Bielski Law Office, Ltd.

Can I Survive Financially if I Live to be 100?

How long will you live? It’s a key question in retirement planning. If you’re healthy and your family tree has branches with staying power, you may figure that you have decades ahead. If your parents died early of natural causes, you may assume a shorter life. Yet research shows that behavior is more crucial than genes in determining longevity. If you are eating better, smoking less, and exercising more than your parents did, there’s a good chance you’ll live longer than they did. You’ll also need to consider how much money to live on. With low expenses, you may be able to get by with as little as 55 percent of your preretirement income. But based on a survey of recently retired readers, Consumer Reports estimates that 85 percent of income from your last year of work is about right.

How can you ensure your nest egg’s longevity? The Boston Globe asks “Can you afford to live to 100?” and provides some helpful strategies.

Delay claiming Social Security. This is the least costly way to add to your income later in life. For example, those born in 1949 are now reaching “full retirement age.” They are able to earn a benefit that’s 8% higher each year they delay, up to age 70. At the minimum, you should wait to claim until your full retirement age, which ranges from 66 (for people born from 1943 to 1954) to 67 (for people born in 1960 and later).

Buy an Annuity. Consumer Reports’ surveys of retired readers show that having a pension as a guaranteed income correlates with satisfaction in retirement. With these becoming less available, insurers are providing annuities, which have pension-like, lifetime income. If you have a small nest egg, the less you’ll want to devote to an annuity, as this effectively locks up your savings. A 65-year-old could cover all spending after age 85 by earmarking 10-15% of his or her current assets toward purchasing a longevity annuity.

What about Long-Term Care Insurance? The average cost of nursing home care in a semiprivate room is about $80,300 per year. Although 44% of men and 58% of women currently age 65 will need nursing home care at some point, those stays will average less than a year for men and less than 18 months for women. Most of the care is provided at home or another community setting. Half of nursing home and retirement care expenses are typically covered by either Medicare or Medicaid. Nonetheless, in assisted living facilities, where stays are around 22 months and the cost is about $43,200 annually, they might not accept Medicaid. You’ll need long-term-care insurance to fill the gap.

Don’t Forget Medicaid. If you believe you may require long-term care, either in your home or in a care facility, you should see where you stand as far as Medicaid. An experienced elder law attorney may be able to help you legally transfer certain assets before you submit your application.

Reference:  Boston Globe (September 11, 2015) “Can you afford to live to 100?”

Don’t Forget Estate Planning for Your Family Business

Skilled estate planning is essential to the tax-efficient transfer of the family business across the generations. While the majority of family business owners have estate plans, the majority of these plans can be considered dated. Family businesses are responsible for more than 70% of global production and are one of the principal creators of private wealth. Often critical to the continuity of the family business and to the perpetuation – if not enhancement – of family wealth is estate planning.

Forbes’ article, “Most Family Business Owners Should Update Their Estate Plans” reports that an international survey of 336 middle-market family businesses found that more than 90% of family members who are senior executives with equity in the firms have estate plans. That’s the good news. Now the bad new: only 22% of these estate plans have been updated within the last two years. About a quarter of them have been updated between two and five years ago, and the rest—almost half—have not been reviewed in over five years.

Most estate plans become “old” after a few years. This means that situations change, such as family relationships, business matters, and their net worth—making it prudent to review and potentially refine their estate plans.

In addition to out-of-date estate plans, the quality of these plans must be questioned, as some family business owners don’t take advantage of strategies to reduce estate, gift, and other taxes. In some situations, there are ways to improve the financials of the business and provide economic benefits to the family at the same time.

Speak with an experienced and qualified estate planning attorney to make sure that your estate plans is up-to-date and is designed to take into account the latest advanced planning strategies.

Reference: Forbes (September 15, 2015) “Most Family Business Owners Should Update Their Estate Plans”

Come on, Kids! Start Estate Planning!

