Washington Estate Planning

Talking Retirement and Estate Planning with Parents

Adult children and their parents recognize the need to talk about
inheritance, eldercare and retirement planning issues, but nearly one in two
adult children do not feel like they’ve had sufficient conversations with their
parents about these issues …

 

Discussing retirement
and elder care planning with aging parents can be difficult for all parties
involved.  For many parents and adult
children, these conversations can be awkward and potentially emotional.  A recent study by Fidelity Investments
documents the extent to which the two generations are failing to communicate on
this topic, as conveyed by Forbes in
an article titled “Generations Apart: Talking Retirement And
Estate Planning Over Turkey.”

According to
the study, 89% of families agree that health and elder care discussion are
important.  But only 10% of adult
children believe the conversations they have had with their parents have been
“very detailed.”  Similarly, only 19% of
children say the same about estate planning conversations, and only 11% of
adult children feel they have discussed retirement readiness with their parents
in detail.

There are
several implications of inadequate discussions. 
For example, nearly 25% of adult children believe they will have to help
their parents in retirement while nearly all of the parents in the study said
they will not need financial help from their children.  Similarly, some adult children underestimate
the value of their parents’ estates by more than $100,000.  On the other hand, however, some adult
children may not save enough because they expect a large inheritance from their
parents. For more on this matter, you can consult the article “Parents and Adult Children Not in Sync as
Many Families Still Struggle with Financial Conversations” on Fidelity.com.

To help facilitate these discussions,
Fidelity also offers conversation starters on their website.  However, an easier way to facilitate the
conversation may be for both the parents and the children to sit down with the
parents’ financial adviser.  Advisers can
structure those conversations to keep focused on the essentials and keep the
emotions out.

 

References:  Forbes
(November 21, 2012) “Generations Apart: Talking Retirement And
Estate Planning Over Turkey”

Fidelity.com (November 14, 2012) “Parents and Adult Children Not in Sync as
Many Families Still Struggle with Financial Conversations” and “Conversation Starters”

Small Business Owner Quandary

The weak economy has been tough for
small-business owners across the board … but for entrepreneurs in their 60s and
70s, the consequences have been particularly vexing.

The current recession has been
tough on just about everyone, but few have felt such dire consequences greater
than small business owners. This especially is the case when they are on the
verge of retirement.

The Wall Street Journal considered this topic in a recent article aptly
titled “'The Economy Stole My Retirement.'”

If you are a small business
owner on the one hand – a role that requires flexibility and ingenuity – and a
baby-boomer on the other, then this recession has been more than a case of
terrible timing. No, it’s thrust you into “business purgatory.” Do you find
yourself with one foot in management and the other foot (or maybe just that big
toe) in the golden sands of retirement?

A baby boomer who is a small
business owner faces a very tough call right now. Should he or she sell for the
best offer today, which is generally the low-ball offer, or hold out for some
future value which more accurately reflects what the business is truly worth? A
tough call, indeed.

For the owners of small
businesses and the heads of family businesses, make no mistake about the
difficulty of your position. It’s impossible to foretell the future, but since
you already know what is most valuable to you (your family and your business),
take the time to carefully weigh your options and seek appropriate professional
counsel.

This is not the time to make
emotional decisions.

Reference: The Wall Street
Journal (September 12, 2012) “'The Economy Stole My Retirement'”

More Older Folks are Cohabitating (For a Variety of Reasons)

For couples over the age of 60, cohabitation is becoming increasingly
common, even when the partners would prefer to get hitched -- a decision that's
often financially driven. "This is absolutely a growing trend."

Marriage is a big decision, whether you’re young or old. However, when you are in your golden years, there are a lot of weighty issues to consider. Perhaps that is why more seniors today are choosing to cohabitate.

Regardless, whether you (or a
loved one) elect to marry or to cohabitate, you really ought to carefully weigh
the consequences and seek appropriate counsel.

The dilemma between marriage and
simple cohabitation (truthfully, it’s not so
simple) was explored in a recent Yahoo!
article by way of Bankrate.com. The
article, titled “Financial pros and cons of shacking up after
60,” illustrates that there is much to think about, breaking many of
the most important financial decisions into stages.

