and continue a legacy.
A recent AgriNews article, "Estate planning can lessen grief for survivors," emphasizes that the land is key. It's the heart of the business. Estate planning is about protecting that land.
You should seek the advice of a qualified and experienced estate planning attorney who is well-versed in current estate laws and farm business operations in the state.
This conversation and the plans you make with his or her help could preserve family and business relationships, avoid giving any more to the government than necessary, and provide peace of mind to both you and future generations.
An estate planning attorney may suggest a trust for your specific situation. One common issue with creating a trust without help is that you can miss a legal nuance in the moveover process of the property. This will stall execution of a plan, so it's critical that you and your attorney think through the entire process to ensure what you want can happen without any problems.
Another common issue, especially with farmland, is thinking that dividing property equally is what you must do. Not so. If some of the heirs are not farmers, it might be easier to equally divide the money from selling off the land.
Protect your land and help your children, whether they intend to continue to work the land or seek a different business and lifestyle. Meet with an estate planning attorney who can help you with the process so that your wishes may be clarified and documented properly.
Reference: AgriNews (December 31, 2015) "Estate planning can lessen grief for survivors"

2016 Brings a Big Birthday for Baby Boomers

Whether you are among the oldest boomers turning 70 or still in your mid 50s, chances are you feel good, physically and mentally. While you are still feeling good, it's time for a fiscal tune-up.
Seventy may not exactly be the new 50, but it's not that far off. According to a recent article in Money, "Happy 70th Birthday, Boomers!" researchers say that members of this generation – born from 1946 through 1964 – are healthier from a physical and mental standpoint than previous generations. This also means that the oldest boomers, who will turn 70 in 2016, are more likely to see their 85th birthday. Their grandparents at 70 had only a 28% chance to reach age 85. Want to feel even better? More than one in 10 of the oldest members of the baby boom generation will live to age 95, compared to their grandparents' generation of only three in 100.
You've plenty of time left to invest, protect, and enjoy your money. So, Roll Over Beethoven! Here's a financial to-do list that rocks!
To keep from pulling money out of a declining market for living expenses, have at least 12 months of cash on hand to cover day-to-day costs. Also, you should be taking Social Security now, since there's no upside to delaying once you hit 70. However, you shouldn't assume that you need less risk in the rest of your portfolio. If most of your everyday costs are covered by Social Security and other guaranteed income, you can keep your money primarily in stocks, especially if you want to leave an inheritance. If you need your portfolio for living expenses, step it back but don't get out. A good stock allocation for most people age 70 and over ranges from 40% to 60%.
Pretty soon after you turn 70, you will have your first mandatory withdrawals from your retirement accounts. These are known as required minimum distributions from retirement accounts like 401(k)s and traditional IRAs. The clock starts ticking on these the year you turn 70½. You are required to take each distribution by Dec. 31st—except for the RMD for the year you turn 70½, which can be up to April 1st of the next year. If you miss these deadlines, you'll pay a hefty 50% of the money you were supposed to withdraw. Ouch! It's a good idea to have your brokerage or 401(k) plan automate your RMDs.
A longer life, with a better quality of life, means that you've got more time to rock on!
Reference: Money (December 28, 2015) "Happy 70th Birthday, Boomers!"