If you think estate planning is for only the elderly or wealthy individuals, think again. Everyone has collected some stuff, what professionals like to call assets, possessions, investments — and don’t forget the liabilities (debt), like student loans, car or credit card balances. Even if you do not think you have much, it’s important to have a plan for what you do have, and what you want to do with the stuff after you pass away. There are some basic documents everyone should consider having. If you do not complete the appropriate documents, the state you reside in has its own statutory regulations and procedures to dispose of your property. If you do not plan right, you not only surrender your control over your things, but your things may not go to the party you want — such as a partner, life partner, friend or charity. So what can you do?

The website credit.com addresses important tasks that everyone needs to address, in “Why Everyone Needs a Will (I'm Talking to You, Millennials).”

Designate Your Beneficiaries. You can list your beneficiaries on your retirement accounts (401(k), 403(b), IRA, etc.) when you complete the application. Likewise, you can designate your beneficiaries on bank and investment accounts by setting up a TOD (Transfer on Death) designation. It’s easy to do and costs nothing. Remember that beneficiary designations supersede any wish you make in a will.

Draft Your Will. A will is a legal document and is a written statement of your intentions, including where you want your possessions to go and how you want the orderly disposition to happen. See an attorney, as each state has different laws.

State Your Health Care Wishes. Use a Health Care Proxy to let someone you trust make health care decisions and carry out your health care wishes in the event that you are incapacitated.

Sign a Durable Power of Attorney. This form allows someone you trust to make financial decisions in the event you are unable to do so. There is a huge difference between a limited power and durable power of attorney. Talk to your estate planning attorney about these documents.

An experienced estate planning attorney can spend time with you and review your estate issues, complete a will, health care proxy, durable power of attorney, and check beneficiaries, as well as any tax issues. Use an attorney who specializes in this area to ensure your wishes are properly documented and you achieve what you are trying to accomplish, now and in the future.

Reference:  credit.com (September 11, 2015) “Why Everyone Needs a Will (I'm Talking to You, Millennials)”

Estate Planning After your First Child Arrives

When young couples expect their first child, the to-do list never seems to end. From lining up in-home help to managing hectic daily schedules, the process can prove daunting. Then there's financial planning. Financial advisors often urge parents-to-be to prepare by budgeting for the future. They might need well over $250,000 to fund a child's upbringing until age 17. The best financial advisors also raise clients' awareness about the ultimate grim question: What would happen to your child if you die?

Young couples are advised to see an estate planning attorney in “When Couples Have Their First Baby, Advisors Deliver,”from Investor's Business Daily. The estate-planning attorney will help them address guardianship issues, draft a living will, and other related matters. Some people are reluctant to meet with an attorney. But ask yourself, "Do you want your in-laws to raise your child?" That question should make you want to designate a preferred guardian.

Life insurance and long-term disability coverage become very important. Some folks believe they are covered because they have disability insurance at work. This may not be enough.

Don't let financial stress add to the stress of raising a child. Sit down with a qualified estate planning attorney and go over some of the important issues that now must be addressed as you start your family.

Reference: Investor's Business Daily (September 12, 2015) “When Couples Have Their First Baby, Advisors Deliver”

Which Type of Trust is Right for Me?

Trusts can be a great way to update an estate plan, whether within a will or as a separate estate-planning tool. Trusts have a reputation for being something that most people don't have to worry about, with most seeing a trust as a vehicle for the ultra-rich to protect their assets from taxes and other financial threats. In reality, though, trusts are tools that just about anyone can use to achieve worthwhile financial goals. Still, the legal complexity of the estate planning world has left many people uncertain about what a trust is, let alone how to use it. Let's take a closer look at trusts to try to answer the question of what they are and how they can help you and your family.

In “What Is a Trust, and Why Should I Have One?” Fox Business explains that in legal terms, a trust lets an individual separate the legal ownership of property from the beneficial enjoyment of that property. A trust places the responsibility for managing and preserving trust property on an individual or entity (“the trustee”). The beneficiaries receive the trust assets based on the terms of the trust. There are many trusts available to serve many different goals. The article discusses some of these trusts and how people use them.

Revocable trusts are also known as living trusts. The creators of this trust can ensure the proper management of their assets during their lifetime and after they pass. A revocable trust can be changed at any time by the creator. However, instructions in the trust document tell the trustees how to act after the creator’s death. Revocable trusts are used in estate planning to pass assets to heirs in private and to avoid probate, which can reduce costs and stress.