Essentially, there are important
ramifications either way when it comes to retirement income, social security,
and the medical care available through Medicare or Medicaid. And then there are
the greater concerns of what is to happen to your respective families: whether
they remain separate or have become joined, what inheritances to leave, or even
how to ensure the well-being of the survivor.

Marriage is a legal institution
for important reasons. In any event, make sure you have carefully considered
the consequences of your decisions and then make plans accordingly – whether
you tie the knot or not.

Reference: Bankrate, Inc.
via Yahoo! Finance (August 17, 2012)
“Financial pros and cons of shacking up after
60”

ELDER LAW / RETIREMENT CAREERS

For retirees calling it quits from the 9-to-5 world, it might be worth considering another career move: landlord.

In today’s economy, it seems that everything old is new again … albeit with a bit of a twist. Years ago, it was common for older couples – and frequently widows – to rent out rooms for extra income. Taking in boarders was a viable way to supplement income.

Well, the idea is back, with a bit of a twist. As Baby Boomers face the cold, hard facts of retirement, they are increasingly changing the definition of the term to include at least some form of work. While you may not be ready to hang out a shingle on the front gate, “Rooms for Rent,” you might consider becoming a landlord. In fact, the venerable Wall Street Journal writes that it may be just the ticket, especially given the uncertain prospects for stocks and bonds and the meager interest rates on savings accounts.  

Think about it. It’s a buyer’s market now, so purchasing a multi-family home is more financially feasible. And, the trend toward the renter’s lifestyle is picking up steam.  All this means you have a low cost of entry into a market that is expected to expand. Starting to make investment sense?

Sure, it’s a career of sorts, but you also need to think of it as an investment. Weigh everything in the short term, including start-up and maintenance costs, as well as the marketability of the location you’re considering. But then also keep your long-term goals in mind, including appreciation and eventual sale. Buying in a depressed market, after all, is only a steal if that market bounces back. Finally, don’t overlook the possible danger of having all your eggs in one basket since being a live-in landlord will unite your home, equity, and employment, into one potentially risky asset.

Like any retirement move, don’t make this one too quickly. Discuss your plans with a professional who can help you sort out the details, including how an investment rental property could affect your Social Security benefits. Remember, too, that this lifestyle may not suit you. In which case, you would be wise to explore other, more enjoyable options.

Reference: The Wall Street Journal Online (June19, 2011) “Want a job? Become a landlord.”

ELDER LAW / RETIREMENT CAREERS

Career reinvention may be more of a necessity than a virtue for older Americans, but working longer can make a difference beyond your bottom line.

If you are a Baby Boomer nearing retirement, you probably have a different concept of retirement than your parents. Retirement for you may not mean an extended vacation on some sunny shore, but rather a new phase of your working career. A phase that may, perhaps, bring more than just another paycheck, but a new sense of meaning to your life. Morningstar recently referred to this career transformation as the “encore career.”

Of course, it’s not just the search for meaning that motivates Baby Boomers to pursue an encore career. As Morningstar points out, tough new economic realities have transformed career reinvention from a virtue into a necessity for millions of older Americans who aren’t ready to retire or simply can’t afford to quit working.  

Interestingly, though the job market looks fairly bleak today, some economists predict labor shortages in key social sector jobs. Barry Bluestone, an economist at Northeastern University in Boston, predicts that within the next eight years, there could be at least five million job vacancies in the U.S., nearly half of them in social sector jobs in education, health care, government and non-profit organization. Bluestone also predicts that Baby Boomers are going to be filling those jobs, "We're going to see a remarkable reshaping of our labor force. The rate of labor force participation by the 55-plus population is going to be much higher, and older workers will represent a much higher percentage of the overall workforce."

The Morningstar article includes a table ranking Projected Encore Career Growth 2008-2018. You might want to check it out. I note that job growth is predicted to be particularly strong for teachers, nurses and other health care providers … and not so much for lawyers.