Married or Not Married, Parents Need to Protect Children with Estate Planning

We tend to think of estate planning as something for older people, but estate planning includes planning for children and guardianship issues. When couples have children out of wedlock, planning becomes even more important for their child's well-being.
An unmarried father-to-be asked what he needs to do to protect the mother of his child in the column "Having a baby, but not married? Some financial advice," from New Jersey 101.5. His concern is well founded because if something unfortunate happened to him, she would not be first in line for his assets. He also asks if the necessary documents are prepared while they are unmarried, what needs to be changed when and if they do get married?
In many states, the rights of unmarried couples are different than those of married couples. As far as a minor child, child custody issues are the same whether or not you are married, as the courts make decisions based upon the best interest of the child. Of course, the surviving parent will be the default guardian, but in the event that both parents die, issues can arise without a will and the designation of an alternate guardian. In addition to an unforeseen death, you also need to consider what could happen if you and your partner split up.
Distribution of property is very different between married and unmarried couples that break up. If you are married, almost all property will be distributed equitably and alimony can be awarded. However, when unmarried couples split up, individual property is retained by the original owner—and only jointly-owned property, like a home with both names on the deed, is divided between the parties. Further, neither party of an unmarried couple gets alimony, but this can be addressed by an unmarried couple if they sign a Cohabitation Agreement.
Also, the laws in most states treat married and unmarried couples differently if you die without a will. When you die without a will, you are subject to the intestacy laws of your home state. This means property typically goes to a surviving spouse. Otherwise, the law states that it goes in a certain order—usually after the spouse, first to children, then to parents and other relatives. If you have drafted a will, you can specify who inherits your assets, so this will solve the issue.
There are also federal and state estate taxes to consider. If you are not married, planning for the tax-efficient transfer of assets at death (especially important for a high-net worth unmarried couple) is tougher than planning for a married couple. A married couple won't have any estate tax due upon the first death if the estate plan fully utilizes the unlimited marital deduction. However, this deduction doesn't apply to the survivor of an unmarried couple. Plus, some states have both an estate tax and an inheritance tax. If you're not married, you'll have to pay whichever tax is more or perhaps both.
As far as who can make decisions about your final wishes, if you are not married, there will be problems. Unless you state otherwise in your will, many state laws say that a surviving spouse can decide everything from the funeral to the disposition of your remains. If you aren't married, the closest surviving adult family member gets to decide these issues. That could be a parent or your siblings.
There are basic documents that an estate planning attorney can help you with, including a Will, Durable Power of Attorney, and an Advanced Healthcare Directive. And in the event you choose to get married, you and your new spouse will need to have these documents reviewed.
Reference: New Jersey 101.5 (December 28, 2015) "Having a baby, but not married? Some financial advice"

Don't Get Phooled Again!

The spelling may be different, but the meaning is similar. We all hate to think that someone else is smarter than us. But it turns out, fighting multi-billion dollar ad campaigns, retailers, or Wall Street is a losing proposition for the average person.
Expect to see the word "phool" a lot in 2016 if a book by Nobel Economics Prize winners George Akerlof and Robert Shiller, "Phising for Phools," becomes a runaway hit this year. The two coined the phrase to describe a person who gets caught in a "phishing" scam, which covers a wide variety of financial scams. Save yourself by being smart enough to know what you don't know so you can focus on making money and building up your retirement nest egg.
The recent Forbes article, "One Powerful Money-Making Move for 2016," explains that most of us believe we know what's good for us, but when it comes to money we shoot ourselves in the foot—and wallet!
The root of phoolish behavior, Akerlof and Shiller say, is the self-conceit that you think you know more than all of the smart people who are trying to take your money every day. Can you compete with computers and sophisticated programs that take advantage of pricing glitches and make trades in milliseconds, as well as robots who move at the speed of light?
Despite our tendencies, we don't have to be phools. Here are some wise suggestions to consider:
• Adopt a Long-Term Investment Strategy. Don't jump into a stock or product based on a newspaper headline. If other people think something is hot, it could very well be overpriced. It'll eventually come down in value. Decide what you want to do with your money decades down the road for things such as college, retirement and estate planning.
• Buy and Hold. This can be less than glamorous, but you have no advantage timing any market because thousands of professionals will have much better information than you do. If you need stocks for growth, examine their risk and adjust your portfolio accordingly.
• Select Index Funds. You can't buy last year's returns, so select index funds that cover global stocks, bonds, and real estate. Check them once a year. If you get sick to your stomach when you look at the risk you're taking, make a change, only do so annually.
Try to not to worry too much about the fact that there are so many people who are much smarter than the rest of us. They win Noble Prizes, but you don't have to. By planning in advance and taking these smart steps, you'll be able to build financial security and peace of mind.
Reference: Forbes (December 28, 2015) "One Powerful Money-Making Move for 2016"

