Organize Information for Your Family

Think for a few moments about what would happen if you suddenly became incapacitated or died. Would your spouse or family know what to do? Would they know where to find important records, assets and insurance documents? Would they be able to access (or even know about) online accounts or files on your computer? Would they know whom to ask if they need help?  Putting the effort in now to establish a formal document inventory can alleviate unnecessary anxiety and turmoil in the future.

The Key Takeaways

• If you should suddenly become incapacitated or die, your family would need to know where to find the information they would need.
• Let your key relationships know where to find your document inventory.
• Do not assume your process will be readily understood by others; have a trial run to make sure they can find and understand your records.
• Keep your inventory current with an annual review.

What Information Would They Need?

There is a large volume of documents and information that your family would need during a calamitous event such as incapacitation (even temporary) or death. This basic list will help you start thinking of the critical information you would want your family to have.

• legal documents (will, living trust, health care documents);
• list of medications you are taking;
• list of your advisors (attorney, CPA, banker, insurance agent, financial advisor, physicians);
• insurance policies (health and life);
• year-end bank and investment account statements;
• storage facility location, access method, and inventory;
• list of other assets, including location, account numbers, date purchased and purchase price;
• safe deposit box location, list of contents and location of key;
• list of people to whom you owe money (mortgage, credit cards, etc.);
• list of people who owe you money;
• death or disability benefits from organizations;
• past tax returns.

Also, many of your records are probably on a computer or stored online. If you scan documents or receive financial statements electronically, someone else may not even know they exist. If you use a computer accounting program such as Quicken, QuickBooks or Mint, those records would be on your computer. Family photos may be stored digitally or online. Much of this information is password protected.

What You Need to Know

Your document inventory requires a methodical listing of both hard copy and digital forms.  While the effort will be more challenging at the start, the maintenance of the inventory is much simpler.  Be mindful that your digital footprint will likely grow much faster in the future than it has in the past. 

Actions to Consider

• Give current copies of your health care documents to your physicians and designated agent(s). 
• Keep your original documents in one safe place, like a fireproof safe or safe deposit box. Make copies for the notebook described next.
• Buy one or two three-ring binders to organize your personal and financial information. You can enter it by hand or create spreadsheets on your computer, but having it all in one or two binders will make it easy for your family to find and use. (If you leave it on your computer, they may never find it.) Include locations, contact information, account numbers and amounts.
• Include a list of online accounts and how to access them (including passwords).
• Clean up your computer desktop and put important files in an easy-to-find desktop folder.
• Have a trial run. Ask your spouse or other family member (or your successor trustee or executor) to pretend that he or she needs to access needed information.
• At least once a year, review and update your notebook, computer desktop files and passwords for online accounts.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Five Things You Need to Know About the Recently Enacted ABLE Act

On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE
Act) into law.  The ABLE Act will allow certain individuals with disabilities to establish tax-free savings accounts that can be used to cover expenses not otherwise covered by government sponsored programs. These accounts can be a great alternative or supplement to special needs or supplemental needs trusts.

Here are five important things you need to know about the ABLE Act.

1. What is an ABLE account?  An ABLE account is similar to a 529 education savings account that helps families save for college.  It is a tax-free, state-based private savings account that can be used to pay for the care of people with disabilities.  Although income earned in the account will not be taxed, contributions to the account will not be tax deductible.

2. Who is eligible for an ABLE account?  Eligibility will be limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If an individual meets these criteria and is also receiving benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account.  If the individual is not a recipient of SSI and/or SSDI but still meets the age of onset disability requirement, they will still be eligible to open an ABLE account if the SSI criteria regarding significant functional limitations are met.  In addition, the disabled individual may be over the age of 26 and establish an account if the individual has documentation of their disability that shows the age of onset occurred before the age of 26.

