Don’t Be Like Abraham Lincoln. Create a Will

WillWhat do Abe Lincoln, Bob Marley and Prince have in common?
You guessed it…they all died without a will.
But why?
Kiplinger’s article, “4 Strategies to Avoid an Estate-Planning Mishap,” says that their reasoning was the same as it is for most people: just “too busy.” They were busy with life’s daily demands on their time. Also, many people don't want to think about it or take the time to sit down and get it done.
People don’t realize how much can be accomplished in a very short time with an experienced estate planning attorney. Similarly, they also don’t understand the issues that can pop up if they don't have a plan in place.
While you may hear about income and investments at every turn these days, you may not hear about important topics like taxes, health care, asset protection and leaving a legacy for your family, friends, and charities.
Be certain that you’ve made every effort to express how you want your assets distributed when you die. Take a look at these four basic strategies and discuss them with an experienced estate planning attorney to help you avoid an estate planning mishap.
1. Get that will in place. A will directs your executor about your wishes and spells out how you want your assets distributed when you pass away.
2. Consider a living trust. This can protect your assets and can help your estate avoid probate. While you may believe you don't need a living trust, it can help make certain your assets are managed according to your wishes even in the event that you’re no longer able to manage them on your own. In addition, you can sign a health care directive and power of attorney so those you trust can make decisions about your physical and financial well-being. Finally, trusts are not public court records so your affairs remain private.
3. Title your accounts appropriately. Get that trust in place or set up a "transfer on death" designation. This lets assets pass directly to the beneficiaries named by the owner. Also, make sure you’ve properly named the beneficiaries and contingent beneficiaries on IRAs and other tax-qualified accounts.
4. Think about life insurance. A policy is used to provide a death benefit for your family and can augment the legacy you pass down. It can help cover final expenses—like funeral, burial and medical bills.
Do it now. Your picture on the five-dollar bill might be a nice lasting tribute, but your family will like a comprehensive estate plan much more.
Reference: Kiplinger’s (August 2016) “4 Strategies to Avoid an Estate-Planning Mishap”


Getting Married Again Means “You Do” Need to Review Your Assets and Estate Plan

Wedding older coupleA major challenge for those walking down the aisle again is how to reconcile preserving assets for children from a prior marriage and still taking care of the commitment to a new spouse.
CNBC’s article, “Getting remarried? Protect your assets and your interests,” recommends looking ahead and addressing questions about your goals, how your existing family and new spouse will relate to one another when you're gone and who will be in charge of the money. The big issue that heirs of a remarrying couple need to worry about more than federal estate tax is the new spouse.
The reason for this is that every state except Georgia gives rights to a spouse to make an elective share against a decedent spouse's estate or have the right to community property. That means that a portion of an estate could go to the new spouse even if the decedent's will disinherits him or her. Unless you expressly exclude your new spouse from your will, he or she typically has an intestate right against the probate estate.
If an individual has an ERISA retirement account, the spouse likely has certain rights to it—whether it is a defined benefit or a defined contribution plan. IRAs aren’t subject to the same rules. In many states, the surviving spouse has rights to certain personal property. Sometimes this is based on values, and other times it’s set out in a state statute.
If there is no estate planning document, such as a will, power of attorney or health care directive, the new spouse is often statutorily designated as the first decision-maker with the legal authority to deny access to anyone who might want to have a say in the affairs or care of the incapacitated spouse.
The ex-spouse may still be involved because assets could still be left to your ex if you fail to update your beneficiary designations—even if you intended to leave things to your new spouse and/or children instead. You might be contractually obligated to keep your ex-spouse as beneficiary of a retirement account or life insurance policy for a certain period of time. Check the fine print.
When you’re updating your estate planning documents, also think about the following issues. First, consider whether you’d like to name your new spouse as your trustee/executor/agent because the disposition of assets becomes tricky when there are kids from prior marriages. Next, take a look at your assets and decide if you want to hold them individually or jointly. Jointly-held assets with rights of survivorship means that your surviving spouse will inherit these assets automatically without probate. Note that in a community property state, property that is obtained prior to marriage or in an inheritance can retain its character as separate property.
If your new spouse moves into your house, you’ll have to decide if you want to add his or her name to the deed and to the mortgage. You should consider where your spouse will live if you die first. Also, you may need to specifically bequeath certain personal items to your children—depending on family significance and your wishes—and be aware of how “children” is defined by your will. This could include only your own children or also your spouse's children. Here are a few other common estate planning mistakes people make after remarrying:
· Beneficiary designations left out-of-date;
· Assets unintentionally comingled;
· Failure to work with estate planning attorney on new estate planning documents;
· No prenuptial;
· Instructions to loved ones are verbal, not in writing;
· Failure to properly title the house; and
· Not buying long-term care insurance or planning for possible nursing home care.
Have a qualified estate planning attorney walk you through these details in a step-by-step manner to help avoid pitfalls. Don’t make one or more of these errors. These kinds of little mistakes can have big consequences.
Reference: CNBC (July 28, 2016) “Getting remarried? Protect your assets and your interests”