 

Reference: Morningstar Advisors (June 6, 2011): Making Working Longer Worth It

ESTATE PLANNING / RETIREMENT PLANNING

you were counting on tapping the equity in your home to help finance your retirement, you may have reason to worry.  A recent issue of SmartMoney points out, “With home prices falling for nearly five years, many American must consider what to do with their homes should prices continue to collapse and the equity in their homes, if they are still lucky enough to have any, disappears completely.”

If you are a Baby Boomer with an eye toward retirement, your plans may be taking quite a beating right now. Warnings about shortfalls in social security and Medicare, rising health care costs, and the prospect of higher taxes now combine with disappearing home equity. No wonder so many Boomers say they plan to work through their “retirement.”

So, what do the experts say you should do with your home? Should you stay put and wait it out, hoping that home prices will eventually recover? Or should you bail out now, before you lose even more, and downsize?

“The answer is that it depends on the individual situation,” says Nicholas Paleveda, an adjunct professor at the graduate tax program at Northeastern University. “If you have plenty of assets for retirement, there may be no reason to downsize. If you do not have sufficient assets for retirement, then selling your home to live in a smaller home may be appropriate.”

Some options to consider include:

• Multi-Generational Living. Think of The Waltons, with three generations living in one house. Multi-generational living was commonplace years ago, and is growing in popularity now. In fact the number of household comprising multiple generations jumped to 7.1 million, or 6.1% of all US households in 2010. Of course, things worked out well for The Waltons, but remember that was television … and even John Boy eventually moved out!
• Pay Down the Mortgage. Depending upon your circumstances, it may be wise to pay down, or pay off, your mortgage before retirement to reduce your monthly expenses.
• Downsize. In today’s market, it may actually make sense to sell your house, even if it is underwater, if you can purchase a smaller home at a particularly good price and low interest rate. The cost of paying off your current mortgage would effectively be added to the purchase price of your new, smaller home. In some instances, after the dust settles, you could still be money ahead in the long run.
• Buy a Second Home Now. That may seem counter-intuitive, but if you have the means and can find a good price on a second or vacation home that will mesh well with your retirement needs, then you could basically lock in that price (and interest rate) now, and sell your primary home when the market recovers.

 

Retirement planning has never been simple, and is even more complex in today’s economy. You are well-advised to seek qualified counsel before making any major moves involving your home.

ESTATE PLANNING / BEWARE UNSCRUPULOUS SALES

 

We work with many qualified financial planners to assist clients with comprehensive estate and financial planning. But we don’t work with everyone, and sometimes we see unscrupulous sales methods employed that take advantage of trusting clients, particularly the elderly. Just such a case is brewing now in Indiana, where an insurance brokerage was disciplined for the unauthorized practice of law – and is now the defendant in a class-action lawsuit.

            According to insurancenewsnet.com, the insurance brokerage used estate planning as the hook for a lucrative business selling other insurance products, including annuities. Sadly, this is not an unfamiliar tale. Apparently, some clients not only purchased inappropriate estate plans, but paid huge tax penalties after they cashed in valuable stocks to buy the firm’s annuities.

The estate planning packages were sold using what the Indiana Supreme Court called “an entirely one-sided ad delivered in such a way so as to likely alarm the customer.”

            Here are five tips to help you (or a loved one) avoid falling victim to similar scams:

-          Don’t Let Anyone Rush You. One of the ways scammers get their victims is by rushing them into making decisions.

-          Don’t Let Anyone Scare You. Scare tactics are common among scammers. If the product or service is valid, it won’t have to be sold with screaming headlines or scare tactics.

-          Be Suspicious of Anyone Who Pressures You to Sell Your Investments to Buy Theirs. It might be a good idea, but check with an objective third-party professional before making the move – such as your CPA or attorney.

-          Check References. Before buying any kind of financial product, check the references of both the agent and the company behind him. Check with your friends, family and business acquaintances, as well as with professionals you know and trust, such as your CPA or attorney.