Testamentary trusts. These are created in a person's will and they don't keep the assets out of probate. A court proceeding is required to fund the testamentary trust. Testamentary trusts provide flexibility.

Irrevocable trusts can be used to make gifts that allow subsequent protection from creditors and estate taxation. These trusts are typically created to hold high-value life insurance policies and keep the insurance proceeds out of the taxable estate of the insured person. The trust language can state that any trust money used for the beneficiary won't run into issues with Medicaid and Supplemental Security Income.

Charitable trusts, as the name implies,allows an individual to make a gift to charity but retain an interest in the donated property. Charitable remainder trusts will let you keep an income stream that continues for a specific time or for the rest of your life—the charity will receive any remaining funds at your death. These trusts provide income tax benefits from the value of the donation, even though you still receive income from the trust assets.

Other trusts are used for estate planning purposes, such as credit shelter trusts. These are used to preserve the estate tax exemption of a deceased spouse for future use. A Qualified Terminable Interest Property trust, or QTIP, gives a spouse access to funds while preserving their eventual distribution to children or other heirs. Finally, a Qualified Personal Residence Trust, or QPRT, lets you transfer an interest in your home to family members while you are still alive in a way that reduces gift and estate taxes.

All of these trusts have the same benefit: guaranteeing that your assets will be used to meet your wishes and provide income for you and your loved ones. Talk with an experienced estate planning attorney and see if you can benefit from establishing a trust for yourself or your family.

Reference: Fox Business (September 7, 2015) “What Is a Trust, and Why Should I Have One?”

Estate Planning for the Farm

Estate planning doesn’t concern itself only with financial savings or your home. It can also include your property and land. And in no other industry is land more valuable than farming. By building and implementing an airtight estate plan, farmers and ranchers can ensure a smooth transition of land ownership and management when the time comes. An estate plan can provide for the needs of all family members, even those who aren’t actively engaged in its daily functions. It also can help mitigate the risk of high inheritance taxes on land that is made more valuable by inflation. And because land is not a liquid asset, an estate plan is important in stemming and addressing any potential settlement problems.

In “Planning for Farmland,” the Black Hills Pioneer reports that a quarter of the nation’s agricultural land is likely to change hands in the next decade, according to the USDA Natural Resources Conservation Service. That land needs to remain productive and valuable. This important objective can be achieved with an effective estate plan. The NRCS says that a sound estate plan can help accomplish at least four goals:

• Transfer ownership and management of the agricultural operation, land, and other assets to a new operator;
• Avoid unnecessary transfer taxes, such as income, gift, and estate taxes;
• Provide for financial security and peace of mind for all generations;
• Foster the next generation’s management capacity.

The American Farmland Trust (AFT), an organization operating under the NRCS, serves agricultural landowners, concerned citizens, planners, local officials, state agency staff, land trusts and policymakers. The AFT answers complex questions on all types of issues.

Talk with a qualified estate planning attorney and make sure your hard-earned investment and family legacy is properly protected.

Reference: Black Hills Pioneer (September 4, 2015) “Planning for Farmland”

Talk About End-of-Life Planning Now!

When you dare to think ahead to the last days of your life (if you dare to think about that), what do you imagine? If you are like 70 percent of Americans, you dream of spending your final days at home, in peace and comfort, surrounded by loved ones who care for you compassionately until your last breath. But in reality, the CDC reports that 70 percent of Americans actually die in a hospital, nursing home or long-term care facility. Why are so few people able to realize their end of life dream?

The two biggest reasons that many people do not have the death they wish: many do not plan ahead, nor do they make their wishes known, according to The Huffington Post’s “5 Reasons to Plan Ahead for the End-of-Life.” No one likes to talk about death, so we put off conversations that would let others know of our desires. And most of us don't take the time to work on required documents to establish a legal basis for our wishes.

There are some very compelling reasons to overcome your fears and get going on this. And it's never too early to start planning: remember there are no guarantees for the future.