3. What are the limits for contributions to an ABLE account?  Each individual state will determine the total limit that can be contributed to an ABLE account over time.  Although we’ll need to wait for regulations to know the exact amount that can be contributed, the Act states that any individual can make annual contributions to an ABLE account up to the gift tax exemption limit (which is $14,000 in 2015).  If the disabled individual is receiving SSI and Medicaid, the first $100,000 held in an ABLE account will be exempted from the SSI $2,000 individual resource limit.  If an ABLE account exceeds $100,000, the account beneficiary will be suspended from eligibility for SSI benefits but will continue to be eligible for Medicaid.  Upon the death of the account beneficiary, assets remaining in the ABLE account will be reimbursed to any state Medicaid plan that provided assistance from the day the ABLE account was established.

4. What types of expenses can be paid from an ABLE account?  An ABLE account may be used to pay for a “qualified disability expense,” which means any expense related to the beneficiary as a result of living with their disability.  These expenses may include medical and dental care, education, employment training, housing, assistive technology, personal support services, health care expenses, financial management, and administrative services.  

5. When will able accounts be available?  Although the ABLE Act was signed into law in December 2014, regulations will need to be established by the Department of Treasury before states can begin to set up procedures for managing ABLE accounts.  Once these regulations are issued (which is anticipated to occur later in 2015), each state will be responsible for establishing and operating their own ABLE program.

Since the money in an ABLE account can grow tax free and be accessed on a tax-free basis for qualifying expenses, these accounts could be a valuable resource for certain disabled individuals and their families. Although we’re waiting on regulations to be adopted, now is the time to begin thinking about whether an ABLE account is a good fit for your family’s circumstances. Please contact us today to learn more about ABLE accounts and disability planning.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Paying for College . . . and Accomplishing Estate Planning Too

With higher education costs outpacing inflation by 5-6% per year, and the average cost of a four-year public school at nearly $20,000 per year (double that for private schools) it’s no surprise that many parents and grandparents are deeply concerned about how they will pay for higher education. Many of these clients are similarly concerned about estate planning.

One tool that can accomplish both is a college savings plan commonly known as a 529 plan (named after the Internal Revenue Code section that creates them). Contributions to 529 plans are generally not subject to gift, estate or GST tax, gains are not subject to income tax if used for qualified higher education expenses (QHEEs), and these assets are not owned by the student for financial aid purposes, making them an excellent tool for saving for college.  

Furthermore, you can “front-load” a 529 plan by contributing five years’ worth of gift tax annual exclusions (currently $13,000 per year, or $65,000 per person) free of gift and estate tax as long as the contributor lives at least five years. Thus, a married couple can contribute up to $130,000 per child or grandchild!

The downsides to 529 plans are gains are subject to tax if not used for QHEEs and there are generally limited investment options, similar to mutual funds. There are also high fees with some state’s 529 plans, so it’s worth some research. An excellent resource in this area is the website savingforcollege.com.

One key consideration is the particular 529 plan’s impact on state income tax: is the client eligible for a state income tax deduction for investing in his or her state’s 529 plan?

A good client-focused article on 529 plans’ utility for estate planning is Pros, Cons Of 529 Plans For Sophisticated, Affluent Parents, available here. 

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

How to Stop Worrying About Running Out of Money in Retirement

Many retirees today worry about having enough money for their retirement. Of special concern is if there will be enough money to provide for the surviving spouse. This is called “shortfall risk,” and it is a valid concern. People are living longer and health care costs continue rising, especially long-term care which many seniors will need. In addition, the recent recession has given us setbacks in investments and record low interest rates. When combined, these issues can have a serious effect on retirement savings and projected income. But there are some things you can do now to help manage your shortfall risk and protect your assets.

The Key Takeaways

• The fear of running out of money in retirement is a valid concern due to increased longevity, increasing health care costs, low interest rates and the recent recession.
• Using experienced advisors who specialize in certain areas can help you increase your retirement income as well as preserve, grow and protect your assets.

The Role of Specialists

A retirement specialist can help you determine the best strategy for taking distributions from an IRA, 401(k) and other retirement accounts; the tax implications involved; how to continue to grow your savings; when to start taking Social Security benefits; and how to plan for out-of-pocket medical and long-term care costs. An estate planning attorney can help you shield your family and your assets from probate court interference at incapacity and death, unintended heirs, unnecessary taxes and lawsuits. Other specialists can be brought in as needed, for example when life insurance is used to provide an inheritance for a child who does not work in the family business.

