These Money Mistakes Add Up Fast

It’s not how much you earn, but how much you keep that makes the difference in lifestyle and retirement. Keep more of your hard-earned money, by making fewer money mistakes.

Some of the most common money mistakes cost thousands of dollars. All you need to do is pay attention to avoid them, says Motley Fool in the article, “5 Money Mistakes You Probably Don’t Even Realize You’re Making.” See if any of these sound familiar and take control of your financial health today.

No clue to recurring charges. Unless you regularly review your credit card bills, you can easily miss monthly charges that you don’t need, like not cancelling a gym membership. Some automatic monthly charges increase over time, which you won’t notice unless you’re checking those bills.

Working too long at a job. You may believe that you’ve done well to have stayed at your current job for long time. However, in order to maximize your income, you might want to think about moving to a better paying job. The human resource management company ADP studied data on 24 million workers, and found that workers get their biggest increases in salaries, when they’ve been at a job for more than two years, but not more than five years.

Failing to request a raise. It is true that job-hopping isn’t for everyone. However, you can earn more in your current position, by asking for a raise. A recent PayScale survey found that among those who asked for a raise at work, about 70% received some sort of increase. However, only 37% ever asked for a raise.

Failing to regularly review your insurance. Insurance isn’t something to set and forget, if you want to keep your costs down. Take some time every year to contact a variety of insurers to review your coverage for each kind of insurance and to get new quotes. Shopping around for better rates regularly, can potentially save you hundreds of dollars per year. Another way to save on insurance is to bundle your policies with one carrier.

Failing to have an estate plan. Everyone needs to have a will prepared, a power of attorney for finances, a health care power of attorney and a living will. People procrastinate and then life happens. Their spouses or children are left to go to court for the ability to manage finances, or the wrong heirs receive an inheritance. Make an appointment with an estate planning attorney to create the estate plan that is right for you and your family. Don’t neglect to check your beneficiary designations on retirement and investment accounts, as well as on any life insurance policies you own.

Reference: Motley Fool (June 12, 2019) “5 Money Mistakes You Probably Don’t Even Realize You’re Making”

Elder Law: Long-Term Care Costs

There are many misunderstandings about long-term or nursing home care and how to plan from a financial and legal standpoint. The article “Five myths about nursing home costs and estate planning” from The Sentinel seeks to clarify the facts and dispel the myths. Some of the truths may be a little hard to hear, but they are important to know.

Myth One: Before any benefits can be received for nursing home care, a married couple must have spent at least half of their assets and everything but $120,000. If the person receiving nursing home care is single, they must spend almost all assets on the cost of care, before they qualify for aid.

Fact: Nursing homes have no legal duty to advise anyone before or after they are admitted about this myth.

Several opportunities to spend money on items other than a nursing home, include home improvements, debt retirement, a new car and funeral prepayment. An elder law attorney will know how to use a Medicaid-compliant annuity to preserve assets, without spending them on the cost of care, depending on state law.

There are people who say that an attorney should not help a client take advantage of legally permitted methods to save their money. If they don’t like the laws, let them lobby to change them. Experienced elder law and estate planning attorneys help middle-class clients preserve their life savings, much like millionaires use CPAs to minimize annual federal income taxes.

Myth Two: The nursing home will take our family’s home, if we cannot pay for the cost of care.

Fact: Nursing homes do not want and will not take your home. They just want to be paid. If you can’t afford to pay, the state will use Medicaid money to pay, as long as the family meets the eligibility requirements. The state may eventually attach a collection lien against the estate of the last surviving homeowner to recover funds that the state has used for care.

A good elder law attorney will know how to help the family meet those requirements, so that the adult children are not sued by the nursing home for filial responsibility collection rights, if applicable under state law. The attorney will also know what exceptions and legal loopholes can be used to preserve the family home and avoid estate recovery liens.

Myth Three. We’ve promised our parents that they’ll never go to a nursing home.

Fact: There is a good chance that an aging parent, because of dementia or the various frailties of aging, will need to go to a nursing home at some point, because the care that is provided is better than what the family can do at home.

What our loved ones really want is to know that they won’t be cast off and abandoned, and that they will get the best care possible. When home care is provided by a spouse over an extended period of time, often both spouses end up needing care.

Myth Four: I love my children equally, so I am going to make all of them my legal agent.

