5 Reasons Why Your Retirement Savings Might Not Last Long Enough

Even if you worked hard, lived frugally and saved faithfully for your retirement, there are several things that could sabotage your plan for having enough money in retirement. Some of these factors are outside of your control, but for others, awareness can help you avoid these pitfalls. Here are 5 reasons why your retirement savings might not last long enough.

Health Care Costs More Than You Might Think

Many people assume that once they go on Medicare, they will get free medical care for the rest of their lives. Unfortunately, that is not the case. Most people do not have to pay premiums for Medicare Part A (hospitalization and in-patient care), but if you did not pay enough money into the Social Security system, you might have to pay hundreds of dollars every month just for the basic Part A coverage.

Most people do have to pay premiums for Medicare Part B, which pays for doctor bills and outpatient care. Original Medicare does not pay for prescription drugs, so if you want coverage for those, you will have to buy Part D coverage. Another option is to buy a Medicare Advantage plan that provides outpatient and drug benefits.

Even after you pay your premiums, Medicare often does not pay 100 percent of your health care costs. You will have to pay deductibles and copays, unless you buy a Medicare Advantage plan that covers those expenses.

Typical medical costs in retirement can total $5,000 to $6,000 a year per person for Medicare premiums, deductibles, copays, and the uncovered portion of drug costs. If you live for 20 years after you retire, you will need $100,000 to $120,000 just for your medical expenses, and that number does not include a significant medical event like a stroke, heart attack or cancer.

The Good News: We’re Living Longer

Americans are living longer and are in better health than ever before. Living to 100 or beyond is not a rarity anymore. That is the good news. The bad news is that our increased longevity means we need to save even more money, so we do not outlive our retirement savings.

When the average life expectancy was in the mid-seventies, the average person could expect to live about 10 years after retiring. Now, people need to plan on living 20 or 30 years or longer, after stopping work.

The Cost of Living

Over time, the cost of many things essential to daily living usually increase, sometimes doubling or tripling over a few decades. You cannot count on groceries, health care, housing, transportation, insurance, utilities, or other items staying at their current levels throughout your retirement.

Although Social Security retirement benefits come with a cost-of-living adjustment (COLA), your retirement savings usually do not. If you buy a disability or long-term care insurance policy, make sure that it includes a COLA provision.

Helping Your Family

It can be hard to say no if your adult children, grandchildren, or other relatives are struggling financially. People often assume that people over a certain age have a massive nest egg, but giving money to relatives and friends can erode those savings.

Where Did the Money Go?

It is just as easy to fritter away money during retirement as it was at any other point in your life. If you do not pay attention and spend mindfully, you can blow your monthly budget in the first week of the month. The mindset that you worked hard and scrimped and saved all of your life, so you deserve to treat yourself now, can get you into trouble. Make a budget and stick with it. Treat yourself to the peace of mind that comes with knowing you will have enough money to pay your bills. Find non-economic ways to pamper yourself.

References:

AARP. “5 Threats to Your Retirement Savings.” (accessed May 22, 2019) https://www.aarp.org/retirement/planning-for-retirement/info-2019/5-threats-to-your-retirement-savings.html

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What’s a Death Tax?

The federal estate tax is sometimes called the death tax. It’s a one-time tax that is imposed at death. Forbes’ recent article, “Eight Things You Need To Know About The Death Tax Before You Die,” explains that it’s not unusual for people to mix up estate taxes with income taxes. The federal estate tax is a transfer tax imposed on individuals with estates over $11.4 million ($22.8 for couples). The tax is on anything over that amount and ranges between 18% and 40%. However, if you die with an estate less than $11.4 million in 2019, no estate tax is due.

Assets in your name only and everything else you had control over will be added into your gross estate. For example, all stocks, bonds, bank accounts and life insurance death benefits are included, as well as any real estate, business interests, jewelry, household furnishings and artwork.

Note: just because your family avoids probate with your estate, doesn’t mean they won’t have to deal with estate tax. For instance, life insurance is in your gross estate, if you owned or could control the policy. IRAs and 401(k)s are also included in your gross estate. Just because these assets aren’t included in the estate because they have a named beneficiary, it doesn’t mean they’ve avoided estate tax. It depends upon the level of control you had over the assets.

If you owned property jointly with a spouse, half of the home’s value is included in the gross estate. If you owned property jointly with someone else (not your spouse), then 100% of the value is included in the gross estate—unless you can prove that the other party contributed some or all of the value.