Consult Trusted, Objective Advisors. Anyone can be fooled, and there’s no shame to being fooled by an expert scammer. Before you sign on the dotted line, take the time to consult a trusted – and objective – advisor. The opinion of a qualified, disinterested third party who has nothing to gain or lose by the transaction could be your best protection

ELDER LAW / SOCIAL SECURITY

Should you count on Social Security for retirement income?

Who knew that question would even be asked, let alone become so politically charged? The popular media today frightens people with blaring headlines that Social Security is bankrupt, and you are unlikely to receive a dime … countered by reassuring comments that the system has a multi-trillion-dollar surplus.

So – which is it? Is Social Security a pipe dream, a shell game, a bankrupt program from which you will never receive benefit? Or is it a social safety net for those whose working years are over? A recent Morningstar article tries to answer those questions, and provides insight as to whether or not you should count on it.

According to last year’s Gallup poll, 60 percent of Americans don’t expect to receive Social Security benefits once they stop working. Younger generations are even more pessimistic, with 77 percent of 18- to 34-year-olds reporting that Social Security either has “major problems” or is actually in a state of crisis. Those feelings are not unfounded. It is true that the Social Security Fund now pays out more in benefits than it takes in by taxes, and much of the fund itself consists in Treasury bonds rather than actual cash.

But maybe things aren’t quite so bad.

Many analysts, including Morningstar, insist that Social Security isn’t insolvent. But it is a very different beast to different people, depending on their age.

Without question, the value of Social Security benefits to your eventual retirement income is decreasing. Gradually increasing the age when seniors can file for full benefits – the so-called Normal Retirement Age (NRA) – essentially amounts to phased-in benefit cut of 20 percent, according to [the National Academy of Social Insurance]. Additionally, dramatic increases in healthcare costs have had and will continue to have an increasing drag on Social Security income, as Medicare Part B premiums are deducted from Social Security payments.

Social Security statistically accounts for 40 percent of an average retiree’s income, making it an important aspect of your retirement planning. According to Morningstar, the best way to combat Social Security’s falling value over time is to maximize your own monthly payouts by waiting at least until your NRA to file for benefits. Monthly benefit payments are eight percent higher for every year you wait, up until age 70. In fact, your monthly income will be about 76 percent higher than it would be if you had claimed benefits at age 62. Morningstar includes a handy chart illustrating the increases in their article online

SMALL BUSINESS / RETIREMENT

 

If you’re over age 50, have substantial assets in your qualified retirement plan, and always dreamed of being your own boss, you are not alone. In fact, you may decide to join the growing number of baby boomers who are tapping their retirement savings for start-up capital on a new business.

The Wall Street Journal, along with SmartMoney, recently discussed the trend, the possibilities, and the potentially dangerous risks involved. Here is the strategy, which the IRS called a Roll Over as Business Startup (ROBS). First, you create a legal corporation with its own 401(k) plan into which you can transfer all of your funds from a previous employer-held plan. With those funds, you can then invest the 401(k) into your new corporation in exchange for shares. What once was simply retirement money has thus become start-up capital.

The problems with this approach are probably obvious: most start-ups fail, but if you fund your start-up with your retirement money then your retirement also goes down the drain. That is probably the biggest risk, but don’t discount the IRS. While this move is legal (if done properly), it does invite IRS scrutiny.

This financing move has become popular enough to draw the attention o f the IRS, which has suggested that these kinds of rollovers “seek to exploit the generous tax benefits enjoyed by qualified retirement plans.” The agency has called for added scrutiny on firms that use them. 

Still, some financing firms like Guidant Financial have seen increases in this method (a 30% increase in the case of Guidant Financial, for example). David Nilssen, co-founder of Guidant Financial Group, Inc., says the IRS has never called thse kinds of rollovers non-compliant, only that it would watch firms funded by 401(k) rollovers more closely.

To be sure, there are risks involved. But the profile of an entrepreneur is one of a risk-taker. And then there are other risks at play. Many baby boomers facing retirement simply are not prepared to stop working. That retirement nest egg may not be enough to finance a comfortable retirement, but it just might be enough to finance a second career as an entrepreneur, providing income that could make an eventual retirement that much happier

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