Are You Ready to Retire? These Professionals Can Help

Are you thinking about retiring in 2019 or 2020? It seems like a simple concept: Just pick a month, run some numbers and turn off your weekly early morning wake-up alarm. However, it’s not that simple. According to an article titled “Professionals can ease a person into retirement” from the Cleveland Jewish News, most people need some help for both financial and non-financial planning.

A good place to start is with the financial side. Take inventory of all your assets to identify where you have assets and where you have liabilities. You’ll need to be brutally honest with yourself and your spouse. Are there gaps? Is your credit card debt bigger than you thought? Use this exercise to get a real sense of whether you can retire this year.

Next, take care of the legal aspects of retirement. You’ll need a will, durable power of attorney, health treatment directive (for end-of-life decisions) and a medical power of attorney. This last POA will give someone the legal authority to make care decisions for you, if you become incapacitated. If you already have a will but have not reviewed it in three or four years, it’s time for a review. Laws change, lives change, and what may have worked well for you and your family when the will was first created, may not work now. You’ll want to work with an estate planning attorney to create a plan, making sure assets are properly aligned with your estate plan and minimizing any tax liability for your heirs.

This is also the time to consider how you’ll pay for long-term care. Do you have a long-term care insurance policy in place? Speak with a reputable insurance agent, or if you don’t know one, ask your trusted advisors to make a recommendation. People don’t like to think about going into a nursing home for an extended period of time, but it happens often enough that it makes sense to have this type of insurance. It’s not cheap—but neither is paying out-of-pocket for care at a nursing facility.

When you’ll retire, and what you’ll do with your retirement years, which could last two or even three decades, is a big question. The answer may be based on your finances—can you realistically stop working full time, or do you need to continue to work for a few more years? Would part-time work fill any savings gaps? These are questions that can’t be answered, without a thorough financial analysis of your retirement income.

If you stop working, what will you do? Some experts advise asking a bigger question: Who are you, now that your work identity is gone? If you’ve planned well, or if you’re lucky, your retirement can be a time of great fulfillment, spending time with family, volunteering in the community and devoting time to taking better care of yourself. For some people, retirement from one career is an opportunity to spring into a new career, one that they’ve always put to the side, in order to earn a paycheck.

How much you can achieve of your dreams, depends on putting down a solid foundation of legal and financial resources. An estate planning attorney and a financial advisor are important members of your retirement success team.

Reference: Cleveland Jewish News (Jan. 9, 2019) “Professionals can ease a person into retirement”

Why Do I Need a Will?

Many celebrities die without wills. This past year saw a host of celebrity estate snafus. It’s as if they were sending a message from beyond that they didn’t care about how much turmoil and family fights would take place over their money and assets. Some of these battles go on for decades. However, as reported in Press Republican’s article “The Law and You: Important to make a will,” even if you think you don’t have enough property to make it necessary to have a will, you’re wrong. It’s not just wealthy or famous people who need wills.

Do you really want other people making those decisions on your behalf? Would you want the laws of your state making these decisions? Your family will do better, if you have a will and an estate plan.

For example, in New York State, if you don’t have a will, your surviving spouse will receive the first $50,000 plus one half of remaining property. Your children, whether they are minors or adults, will get an equal share of the other half.

If you have a spouse but no children, your spouse will inherit everything. If you have children and no spouse, then the children get everything, divided equally.

If you have no spouse, no children and living parents, then your parents will inherit everything you own.

If your parents are not alive, your siblings will get it all.

Adopted children are treated by the courts the same as biological children, when there is no will. Stepchildren and foster children do not inherit, unless they are specifically named in the will.

If you have been in a long-term relationship with someone and never married, even if they qualify for health care benefits from your employer under the “domestic partner” provision, they are not considered a spouse when it comes to inheritance. At the same time, if you are not legally married and your partner dies, you have no legal right to inherit from your partner’s estate. No matter how long you have been together, how many children you have together, if you are not legally married, you have no inheritance rights.

Check your state’s laws for the rights of “common law marriages;” New York State does not recognize these as a legal union. In very limited cases, New York State has been known to recognize common law marriages from other states where they are legal, but that is the exception and not the rule. There are limits here as well: both parties will have to agree to be married, must represent to others that they are married and may not be married to anyone else.

If you want someone who is not your legal spouse to receive your assets, you need to meet with an estate planning attorney and have a will drawn up that meets the requirements of the laws of your state. An estate planning attorney will be able to explain how your state laws work and what provisions are and are not acceptable in your estate.

An estate planning attorney will also help you consider other issues. Do you want to leave anything to a charity that matters to you? Do you want anyone else besides your children to receive something after you pass? Is there anyone who needs a trust, because they are unable to manage their finances, or you are concerned about their marriage ending in divorce? Making these decisions in a properly prepared will, can protect your family and lessen the chances of your wishes being challenged.

Reference: Press Republican (Dec. 18, 2018) “The Law and You: Important to make a will”

Who Will Cover My Debt When I Die?

Did you know that we’re dying in this country with an average of $62,000 in debt? What happens to that debt?