Boomer Parents Willing to Put Retirement at Risk for Millennials

It's not new, but the numbers are different. A third of parents with young adult children ages 18 – 34 reported that they would accept a less comfortable retirement to help support their adult children.
According to a recent study, "The Bank of Mom and Dad: a Source of Comfort for Everyone," an increasing number of parents in the U.S. are worried about their adult children's financial status and would be willing to sacrifice their own fiscal health. The study, issued by the BMO Wealth Institute and described in CNN Money's "Half of U.S. Parents Would Retire Later to Support Adult Children Financially," makes it clear that parental worry needs to be balanced with concerns about the parents' own finances.
An experienced estate planning attorney can assist parents with this concern to reach their own financial goals, including retirement—and to add in financial support to their children into a comprehensive plan.
Parents should remember that today's young adults face unique financial challenges and may require different levels of support than they themselves received. If parents and children talk about the amount of support they expect to provide or receive, they can avoid misunderstandings that could jeopardize their financial futures. The report offers parents the following financial planning tips:
• Start Early. You should try to teach your children about money at an early age. Understanding the basics of personal finance at a young age can help set up a child for future financial success and independence.
• Implement a Roth IRA. A Roth IRA can make savings more tax efficient and extend parents' ability to use their resources to meet financial goals. Although annual contributions are limited by IRS guidelines, income earned in an IRA is generally not subject to any federal or state tax.
• Take Advantage of the Gift Tax. When possible, use the exceptions in the federal gift tax rules to increase the benefit available to children and dependent parents, such as gifts made for tuition or to pay medical expenses.
• Use Estate Planning to Provide Financial Support and Peace of Mind. Estate planning can be done to ensure that children receive the assets through the proper use of wills and trusts. Insurance planning can be a way of adding income to your estate, when done in a coordinated fashion. An estate planning attorney will be able to help you understand the benefits and limitations of all estate planning tools and how they can be used to help your adult children.
Reference: CNN Money (December 22, 2015) "Half of U.S. Parents Would Retire Later to Support Adult Children Financially"

Advance Planning Advised When Trying to Assist an Incapacitated Family Member

There are many legal and medical aspects involved when a family member becomes or is starting to become incapacitated. Planning and communicating are perhaps the best way to prepare.
Even though the holiday season has passed, there are still ample reasons to get the family together and that is a good time for family discussions and decision making. This is particularly true for families facing the issues of legal incapacity, according to The Huffington Post.
The article, "Legal Issues for Concerned Family and Friends of a Possibly Incapacitated Individual," advises that functional capacity is contextual. The challenges an individual faces in daily living and how well they are being addressed is sometimes hard to pin down. The legal terminology is frequently vague and inconsistent. Terms such as "incompetent," "unsound mind," and "incapacity" are used interchangeably.
State statutes typically define an "incapacitated person" as someone who, because of a physical or mental condition, is substantially unable to provide food, clothing, or shelter for himself or herself, to care for the individual's own physical health or to manage the individual's own financial affairs.
The courts will often require expert testimony and reports as to the individual's physical or mental state before rendering a judgment. Many states use a required standardized "Certificate of Medical Examination" form to be submitted to a court, which has the specific statutory definition of incapacity. It will often have boxes for the physician to check and a space for his or her comments.
A progressive and gradual onset of dementia may be hard for both the individual and family members to recognize and appropriately address. As such, there are a variety of tasks that have significant personal and legal implications. Consider if the person can consistently and appropriately undertake the following tasks, although this isn't a complete list and they aren't listed in any particular order:
• Administer her or his own medications;
• Engage in daily activities like personal hygiene, bathing and dressing;
• Attend to shopping, food preparation, self-feeding and housekeeping;
• Safely drive a motor vehicle;
• Manage their finances and pay household expenses;
• Make appropriate decisions concerning marriage or intimate relationships;
• Keep his or her home clean;
• Collect and respond to mail or other communications;
• Recognize and avoid common scams and frauds; and
• Understand the need for and consent to medical and dental treatment.
There may be assistive devices, accommodations and part-time caregivers that might be less restrictive alternatives than legal guardianship and institutional living. Legally, an individual is presumed to be sane and have legal capacity. As a result, the family may have a hard time stepping in when an individual is stubbornly insistent on keeping the status quo in spite of signs that some changes are needed.
Make sure, well in advance, that you and your loved ones have created durable powers of attorney so that a trusted person may act when one becomes incapacitated. Similarly, a medical power of attorney and healthcare directives to physicians and medical staffs are extremely helpful. Finally, create an up-to-date will and talk to your estate planning and elder law attorney about appropriate estate planning.
There is no way to make this an easy situation, but taking these steps can make the process a little more bearable.
Reference: Huffington Post (December 22, 2015) "Legal Issues for Concerned Family and Friends of a Possibly Incapacitated Individual"