What You Need to Know

The financial advisor who helped you grow your retirement nest egg may not be the best choice to help you determine how to take your money out. Likewise, your business attorney is probably not the best choice to do your estate plan. An innocent error by a well-meaning but inexperienced advisor can result in a costly and often irreversible mistake. 

Actions to Consider

• Be open to new products and strategies that you may not have considered in the past. For example, consider trusts combined with investments and property to manage the conflicting demands of income, spending, taxes, distributions and transfers.
• Explore new long-term care options from insurance companies. These include:
• Asset-based long-term care (a single deposit premium; if not needed for long-term care, the benefit amount is paid tax-free to your beneficiary);
• Life insurance accelerated death benefit (allows you to access the death benefit before you die for long-term care expenses);
• Home health care doublers (a guaranteed lifetime income contract that doubles your income for up to five years if you need long-term care).
• Delay taking Social Security benefits. If you delay benefits until age 70 and live past age 79, your lifetime income will be more than if you start taking benefits at Full Retirement Age (66-67). 
• A revocable living trust will avoid court interference at both incapacity and death. This is why more people prefer a living trust over a will.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Estate Planning for Women

While estate planning is important for everyone, women especially need to understand estate planning and have a plan of their own in place. Here are some issues that are of particular interest to women and their estate planning.

Incapacity. 

Because women, on average, live longer than men, there is an increased need to plan for physical and/or mental incapacity that can occur in later years. Long-term care insurance, purchased in advance, can help cover these costs and can even help women remain in their homes for as long as possible. It is also important to plan now to prevent the court from taking control of finances and of personal care at incapacity. At a minimum, durable powers of attorney (for both assets and health care decisions) are needed. A revocable living trust provides excellent protection for assets at incapacity and contains distribution instructions at death.

Children, Grandchildren, Parents and Pets. 

Those raising minor children need to name a guardian in their will; otherwise, a judge will decide who will raise them without your input. Provisions need to be included for aging parents, a child or relative with special needs, pets and other dependents. (Special planning can provide needed care without jeopardizing valuable government benefits.) Additional life insurance may be needed to provide for these loved ones. A gifting program or trust can provide for the education of grandchildren and future generations.

Charitable Causes. 

Those who want some or all of their assets to go to a favorite charitable, religious or educational organization must include this in their estate planning. Without a valid plan in place, assets will be distributed by state law—and a charity will not be among the heirs. Also, proceeds from a life insurance policy can be used to fund various types of charitable giving at your death.

Protecting a Business and Other Assets. 

Professional women in medicine, law and real estate must be concerned about protecting their assets from lawsuits. Many women are also business owners, and they need to plan for what will happen to their business when they are no longer involved due to incapacity, retirement or death. Asset protection planning and business succession planning can and should be included in the estate planning process.

Married Women. 

Women who marry tend to choose husbands who are older, which means they are likely to become widowed. Without proper estate planning while married, many will see their standard of living reduced during their retirement years. Those in second marriages need estate planning that provides for the surviving spouse but does not disinherit children from a previous marriage. Also, because most married women survive their husbands, they often have final say over who will ultimately receive the couple’s assets. Women must take an active role in the couple’s estate planning. Knowledge is key—an unknowledgeable widow will likely be confused and uncertain, while one who has participated in the planning process will more easily understand it and even feel empowered.

Unmarried Women (Never Married, Divorced and Widowed). 

Without valid instructions, state law will apply and that means friends, charities and unmarried partners will not be among your heirs. On the flip side, if you are divorced or separated, you need to update documents (including beneficiary designations) as soon as possible to prevent your ex from making life and death decisions for you or inheriting your assets.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Are These Common Concerns on Your Worry List?

A comprehensive financial plan that is effectively executed delivers dollar savings in improved investment returns, lower taxes, lower fees, more efficient wealth and more stable income. However, an important outcome of this process addresses what may be on your worry list: running out of money, family strife, unexpected losses and making financial mistakes.