Don’t Leave a Bundle to Your Ex

Old couple in classic carDo you want your ex-spouse to inherit any part of your estate? It could happen if you initially signed up for a retirement plan or life insurance policy when you were married to your ex-spouse. Chances are good that you designated your spouse at the time as the beneficiary. Now that you are divorced (and possibly remarried), you need to revisit your beneficiary designations and overall estate planning.
ABC 15 Arizona’s recent post, “Beneficiary designation: Don't set it and forget it or your ex could end up with your life savings,” explains that under the Employee Retirement Income Security Act (ERISA), plan administrators must legally disburse the money to the person on the form—even if it’s an ex-spouse. This even overrides provisions to the contrary in your will. This mistake can create a real probate nightmare for loved ones—a mistake that’s really hard to correct after the fact.
Review all of your assets and to whom you intend to give them at your death whenever there’s a major life event like a birth, adoption, death, marriage or divorce. This quick check-up may save those you leave behind a lot of hard feelings, trouble and expense.
While you’re at it, here are several other things to consider:
1. Rather than listing a young adult as a beneficiary, ask an estate planning attorney about drafting a trust to detail exactly how you want the money to be disbursed.
2. Do not designate a minor as a beneficiary because life insurance policies won't pay minors directly. Consider a “testamentary trust” under your will or a similar inheritance trust under your living trust.
3. Remember you need to list a contingent beneficiary: if the primary beneficiary dies before you, you need a backup.
4. Want to list someone other than your spouse as the beneficiary on a 401(k) plan? Unless your spouse agrees, by law, you are not allowed to do this.
5. Failing to do estate planning creates ambiguity and means more headaches and fees for your family.
A qualified estate planning attorney can help you navigate all of the ins and outs of estate planning, giving you peace of mind and letting those you leave behind know that you cared enough to tackle these matters.
Reference: ABC 15 Arizona (July 17, 2016) “Beneficiary designation: Don't set it and forget it or your ex could end up with your life savings”


Tying the Knot Finances

Young couple with giftThe average age of a couple getting married today is older: age 31 for a man and 29 for a woman. This often means merging two households. CBS Boston says that if you both own your own home, you may want to think about selling them and buying one jointly, according to its recent article “Couples & Money: Ours? His? Hers?”
If you go ahead and sell one home and move into the other, you need to decide ownership issues. Will you add your new spouse to the deed and add him or her to the mortgage as a responsible party?
Another thing to consider is that marriage doesn’t automatically combine your credit reports. If one spouse has a poor credit report and is getting out of debt, you may want to keep things separate. If you do want to purchase a house in the future, you’ll have one good credit report and one good credit score. If you bring credit card debt or school loans into your marriage, you’re responsible for paying that off yourself.
As far as banking, think about a joint checking account for household expenses and savings. However, you should keep your individual checking accounts if you’re both working, so then you’ll have your own money.
Keep your own credit card, but know that you’re responsible for the payments. You may want to have a joint card for the household purchases.
Any assets you bring into the marriage—like stocks, bonds, mutual funds, and savings—should be kept in your individual accounts. You can talk about using joint accounts for your future goals and tapping into your individual accounts to help you achieve those goals.
Make certain that you’re both taking advantage of retirement plans when available from your employer. Contribute the maximum you can afford.
As far as beneficiary designations, ensure that your spouse inherits your life insurance, IRAs, retirement plans, pensions, and annuities by updating the beneficiary designations. Review your health insurance policies to see who has the better insurance. And finally, you need to redo your estate planning now that you are married.
Reference: CBS Boston (June 8, 2016) “Couples & Money: Ours? His? Hers?”


When You Might Avoid the 401(k) Early Withdrawal Penalty

401kThe rule for tapping a 401(k) without incurring the 10% early-withdrawal penalty requires that you are at least age 59½, but there's an exception. If you leave your employer in the year you turn 55 or older, there's no penalty. Even so, you'll still owe tax on the withdrawal. As a result, a $10,000 payout at a 25% tax rate will cost you $2,500. However, there's no $1,000 early-withdrawal penalty tacked on to this.
It doesn't matter how you separate from service. In fact, retiring, being laid-off, or even termination will spare you the penalty. Provided you're 55 by the end of the year you leave the job, the rule applies, says the Kiplinger's article, "When You Can Tap a 401(k) Early With No Penalty."
If you were to leave your job in January and turn 55 in December, the 401(k) payouts anytime during the year are penalty-free. However, if you retire in December and turn 55 the next January, you'd be hit with the penalty until age 59½.
Reaching age 55 or older in the year you leave is the trigger, not just your 55th birthday. So if you were to leave a job at age 50, you couldn't tap that 401(k) penalty-free until you reach age 59½. But if you leave an employer at age 55 to work for another company and then leave the second position at age 57, you could withdraw from both 401(k)s penalty-free. You left both companies in the year you turned 55 or older.
This exception may come in handy for some early retirees who need to use the funds in their 401(k) for living expenses. But remember: this exception from the penalty is lost if you rollover your 401(k) to an IRA. Once the money goes into the IRA, the earliest age for penalty-free withdrawals is back to age 59½.
An IRA, in contrast, has more investment options than a 401(k). One could split the 401(k) for a better result. For example, if you were to retire at 55 with $1 million in your 401(k), and you want to withdraw $50,000 annually for the next five years, you could leave $250,000 in the 401(k) to take advantage of the penalty exception and rollover $750,000 into an IRA to take advantage of other investment choices.
Ask your benefits manager for the details and rules of your 401(k), as there are some plans that don't allow partial withdrawals or periodic distributions.
Reference: Kiplinger's (May 2016) "When You Can Tap a 401(k) Early With No Penalty"

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