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?"