Putnam County Estate Planning & Medicaid

Savvy Tips for Dealing with an Inheritance

Inheritances by their very nature, create many mixed emotions. While you are grateful for the inheritance, you are grieving, which is a painful experience that impacts decision-making skills.

Perhaps the most important thing to know when you are grieving the loss of a loved one and expect to receive an inheritance, is not to make any big decisions. While an inheritance may change your life in a financially good way, as reported in The Reading (PA) Eagle Business Weekly’s recent article, “What to do and what not to do with your inheritance,” you are in a state of emotional crisis. Financial planning and big financial decisions will need to be made, but nothing needs to be done immediately, except for settling the business of the estate, if you are the executor. Here are some dos and don’ts to keep in mind:

What not to do with an inheritance

There’s no rush. Don't go nuts and spend every dollar immediately. Don't invest in long term or risky projects. Be patient.

Don't pay too much in taxes. Work with an estate planning attorney so you pay the appropriate amount to the IRS.

Don't pay off the mortgage. Although this can be emotionally fulfilling, it may not be the best use of your money. Take advantage of today's low interest rates and the tax-advantaged deductible mortgage payments. Create a financial plan so that you don’t run out of retirement funds.

Don't go on a mad spending spree. This should be self-explanatory.

Don't be pressured. Don’t be surprised if many people suddenly come out of the woodwork to offer their unsolicited advice—relatives, old pals, insurance agents, bankers and investment advisers. Just say, "No, I am not ready to make a decision yet." Likewise, don't get pressured into sharing your money with a friend or family member.

What to do with an inheritance

Save it. Deposit the money in the bank, a money market account or a short-term CD.

Pay off debt. Get rid of credit card balances and other high-interest debts that don't have tax benefits.

Do some financial planning. Figure out your long-range financial plan before spending any of this new found wealth and make plans for your retirement.

Update your estate plan. Make sure that your estate plan is up-to-date so your assets go to the intended persons, and you don’t waste it on probate fees and unnecessary taxes.

Meet with an estate planning attorney. If your financial situation has changed as a result of the inheritance, it makes sense for you to meet with a qualified estate planning attorney to update your will and other documents.

Reference: Reading (PA) Eagle Business Weekly (January 17, 2017) “Office Space: What to do and what not to do with your inheritance”

Touch Choices and Challenges for Special Needs Families: Retirement Planning

One of the hardest pieces of the financial puzzle for Special Needs Families is balancing parent’s retirement planning while ensuring that the Special Needs family member gets the care they need.

Planning for life after the parents of a Special Needs child pass away, must include ensuring that the individual retains their eligibility for government assistance. This requires an experienced estate attorney who is familiar with government program requirements, ABLE accounts and retirement planning.

Morningstar’s recent article, “Retirement Planning for Special-Needs Families,” explains that the need is growing. One in every five Americans has a disability, and 20 million families have at least one family member who has a disability, says the National Disability Institute. The costs can also be extremely high, with the lifetime cost of caring for a person with autism ranging from $1.4 million to $2.4 million, according to an advocacy and research group. Lifetime costs are similar for people affected by other severe impairments.

While government benefit programs provide some assistance, the eligibility rules vary depending on when a disability is incurred. There’s a set of rules for people disabled as children (prior to age 22) and another for those disabled at older ages. Here some key topics for consideration and action:

• The care plan should include the safety of the child, along with aspects of life fulfillment, including work, learning and play.
• Projected cash flow needs will depend on the type of disability, capability of the individual needing care and the level of care needed.
• Investment allocations. Families who have a child with special-needs should be more conservative in how they allocate their retirement portfolios, and maintain a higher level of cash.
• Government benefits include Social Security, Medicare and Medicaid.
• Families need to understand all of the government rules on asset and income limits for a person with disabilities.
• A Special Needs Trust is a critical part of a family retirement plan.
• Beneficiary designations must be structured properly, because inheritances can jeopardize government benefits eligibility.

Parents are advised to create a document that offers details of the specific needs and wants of the family member, so that his or her guardian will have as much information as possible when the parents are no longer present. Everyone in the family needs to be educated and prepared. A special needs attorney will be able to guide the family through the planning process.

Reference: Morningstar (January 17, 2017) “Retirement Planning for Special-Needs Families”