Five reasons to start planning for the end-of-life now:

1. Preserve Your Financial Legacy. According to a recent survey, roughly 41% of Baby Boomers don't have a will—and 50% of all Americans die without a legal will in place. If you fall into either of these groups, it means that the probate court will decide how and to whom your assets may be distributed among your heirs, according to the state law. If you have no estate plan and don’t discuss a strategy with an experienced estate planning attorney, you may give a significant portion of your estate to taxes. Protect your assets and distribute them to your heirs by creating an estate plan.

2. Provide for Your Minor Children. That same survey found that 55% of Americans with children don't have a will and have failed to designate a legal guardian for their children under 18. Here again, the court may decide who will receive custody of the children if both parents die—a traumatic event for everyone. Take the necessary steps now to name a guardian and protect the welfare of your children.

3. Get the Care You Want at End-Of-Life. Another survey continues the bad news: less than a third of Americans have completed advance Directives—instructions to health care professionals on the type and extent of care to be delivered in a life-threatening situation. Without this, you stand to receive aggressive, full treatment in a crisis, which may not be what you really want. Complete a Health Care directive with instructions for your health care at the end-of-life. This will save energy, resources, and create less stress for your loved ones. Make sure the documents are in your home and easily accessible, should an emergency arise.

4. Be Remembered as You’d Like. If you would like to be memorialized in a certain way, you need to make your wishes known to your family in order to have them executed. Yes, you should stage-manage your own funeral! Write down the arrangements in advance for your own funeral and leave detailed instructions.

5. Alleviate stress for your family. There’s plenty of grief with the loss of a loved one without adding conflicts about handling financial, health care, or after-death arrangements. Communicate your wishes clearly now with detailed instructions and draft the required legal documents to ensure your desires are met.

Talk with a qualified estate planning attorney and make those plans now.

Reference: Huffington Post (September 4, 2015) “5 Reasons to Plan Ahead for the End-of-Life”

Say “I Do” to Estate Planning Before the Wedding Ceremony

As the fall wedding season begins, advisers should make sure they have a comprehensive plan to help clients who are getting married. Advisers need to look at the big picture, like if the couple's retirement goals align, and the nitty gritty, such as insurance policies and estate plans that need updating. The process should start when the couple gets engaged. Just as an architect wouldn't go into an initial client meeting with blueprints, an adviser should get to know a client's spouse-to-be first before creating a plan.

A cleverly titled article in Reuters, “When financial planning meets wedding planning,” notes that a financial adviser or estate planning attorney should analyze each person's financial holdings, insurance coverage, risk-tolerance levels, retirement goals, and any current estate plans before the wedding takes place. Questions to get some clarification about the relationship include:

• Who is going to pay the bills?
• How will you plan for big purchases?
• When are you planning to retire and where?
• If there are children from a previous marriage, how will inheritances be handled?

If the couple has two advisers or attorneys, things can get overly complicated, so it is best if the couple can agree to work with one advisor or attorney.

Then there is the sensitive issue of a pre-nuptial agreement, which is typically easier to do with those on their second marriage. If you are younger, childless, and in love, you may believe that it’s not necessary. Talk to your estate planning attorney about the benefits of having this, and then think about it.

Whatever the decision is on the pre-nup, make sure you talk to the estate planning attorney about updating or creating your estate plans. Couples should go to that meeting with printouts of all of their financial statements and insurance coverage.

Finally, after the wedding, update beneficiary information. This will include insurance and retirement plans. If a spouse has changed his or her name, your attorney can help you update your social security card, credit cards, and passport.

An estate planning attorney can help with these questions and issues, and working in tandem with your financial advisor, create a sound plan for your future together.

Reference: Reuters (September 4, 2015) “When financial planning meets wedding planning”

Planning for Giving Your Assets to Your Children

Call it the triple-whammy: An elderly parent, a new significant other and an aging bull market. A reader recently shared his frustrations over watching his elderly father gift a large portion of his assets to a new girlfriend. He is his father's designated power of attorney, but there's not a lot he can do about the situation because the father hasn't been declared (often by a physician) to be incapacitated. The months or years leading up to a determination that would trigger a power of attorney designation are complex and often emotionally painful. Families are concerned about a combination of big withdrawals and low returns at the end of life that will ultimately decimate the elders' savings and leave adult children on the hook to make up the difference. Many of the worst financial abusers are the very children or other relatives who are supposed to be looking out for these seniors, experts say. Is the new girlfriend unduly influencing the senior or taking incredible care of him? Or are the children just trying to preserve their inheritance?

