Dissolving the Mystery of Probate

Probate can be avoided with proper estate planning, or certain assets can be placed outside of the probate process.

The Street’s recent article on this subject asks “What Is Probate and How Can You Avoid It?” The article looks at the probate process and tries to put it in real-life terms.

Probate is an estate planning process that works within a probate court with a probate judge presiding over the proceedings. Usually, surviving families and other interested parties initiate a probate process, to address issues relating to the deceased individual’s estate settlement. These include:

  • The handling of the deceased’s valid will;
  • Properly citing and categorizing the deceased’s assets;
  • Appraising the deceased’s estate and property;
  • Paying off any of the deceased’s existing debts; and
  • Distributing the deceased’s property to those directed by the will (or, if there’s no will, the probate court will direct the distribution of estate assets, according to the laws of intestacy).

The executor handling the deceased’s estate will typically start the process. Here are the basic steps:

File a Petition. The estate’s executor will file a request for probate where the deceased resided.  The court will then assign a date to confirm the executor and, once that is done, the probate judge will officially open the probate case.

Notice. The executor must send a notice that the deceased’s estate is officially in probate to all applicable beneficiaries, heirs, debtors and creditors.

Inventory Assets. The executor will then collect, list and present a value for all of the deceased’s assets and supply this to the probate court.

Pay the Bills. The executor will need to pay all outstanding debts owed by the estate.

Complete Any Tax Returns. The estate may also have existing tax returns that need to be filed. An accountant can be hired by the estate to work on this, or the executor may choose to file the taxes on his or her own.

Pay the Heirs. The executor can now distribute the remainder of the estate to any heirs, according to the will’s instructions.

Close the Estate. Finally, the executor will file paperwork with the court and file to close the estate.

An experienced estate planning attorney licensed to practice in your state will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all. In some regions, probate is swift, while in others it is long and tiresome. A local estate planning attorney is your best resource.

Reference: The Street (July 29, 2019) “What Is Probate and How Can You Avoid It?”

Be Aware of These Myths about Social Security

Despite everything written about filing for benefits as late as possible, more than half of seniors apply for Social Security before they reach full retirement age. It is now 66 and will rise to 67 for people born in 1960 and later. More than a third of all Americans apply as soon as they possibly can—at age 62. Only one in twenty-five applicants puts off filing to age 70, when monthly benefits max out, says the Washington Post in the article advising readers “Don’t believe these Social Security myths.”

Some people have no choice and must take their benefits early, because they’ve lost their job and have no savings. Others have better options, but they aren’t aware of them. That’s because of the many myths about Social Security. A survey found that while 77% of Americans thought they were pretty smart about Social Security, 95% couldn’t answer eight basic questions about the program.

Let’s look at these myths.

It doesn’t matter when I take Social Security. Benefits increase by about 7% every year from age 62  to your full retirement age, and then by 8% each year between full retirement age and 70. This is a planned adjustment to ensure that people who opt for a larger check for a shorter period don’t receive more than those who file earlier and receive smaller checks. It’s better to delay, both for the larger check and the benefits that the surviving spouse receives. People who live longer can run out of savings, so having a larger check in your 90s could make a huge difference.

If I don’t expect to live a long time, I should claim benefits early. Most of us underestimate our life span. A 65-year old man today can expect to live to 84, and a 65-year old woman can expect to live to 86.5. Life expectancies are even longer for those in their mid-50s. However, here’s the thing: even if one spouse doesn’t live as long, by taking Social Security earlier, their spouse will have a smaller benefit. Married couples lose one of their checks when the first spouse dies, causing a big drop in income. The survivor receives the larger of the two checks the couple was receiving. Therefore, the higher earner in a couple, whose check will be larger, should delay taking benefits, if at all possible, to benefit the surviving spouse.

I can claim benefits early and invest the money to come out ahead. No investment today offers a guaranteed return as high, as what can be obtained from delaying benefits. You’d have to take a lot of risk to get close to the 7% or 8% guaranteed by Social Security.

As soon as I stop working, I have to file for Social Security benefits. Not true. You don’t have to file for Social Security benefits until you want to. Even delaying four years, from 62 to 66, can translate into a sustainable 33% increase in your standard of living.

I better apply before Social Security runs out of money and closes down. This myth becomes more widespread every year. If Congress doesn’t act, which is unlikely, by 2035, the system will still be able to make payments, although they may be curtailed by 20%. Eighty percent of your Social Security check is not zero. It’s also more than likely that Congress will address Social Security fixes.

Reference: Washington Post (June 10, 2019) “Don’t believe these Social Security myths”

Is It Possible to Recession-Proof Retirement?

That was a tough time for people who had just retired, but since that time stocks have rebounded in a spectacular manner. However, says Money in the article “This is the Best Way to Recession-Proof Your Retirement, According to Experts,” it is possible that the long rally may be coming to an end.

Is there anything that can be done do to protect your retirement accounts from the next financial disaster? Those who are closest to retirement, are always the most vulnerable to drops in the stock market, and those who are retired and drawing down savings are even more at risk. However, you can build a financial buffer to help your retirement funds survive any downturns.

No one knows when the next recession or stock slide will occur. There will always be one, so it’s best to be prepared. It’s simply an acknowledgement of the real risks of markets. On average, recessions last about 18 months. What can you do?

Build a cushion. Commit to building an emergency fund. That should be three to six months of expenses. And it doesn’t matter how rock solid or large your retirement investments are. If you take money out prematurely, it’s going to weaken your portfolio.

Pay down all debt, or as much as possible. That is key to feeling fiscally secure, once you leave the workforce. This is because less of your assets are tied up in long-term retirement investments. Tackle the highest interest rate debt first.

It’s far easier to adjust discretionary expenses, than it is to add cash to a stockpile. You can skip a vacation. You can’t skip a mortgage payment.

Depending on how close you are to retirement, consider tweaking your investment portfolio.  Portfolios can become unbalanced over time, as assets in different classes grow or fund managers change. Review your portfolio to limit your exposure to volatility. Scrub out any unnecessary risk. That may include putting some money in cash or cash equivalents, like savings accounts, CDs and short-term bond funds.

You don’t have to be very conservative on the entire portfolio. People nearing retirement age usually trim some of their stock holdings. It is not now as black and white. You’ll need stock growth to outpace inflation, so your equity allocation must be fine-tuned.

Many retirees are working part time jobs to keep some cash coming in and minimize what they take from retirement accounts. If you’re earning enough to live on, you can even avoid taking any distributions, except those that are required. Be aware of how your income impacts your Social Security benefits and taxes, if you have already started to take benefits.

There are other advantages to working part time. It keeps you active and engaged with others,  allows your mind to stay sharp and offers the opportunity to socialize with new people.

Finally, make sure your estate plan is in place. You should have a will, power of attorney and healthcare power of attorney. An estate planning attorney can help protect you and your family, regardless of when the next recession arrives.

Reference: Money (March 13, 2019) “This is the Best Way to Recession-Proof Your Retirement, According to Experts”