Fact: It’s far better for one child to be appointed as the legal agent, so that disagreements between siblings don’t impact decisions. If health care decisions are delayed because of differing opinions, the doctor will often make the decision for the patient. If children don’t get along in the best of circumstances, don’t expect that to change with an aging parent is facing medical, financial and legal issues in a nursing home.

Myth Five. We did our last will and testament years ago, and nothing’s changed, so we don’t need to update anything.

Fact: The most common will leaves everything to a spouse, and thereafter everything goes to the children. That’s fine, until someone has dementia or is in a nursing home. If one spouse is in the nursing home and receiving government benefits, eligibility for the benefits will be lost, if the other spouse dies and leaves assets to the spouse who is receiving care in the nursing home.

A fundamental asset preservation strategy is to make changes to the will. It is not necessary to cut the spouse out of the will, but a well-prepared will can provide for the spouse, preserve assets and comply with state laws about minimal spousal election.

When there has been a diagnosis of early stage dementia, it is critical that an estate planning attorney’s help be obtained as soon as possible, while the person still has legal capacity to make changes to important documents.

The important lesson for all the myths and facts above: see an experienced estate planning elder law attorney to make sure you are prepared for the best care and to preserve assets.

Reference: The Sentinel (May 10, 2019) “Five myths about nursing home costs and estate planning”

 

Is My Irrevocable Trust Revocable?

Is My Irrevocable Trust Revocable?:  Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that, for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes, if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust, is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified, according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust, and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting, because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

 

Protecting Kids from Too Much, Too Fast, Too Soon

Protecting your children from frittering away an inheritance, is often done through a spendthrift trust but that trust can also be used to protect them from divorce and other problems that can come their way, according to Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.”

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our  children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives.

For instance, if the money is to be used to pay college tuition, the can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”

 

What Does an Elder Law Attorney Really Do?

A knowledgeable elder law attorney will make certain that he represents the best interests of his senior client in a variety of situations that usually occur in an elderly person’s life.

An elder care attorney will also be very knowledgeable about several different areas of the law.

The Idaho Falls Spokesperson’s recent article, “What is an Elder Law Attorney and What Can They Do for You?” looks at some of the things an elder care attorney can do.

Elder care attorneys address long-term care issues, housing, quality of life, independence and autonomy—which are all critical issues concerning seniors.

Your elder law attorney knows that one of the main issues senior citizens face is sound estate planning. This may include planning for a minor or adult child with special needs, as well as probate proceedings, which is a process where a deceased person’s assets are collected and distributed to the heirs and creditors.

The probate process may also involve the Uniform Probate Code (UPC). The UPC is a set of inheritance rules written by national experts. A major responsibility of the probate process is to fully administer the entire estate, including appointing executors and ensuring that all assets are disbursed properly.

An experienced elder law attorney can also assist your family to make sure that your senior receives the best possible care arrangement, which may become more important as his or her medical needs increase.

An elder care law attorney also helps clients find the best nursing home to fully satisfy all their needs. Finally, they often will also work to safeguard assets to prevent spousal impoverishment, when one spouse must go to a nursing home.

A qualified elder care attorney can be a big asset to your family, as you journey through the elder care planning process. Working with an attorney to set up contingency plans can provide peace of mind and relief to you and your loved ones.

Reference: Idaho Falls Spokesperson (May 20, 2019) “What is an Elder Law Attorney and What Can They Do for You?”

 

Long Term Care Decisions Cause Challenges for Families

One year at an assisted living facility in New Hampshire has a median cost of $56,000, and the median annual cost of a semi-private room at a nursing home is $124,000, reports Genworth, a national insurance company known for its annual “cost of care” survey. Have your Long Term Care decisions been made?

Families are often surprised to learn that health insurance and Medicare will pay little, if any, of the costs of long-term care, reports New Hampshire Business Review in the article “The dilemma of long-term care.” Some may try caring for a loved one at home, but this is stressful and often becomes unmanageable. Assisted-living facilities can be wonderful alternatives, if the family can afford them. Long-term care insurance is considered one of the important financial protections as we age, but relatively few people have it.

A growing problem with Medicaid-paid care, is that it can be hard to find a facility that accepts it. Not to mention that the loved one’s assets have to be down to $2,500 (note: this number varies by state), which requires advance planning or becoming impoverished through the cost of care.

Most people have no idea how this part of healthcare works, and then when something occurs, the family is faced with a crisis.

The Department of Health and Human Services projects that as many as 70% of Americans age 65 and older will need long-term care during their lives, for roughly one to three years. Yet little more than a third of all Americans age 40 and older have set aside any money to pay for that care.