When it comes to elderly parents and their finances, no one is every really a completely neutral party, according to “Strategies for managing your elderly parent's finances,” in The Chicago Tribune.

One should document examples of financial mismanagement; however, this can cause a fight in court to take control of parents' assets. And if the children lose, the parents may be angry enough to completely cut off the children.

There can also be trouble when parents decide to leave assets to children according to their perceived needs instead of an equal split. The children’s situations can change and giving different amounts may result in permanent damage to sibling relationships long after the parents have passed away. However, an equal split of the estate places the onus on the children to be good stewards of the money. In other words, simpler is sometimes better.

Communicate your intentions so that your children are prepared for the day when the assets are disbursed. They’ll have some idea about what is coming to them.

It’s always a good idea to speak with an experienced estate planning attorney. He or she can give you ideas and strategies to make your money go farther when your children inherit and find solutions for children who might not spend the money wisely.

Reference: Chicago Tribune (September 4, 2015) “Strategies for managing your elderly parent's finances”

Answers about the Qualified Terminable Interest Property (QTIP) Trust

The facts of life include remarriage. Almost 42 million adults in the U.S. have been married more than once, up from 22 million in 1980, according to the Pew Research Center. For older Americans, remarriage can pose estate planning problems. Even for couples who share children, potential remarriage might be a concern. And even if remarriage isn't a concern, your surviving spouse may need help protecting assets from scam artists. So how can you provide for a surviving spouse yet still leave your wealth to children from a prior marriage?

Let’s say that Betty and Bob have kids and grandkids. Bob is worried that he'll die first and pass on his wealth to Betty, who might remarry and his kids would get nothing. Investor’s Business Daily explores this issue in “Cut Taxes, Send Assets To Loved Ones After Your Death.” One solution is to create a Qualified Terminable Interest Property, or QTIP trust, so that when the first spouse passes away, the assets pass to the trust.

A QTIP typically doesn’t have estate taxes. The surviving spouse must be a U.S. citizen and must be entitled to all of the trust income, which has to be paid out at least once a year during the survivor's lifetime. No one else can receive trust distributions during that time. At the same time, the trust creator can give the trustee some flexibility: the distributions of principal to the survivor might be allowed to pay living expenses and essential medical bills. However, the surviving spouse need not control the QTIP assets.

Here’s another example: What if Carl marries Ella and each has children from a prior marriage. Carl passes and leaves most of his wealth to a QTIP trust for Ella, so that she will have cash flow for life. She’s not allowed to name new beneficiaries who'll get the QTIP assets after she dies. The QTIP assets will pass to the beneficiaries that Carl named, and those assets will be taxed in Ella's estate. Both spouses can create QTIP trusts.

The trust creator has to authorize his or her executor to finalize your QTIP election after your death, and federal and state elections may have to be made to get full estate tax deferral. An estate planning attorney knows all about this. It’s important that your family understands the QTIP’s goals to alleviate conflict after your death. The QTIP allows your spouse to have lifetime distributions to maintain his or her lifestyle, and your children will inherit your wealth without having to worry that a stepparent will spend it all after your death.

But a QTIP trust may be a source of conflict, as the surviving spouse may want the trust fund to be invested for income, and the survivor can actually demand that the trustee sell assets that don't produce revenue. The children will likely want the QTIP assets invested for growth. You need to select a trustee who can negotiate peace among beneficiaries. Tax deferral may also mean inheritance deferral, because if your spouse lives a long time after your death, your children will have to wait for a QTIP payout. Consider making some assets available for immediate bequests to descendants, or to provide for them with life insurance that will pay at your death.

Reference: Investor’s Business Daily (September 4, 2015) “Cut Taxes, Send Assets To Loved Ones After Your Death”