Fox Business recently published an article that asks “What Happens to Your Debt When You Die?” As the article explains, the answer depends on a few different factors, including the type of debt, whether there was a cosigner and the value of the deceased person’s estate. Let’s look at some possible outcomes:

In many cases, any debt you owe during your lifetime will have to be paid by your estate when you pass away. Creditors can make claims against your estate during the probate process. If you died with a will and named an executor, he or she will usually use the assets you left behind to pay off your debt. If you don’t have enough assets, creditors are typically without recourse, if you had unsecured debt without a cosigner. However, if you had a secured loan, like a mortgage or a car loan, the debt would need to be paid for your family to keep the asset. For instance, if you leave your home to your family, they’d have to pay your mortgage to keep the house.

Creditor claims take precedence over your instructions as to what happens to your assets. If you stated in your will that your bank account is to pass to your children, but you owed money to a creditor, the money in the bank would first be used to pay the creditor, before your children could inherit.

If your estate doesn’t have enough assets to satisfy your debts, creditors may seek the payment from any cosigners on the loans. Cosigners share legal responsibility for debt and will be held 100% responsible for paying the remaining balance.

One potential exception to this general rule, is for certain types of student loans. For example, a Parent PLUS loan can be dischargeable due to a student’s death, and some private student loans offer a death discharge. However, it is rare. If the primary borrower on student loan debt dies, the surviving cosigner should read the loan terms to determine if he’ll still be held responsible for paying it. Federal student loan debt is typically forgiven, when the borrower dies.

Creditors can also attempt to collect from co-borrowers, if you had a joint account. Therefore, if you and your spouse had a mortgage together or shared a credit card, your spouse would be expected to continue paying the bills after your death.

However, if there’s no cosigner and not enough assets in the estate to pay the bills, creditors will charge off the debt because there’s no way to collect. Beware that creditors may attempt to guilt family members into paying after their deceased loved one’s death. However, generally there’s no requirement that you pay debt that belonged to a loved one. An exception is in states with community property laws that require spouses to pay off debt belonging to a deceased spouse using community property.

If your loved one has already passed away and you’re worried about what will happen to their debts, speak to an experienced estate planning attorney.

Reference: Fox Business (December 27, 2018) “What Happens to Your Debt When You Die?”

Who Pays What Taxes on an Inherited IRA?

The executor of a person’s estate must take on the important responsibility of ensuring that the deceased person’s last wishes are carried out, concerning the disposition of their property and possessions. There are times when investments and savings are part of that estate.

An individual may have an IRA that designates the beneficiary or her estate as her heir. Inherited IRAs are not like other assets. Executors must be aware of what to do when withdrawing the IRA into the estate account, particularly about how will these funds will be taxed.

nj.com’s recent article asks “Who pays taxes on this inherited IRA?” It explains that the distributions from an IRA are treated as ordinary income by the federal tax code.

The will must be probated, and it may stipulate that the money from the IRA is to be given to the deceased’s children.

These distributions to the children are taxed at their marginal tax rates. However, it is important to note that when an estate is an IRA beneficiary, the entire account must be withdrawn within five years.

If the executor moves the IRA directly into inherited IRAs for each of the beneficiary children, the beneficiaries would be responsible for paying the taxes.

If the executor withdraws the IRA assets, then the executor would pay the taxes from the estate assets.

You will need to speak with the custodian of the IRA to find out what is and is not permitted in terms of distribution: are they allowed to roll the IRA into a beneficiary IRA, or can they divide the account into separate IRAs for the beneficiaries? The distribution must take place within five years, so keep that in mind when discussing options and goals for the IRA and the heirs. An estate planning attorney will be able to determine your best tax options for the inherited IRA when settling the estate.

Reference: nj.com (January 7, 2019) “Who pays taxes on this inherited IRA?”

Am I Too Young to Start Thinking About Estate Planning?

Many people believe they’re too young to begin thinking about estate planning. Others say they don’t have significant enough assets to make the process of planning worthwhile.

However, the truth is that everyone needs estate planning. If you have any assets, and you intend to give those assets to a loved one, you need to have a plan.

Forbes’s article, “Reviewing Your Financial And Estate Planning Checklist,” examines some important topics in estate planning.

The first of topic is a durable power of attorney for property, finances and health care. This document allows you to designate a trusted individual to make decisions and take action on your behalf with matters relating to each of the three areas above.

In addition to the importance of having all powers of attorney readily available, in case you become incapable of making decisions, beneficiary designations should also be looked at frequently to update any changes to family situations, like a birth or adoption, death, marriage or divorce.

Another topic to address is a living trust. A trust will give direction regarding where and how the assets are dispersed when you die. A great reason to use a living trust is that the assets in a trust do not pass through probate court, which can be an expensive and time-consuming process.

Another area is digital assets. It’s critical for your heirs to have access to digital files, passwords and documents. This can be easy to overlook. Create a list of your digital assets, including social media accounts, online banking accounts and home utilities you manage online. Include all email and communications accounts, shopping accounts, photo and video sharing accounts, video gaming accounts, online storage accounts, and websites and blogs that you manage. This list should be clear and updated for your heirs to access.

If we fail to plan for these somewhat uncomfortable topics, the outcome will be stressful and expensive for our heirs.

Reference: Forbes (January 4, 2019) “Reviewing Your Financial And Estate Planning Checklist”