The Key Takeaways

• Financial stress can negatively affect the health and emotional well-being of you and other family members.
• Working with a financial planning professional can help you handle your financial situation, alleviate worry and, in general, help you feel more in control of your life.

Financial Worry is Common

If money worries keep you awake at night, you’re not alone. People are living longer and health care costs, especially for long-term care, continue to rise. As a result, retirement savings must last longer and stretch farther than most anticipated. Even those who thought they were prepared for retirement may now be afraid of running out of money, especially for the surviving spouse. Many families are still recovering from losses in the stock market and job market. Credit card debt is at an all-time high, as is the cost of a college education. Many families find themselves in the middle of the sandwich: taking care of elderly parents and raising their own children.

What You Need to Know

Worry about financial matters can negatively affect your health. It can lead to unhealthy coping behaviors like drinking, smoking and overeating. Cutting back on health care in an effort to save money allows small health problems to escalate into larger ones. If you have trouble sleeping, your mood, immune system and cognitive functions can be affected. All of these inevitably lead to more stress and can cause friction within the family.

Actions to Consider

• Planning is an essential activity. A comprehensive plan incorporates budgeting, income planning, tax planning, retirement analysis, insurance and trusts.
• A plan that isn’t executed lacks value. Expect to work with specialists to bring your plan to fruition: an advisor for planning and investments; a trust and estate attorney to draft the trust and estate documents; a CPA to implement tax strategies; an insurance agent to institute insurance products. If your resources are insufficient or uncertain, be open to changes that will alleviate financial stress and help you meet your financial priorities. For example, you may need to move to a less expensive neighborhood (or state). Your children may need to go to community college or state school instead of a four-year private university. A parent may need to live with you. 
• The sooner you take action, the sooner you can stop worrying. 

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Incorporating Faith and Values in Estate Planning

For many, passing along religious beliefs and values to the next generation is just as important as passing along financial wealth and tangible assets. Estate planning creates many opportunities to do this, including:

End-of-Life Care 

A health care power of attorney (Advance Directive in some states) lets you name someone to make medical decisions for you in the event you cannot make them yourself. This can be someone who shares your faith and values about end-of-life issues or someone who will honor your wishes. In either case, it is a good idea to provide written instructions about things like organ donation, pain medication (some may want to remain conscious at the end of life), hospice arrangements, even avoiding care in a specific facility. A visit by a priest, rabbi or other member of clergy may be desired. Pregnant women may want to include their preference on medical decisions that would impact the mother and her unborn child.

Funeral and Burial Arrangements  

Faith can influence views on burial, cremation, autopsy, even embalming. Faith may also influence certain details in a funeral or memorial service. Some people pre-plan their services and include a list of people to notify (which can be helpful for a grieving family). Some even pre-pay for the funeral and burial plots to prevent their loved ones from overspending out of grief and/or guilt.

Charitable Giving

Giving to others who are less fortunate is common among people of all faiths. Making final distributions to a church or synagogue, university, hospital and other favorite causes will convey the value of charitable giving to family members.

Distributions to Children and Grandchildren

Taking the time to plan how assets are left to family members lets them know how much they are loved, and is another way to convey faith values. For example, providing for the religious education of children and/or grandchildren speaks volumes. Parents of young children can select someone who shares their religious views to manage the inheritance. A letter of instruction to the guardian can include views on the care and upbringing of young children, which are often influenced by faith.

If the children are older and a son- or daughter-in-law is not fully trusted, an attorney can assist with providing for a son or daughter in a way that will prevent an inheritance from falling into the wrong hands. However, making an inheritance conditional or disinheriting a child or grandchild who marries outside the faith or doesn’t share their parent’s faith can backfire. We cannot really force someone to believe as we do, and trying to do so by withholding an inheritance will only create discord in the family and may not be recognized. The emotional scars on the family, especially if a bitter legal fight results, are probably not what parents want for their family.

Transferring faith and values to family members is best done over time, by letting them see your faith at work in your life, taking them to religious services, and letting them see you being charitable. But it’s never too late. Talk to your family while you can. Explain what your faith means to you and how it has helped you through difficult moments in your life. You can also write personal letters or make a video that they can keep and review long after you are gone.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.