If you’re the beneficiary of a trust your parents created for you, those assets may be included in your gross estate, if you have certain rights over the trust assets.

If you’re married to a U.S. citizen, you get an unlimited marital deduction for all of the assets you leave to your spouse.  However, some states impose their own estate tax, which may require additional planning. For example, Massachusetts has a $1 million estate tax exemption. A tax may also be levied in a state where you own real estate.

Talk to an experienced estate planning attorney about your own estate tax liability, and what actions you can take to decrease any taxes that may be due.

Reference: Forbes (May 20, 2019) “Eight Things You Need To Know About The Death Tax Before You Die”

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What the Elder Law Attorney Needs to Know

Side profile of a senior man sitting with a senior woman smiling

If you went to a doctor’s office and did not tell the doctor what your symptoms were, it would be hard to get a good diagnosis and treatment. The same goes for a visit to the elder law and estate planning attorney. Without all the necessary facts, advises the Times Herald-Record in the article “What you need to tell the elder law estate planning attorney,” the estate plan may need to be revised or created all over again, the inheritance may be given to people other than those you intended and there could be family conflicts.

Elder law is all about planning for disability and incapacity, to include identifying the people who would make decisions for you, if you become incapacitated and protecting your hard-earned assets from the cost of nursing home care.

Estate planning is focused on transferring assets to the desired people, the way you want, when you want, with minimal court costs, taxes, or unnecessary legal fees and avoiding disputes over an inheritance.

Here are some of the things your attorney will need to know, with full disclosure from you:

Family dynamics. If you have a child you haven’t seen in years, you need to discuss the child. They may have a legal claim to your estate, and that must be planned for. Perhaps you want to include the child in the estate, perhaps you don’t. If you disinherit a child in a will and you die without a plan, that child becomes a necessary party to probate proceedings and has the right to contest your will.

Health issues are important to disclose. If you don’t have long-term care insurance, you need five years to protect assets in a Medicaid Asset Protection Trust (MAPT). Therefore, now may be the time to start a plan. If you have a child who is disabled and receives government benefits, you can leave them money in a Special Needs Trust (SNT).

Full disclosure of all your assets, income, how assets are titled, who the beneficiaries are on your IRAs, 401(k)s and life insurance policies, are all the kinds of information needed to create a comprehensive estate plan. Keeping secrets during this process could lead to a wide variety of problems for your family. Your entire estate could be consumed by taxes, or the cost of nursing home care.

There’s no doubt of the seriousness of these issues. You or your spouse may experience some strong emotions, while discussing them with your attorney. However, creating a proper estate plan, preparing for incapacity and loved ones with special challenges will provide you with peace of mind.

One last point: an estate plan is like your home, requiring maintenance and updates. Once it is done, make a note in your schedule to review it every time there is a major life event or every three or four years. Laws change, and life changes. Your estate plan may also need to change.

Reference: Times Herald-Record (May 25, 2019) “What you need to tell the elder law estate planning attorney”

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Minnesota Finally Sets Up Licensing System For Assisted Living Centers

A major set of reforms has passed in the Minnesota legislature that covers how assisted care facilities operate.

Although the state’s nursing homes have been licensed for many years, Minnesota was the sole remaining state that did not license its assisted living facilities.

WCCO’s recent article, “Minn. Legislature Approves Licensing System For Assisted Living Centers” reported that on the Senate floor, Senator Karin Housley made some personal comments, when discussing the piece of legislation that will help 40,000 Minnesotans currently in assisted living.

“Sen. Pappas lost her mother to Alzheimer’s. I lost my mother to Alzheimer’s,” Housley said.

The legislation will require assisted living facilities to be licensed by August 2021.

“I just got all choked up because I saw our parents smiling down on us,” Housley said. “It’s going to make a huge difference.”

The legislation has two levels of licensing, one is for assisted living facilities, and the other is for those facilities that provide dementia care.

Amanda Vickstrom, Executive Director of the Minnesota Elder Justice Center, commented that the bill is badly needed.

“Someone with dementia or Alzheimer’s—their needs are going to be higher,” Vickstrom said. “The assisted living licensing structure is really critical, and then some consumer protections, some retaliation protections that sort of level the playing field.”

In addition, the law permits families to put a hidden camera in an assisted living facility beginning in January 2020, if abuse or neglect is suspected (for a period of 14 days). After 14 days, a family will be required to reveal the camera to a state ombudsman. However, they can still leave the camera in the room.