There are ways to pay for long-term care, but they require planning in advance. This is something people should start to look into, once they reach 50. The top reason to do the planning: to take the burden of care off of the shoulders of loved ones. From a strictly financial viewpoint, we should all start paying premiums on long-term care as soon as we become adults. However, not everyone does that.

Families pay for long-term care with a mixture of assets:

  • Personal savings provide the most flexibility. This is not an option for many, as one half of American households with workers 55 and older had no retirement savings.
  • Veterans disability benefits can be used for long-term care services, but the non-disability benefits available to veterans are more limited. They may cover in-home services and adult day care, but not rent at an assisted living facility.
  • If a loved one owns a home, they can take out a reverse mortgage and use the lump sum or monthly payout for long-term healthcare needs. The money is repaid, when the home is sold or passed on to an heir.
  • Medicare will pay for some long-term care, but only under very limited conditions. It may cover skilled nursing care in a facility but not the care for daily living activities, including toileting, dressing and others. Coverage is all expenses for the first 20 days in a facility and then there is a daily co-pay of about $170 for the next 80 days, when all coverage stops.
  • Medicaid is the source of last resort, but what many families eventually turn to.

Planning in advance for long-term care is the best option, and while premiums for long-term healthcare may seem expensive, having insurance is better than having no insurance. For many families, watching the costs consume a lifetime of savings is enough of a spur to planning for long-term care. Speak with an elder law attorney about to prepare for long-term care needs, as part of your estate plan.

Reference: New Hampshire Business Review (May 23, 2019) “The dilemma of long-term care”

 

What Should I Know: Estate Planning as a Single Parent

Every estate planning conversation eventually comes to center upon the children, regardless of whether they’re still young or adults.

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

Your trust should state who has authorized visitation rights, including the right to keep the child for extended visits or for vacation. It should also name the persons who are permitted to advise or consent on major decisions in the child’s life, on issues about education, healthcare and activities.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”

 

What Happens If I Write a Handwritten Will?

Aretha Franklin died last August, and it was first reported that she didn’t have a will. However, recent news reports from Detroit say that, as her estate is being thoroughly reviewed, relatives have discovered a total of three different wills—one of which was located under some seat cushions! What Happens If I Write a Handwritten Will?

Each of Aretha’s wills is handwritten. The three documents have been submitted as part of the probate process to have the court determine if any of them will have legal standing.

Aretha Franklin’s actions—or her lack of the right actions—may could cost her heirs a considerable amount of money in legal fees. It also will make the probate process longer and more stressful. In addition, the ultimate court decision concerning her estate may not be consistent with her wishes.

Fox Business’ recent article, “Aretha Franklin’s handwritten wills found: Big estate planning no-no,” asks what can we learn from the Queen of Soul’s Estate Planning blunders?

First, do it right and ask an estate planning attorney to help you draft your will. He or she will make sure that your will and estate plan comply with the laws on your state. Probate and estate laws may be slightly different in every state, so be certain your will reflects your location and circumstances to be valid.

Don’t make a handwritten or “holographic” will. A handwritten will is valid in a surprisingly large number of states: Alaska, Arizona, Arkansas, California, Colorado, Idaho, Kentucky, Maine, Michigan, Mississippi, Montana, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. However, talk to an experienced estate planning attorney in your state, if you have questions about a holographic will.

Spend the money and do it right. Hire a qualified estate planning attorney to make certain that everything is done correctly, so it’s the way you want it, and it will be upheld if questioned in court after you’re gone. That includes having the will witnessed and/or notarized.

Of course, while you can download a free form from the internet or pay $50 to buy a package, you should invest the extra funds to hire a legal professional to help can save your family a big expense in future extra legal fees.

Further, you should review your will at least every few years to make sure it accurately reflects your current wishes and to be certain that everything is consistent between the will and other documents, like beneficiaries listed on your insurance policies or investment accounts.

You also need to make sure your heirs can find the will. Hiding it in the sofa isn’t the recommended procedure, because who’s to say that Franklin didn’t stash a fourth or fifth handwritten will in a wardrobe or in the food pantry!

Lastly, be sure you let your family and loved ones know your wishes as you prepare these documents. Be proactive about estate planning and do it right.

Reference: Fox Business (May 22, 2019) “Aretha Franklin’s handwritten wills found: Big estate planning no-no”

 

How Should Military Families Plan Their Estates?

How Should Military Families Plan Their Estates? About 50% of service members are under the age of 25, and most are married with children. They don’t get paid very much, and they have to deploy repeatedly to hot spots, where their lives are on the line. Do you need to have a conversation with an Estate Planning Attorney?

A recent CNBC article, “For military families living on the financial edge, money matters are complicated,” explains that setting up a new household in a new location can be difficult, even more so overseas. All those moves make it tough for military spouses to obtain and retain a job. Those spouses, who find it necessary to work to cover expenses, must deal with bosses who understand they might move to a new location tomorrow, which can mean the employer is hesitant to hire them at all.

A big benefit is that the military members receive housing and food allowances and health-care coverage. They may get health care on base, or they may go to use local doctors and health-care facilities. This can all change each time a military family moves, and they do move frequently.

Here’s what they need to do to stay financially ready for both the military life and after they leave.

First, they need to establish an emergency fund. A service member isn’t getting laid off, so three months of expenses is a good target. However, they do live on the financial edge and getting into debt could happen easily.

It’s important that service members stay out of serious debt. It can spell trouble in their careers. Service members with significant debt are considered vulnerable security risks. If their position involves security risk and they lose it because of a financial issue, their careers can be over. Fast.

It’s critical for those in the military to start on their retirement savings as early as possible, like with the Thrift Savings Plan, which is the federal government’s version of a 401(k). Uncle Sam will match up of 5% of their savings. The current military retirement system is what’s called a “defined retirement system.” This means that you get a set retirement, based on the number of years you’re on active duty. There are currently three existing retirement systems, depending on when you entered the service.

Service members need insurance coverage. Service members’ Group Life Insurance is low-cost term insurance for members of the uniformed services. It’s a group life insurance policy purchased by the Department of Veterans Affairs from a life insurance company.

It’s also extremely important to have an estate plan. The Staff Judge Advocate General’s Office provides the basics for free. That includes a will, power of attorney, health-care proxy and may include other documents, depending upon the individual service person’s situation.

Estate planning concerns making decisions about how property will be used, maintained and distributed, if you become incapacitated or die.

Reference: CNBC (May 23, 2019) “For military families living on the financial edge, money matters are complicated”

 

Estate Planning Basics: Property Transfers & Gift Taxes

Estate Planning Basics: As we age, our needs change. That includes our needs for the property that we own. For one person, the family home was rented to the daughter and her spouse as a “rent-to-own” property. This is generous, since it gives the daughter an opportunity to build equity in a home. The parent had questions about what kind of a deed would be needed for this transaction, and if any gift taxes need to be paid on the gift of the house and a separate parcel of land. The answers are presented in the article “Dealing with property transfers and gift taxes” from Chicago Tribune.

For starters, there are tax advantages while the person is living, since the home is an investment for the owner, as described above. On the day that the home is deeded over to the daughter, she will own the home at the cost basis of the parent. Here is why. The IRS defines the “cost basis” of a real estate property as the price that the owner paid for it, plus the cost of purchase and any fees associated with the sale plus the cost of any new materials or structural improvements.

When you give someone a home, they receive it at the price that was paid for it plus these costs.

Let’s say this person paid $50,000 for the family home, and it’s now worth $100,000. If you give the home to a family member, it’s as if she paid $50,000 for it, not $100,000. There may be tax consequences when she goes to sell it, but that’s in the distant future.

It’s different if the home is inherited. In that case, if the house was valued at $100,000 on the date that the owner died, the heir’s cost basis would be $100,000. However, if the heir sold the property on the exact same day (this is an unlikely scenario), there would be no tax owed on the sale for the heir.

This is a very simplified explanation of how a home can be passed from one generation to the next. It would be best to speak with a good estate attorney, who can evaluate all the factors, since every situation is different. One suggestion might be to put the property into a living trust, in which case the daughter will still pay rent to the parent, but then would inherit the property when the parent died.

The estate planning attorney could use the same living trust for the separate parcel of land. Once the home and the land are deeded into the living trust, the owner can state her wishes for how the properties are to be used.

As for the question of gift taxes, anyone can give anyone else $15,000 per year, with no need to file any forms with the IRS or pay any taxes. If you give someone more than $15,000 in one year, the IRS requires a gift tax form with the federal income tax return.

A meeting with an estate planning attorney and going over Estate Planning Basics is the best way to ensure that the transfer of a family home to a family member is handled correctly and that there are no surprises.

Reference: Chicago Tribune (April 23, 2019) “Dealing with property transfers and gift taxes”