The legislature has earmarked $30 million for the state government to create the licensing system.

Minnesota Governor Tim Walz has indicated that he will sign the law.

Reference: WCCO (May 20, 2019) “Minn. Legislature Approves Licensing System For Assisted Living Centers”

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What Do I Tell My Kids About Their Inheritance?

For some parents, it can be difficult to discuss family wealth with their children. You may worry that when your kid learns they’re going to inherit a chunk of money, they’ll drop out of college and devote all their time to their tan.

Kiplinger’s recent article, “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth,” says that some parents have lived through many obstacles themselves. Therefore, they may try to find a middle road between keeping their children in the dark and telling them too early and without the proper planning. However, this is missing one critical element, which is the role their children want to play in creating their own futures.

In addition to the finer points of estate planning and tax planning, another crucial part of successfully transferring wealth is honest communication between parents and their children. This can be valuable on many levels, including having heirs see the family vision and bolstering personal relationships between parents and children through trust, honesty and vulnerability.

For example, if the parents had inherited a $25 million estate and their children would be the primary beneficiaries, transparency would be of the utmost importance. That can create some expectations of money to burn for the kids. However, that might not be the case, if the parents worked with an experienced estate planning attorney to lessen estate taxes for a more successful transfer of wealth.

Without having conversations with parents about the family’s wealth and how it will be distributed, the support a child gets now and what she may receive in the future, may be far different than what she originally thought. With this information, the child could make informed decisions about her future education and how she would live.

Heirs can have a wide variety of motivations to understand their family’s wealth and what they stand to inherit. However, most concern planning for their future. As a child matures and begins to assume greater responsibility, parents should identify opportunities to keep them informed and to learn about their children’s aspirations, and what they want to accomplish.

The best way to find out about an heir’s motivation, is simply to talk to them about it.

Reference: Kiplinger (May 22, 2019) “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth”

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What You Need to Know about Trusts for Estate Planning

Retired old couple planning their investments with a financial consultant.

There are many different kinds of trusts used to accomplish a wide variety of purposes in creating an estate plan. Some are created by the operation of a will, and they are known as testamentary trusts—meaning that they came to be via the last will and testament. That’s just the start of a thorough look at trusts offered in the article “ON THE MONEY: A look at different types of trusts” from the Aiken Standard.

Another way to view trusts is in two categories: revocable or irrevocable. As the names imply, the revocable trust can be changed, and the irrevocable trust usually cannot be changed.

A testamentary trust is a revocable trust, since it may be changed during the life of the grantor. However, upon the death of the grantor, it becomes irrevocable.

In most instances, a revocable trust is managed for the benefit of the grantor, although the grantor also retains important rights over the trust during her or his lifetime. The rights of the grantor include the ability to instruct the trustee to distribute any of the assets in the trust to someone, the right to make changes to the trust and the right to terminate the trust at any time.

If the grantor becomes incapacitated, however, and cannot manage her or his finances, then the provisions in the trust document usually give the trustee the power to make discretionary distributions of income and principal to the grantor and, depending upon how the trust is created, to the grantor’s family.

Note that distributions from a living trust to a beneficiary other than the grantor, may be subject to gift taxes. Those are paid by the grantor. In 2019, the annual gift tax exclusion is $15,000. Therefore, if the distribution is under that level, no gift taxes need to be filed or paid.

When the grantor dies, the trust property is distributed to beneficiaries, as directed by the trust agreement.

Irrevocable trusts are established by a grantor and cannot be amended without the approval of the trustee and the beneficiaries of the trust. The major reason for creating such a trust in the past was to create estate and income tax advantages. However, the increase in the federal estate tax exemption means that a single individual’s estate won’t have to pay taxes, if the value of their assets is less than $11.4 million ($22.8 million for a married couple).  In today’s world, irrevocable trusts are now used commonly for asset protection planning.  Like any trust, it is important to make sure the trust is designed to accomplish its intended purpose.

Speak with your estate planning attorney about how trusts might be a valuable part of your estate plan. If your estate plan has not been reviewed since the new tax law was passed, there may be certain opportunities that you are missing.

Reference: Aiken Standard (May 17, 2019) “ON THE MONEY: A look at different types of trusts”

Suggested Key Terms: Trusts, Revocable Trusts, Irrevocable Trusts, Grantor, Beneficiaries, Federal Estate Tax, Estate Planning Attorney, Charitable Remainder Trusts

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Billions Lost to Cybercrime

On an average day, the FBI receives nearly 1,000 complaints of internet crimes. The FBI says that cybercrime is up by 91 percent over the last several years, and people over the age of 60 are frequently the targets of these rip-offs. Internet crimes increased by 17 percent in 2018 alone.

During that year, cybercrimes cost Americans over $2.7 billion. Imagine what positive things that money could have done in the pockets of seniors, instead of in the hands of the crooks. You could buy a lot of groceries, pay utility bills and purchase needed medications with that much money. With billions lost to cybercrime, seniors need to understand the magnitude of this growing criminal enterprise.

Types of Cybercrime

There is almost no limit to the ways con artists can take other people’s money online. Here are but a few examples of cybercrime:

  • Goods and services. This category includes when people pay for products or services online but never receive the items, or when people ship things to people who do not pay for them. More than 65,000 people filed complaints with the FBI for this type of theft in 2018.
  • More than 50,000 people were victims of extortion. A common tactic is that a virus gets into your computer. The crook threatens to destroy all the data on your computer, if you do not pay a ransom. Even after some people pay the ransom, their data gets erased.
  • Personal data breaches. More than 50,000 Americans had their personal data stolen. A common way this crime happens is that you enter your name, address, and credit card information into a form on a website to purchase something, only to find out later that the website was not a legitimate business. The crooks now have all the information they need to buy things using your credit card.
  • Compromised business email addresses accounted for nearly half of the total dollar value of cybercrime losses. When a crook hijacks your company’s email address, it can perpetrate frauds and tarnish your business reputation. The con artist sends out fake emails in the name of a high-level executive directing people to wire money to the crook, who is masquerading as the company official.
  • Investment scams cost Americans more than a quarter of a billion dollars.
  • People lost more than $360 million in confidence or romance frauds.

How Internet Crooks Find You

You do not have to use a computer to get ripped off by these crooks. Your cell phone, tablet, notebook, or any other internet-connected device can give thieves an open door to scam you.

What an Internet Crime Victim Should Do

You must act immediately, when you suspect that someone has committed cybercrime against you or a loved one. Think of internet crime as an injury that causes massive bleeding. You have to stop the bleeding right away.

Contact your bank and credit cards at once. You should also put a fraud alert on your credit report to prevent the crooks from using your personal information to set up new accounts. Report the crime to the FBI’s Internet Crimes Complaint Center (IC3). The FBI recently created a Domestic Recovery Asset Team as part of the IC3, to get money back for fraud victims. The FBI was able to recover around 75 percent of the money stolen from cybercrime victims in 2018.

References:

AARP. “Cybercrimes cost Americans $2.7 Billion in 2018.” (accessed May 15, 2019)

https://www.aarp.org/money/scams-fraud/info-2019/fbi-cybercrimes-increase.html

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Selling a Parent’s Home after They Pass

Family members who are overtaken with grief are often unable to move forward and make decisions. If a house was not being well maintained while the parent was ill or aging, it might fall into further disrepair. When siblings have emotional attachments to the family home, says the article “With proper planning, selling a parent’s house can be a relatively painless process,” from The Washington Post, things can get even more complicated.

The difficulty of selling a parent’s home after their passing, depends to a large degree on what kind of advance planning has taken place. Much also depends on the heir’s ability to ask for help and working with the right professionals in handling the sale of the home and managing the estate. The earlier the process begins, the better.

Parents can take steps while they are still living to ward off unnecessary complications. It may be a difficult conversation but having it will make the process easier and allow the family time to focus on their emotions, rather than the sale of property. Here are a few pointers:

Make sure your parents have a will. Many Americans do not. A survey from Caring.com found that only 42% of American adults had a will and other estate planning documents.

Be prepared to spend some money. Before a home is sold, there may be costs associated with maintaining the property and fixing any overdue repairs. Save all receipts and estimates.

Secure the property immediately. That may mean having the locks changed as soon as possible. Once an heir (or someone who believes they are or should be an heir) moves in, getting them out adds another layer of complications.

Get real about the value of the property. Have a real estate agent run a competitive market analysis on the property and consider an appraisal from a licensed appraisal. Avoid any accusations of impropriety—don’t hire a friend or family member. This needs to be all business.

Designate a contact person, usually the executor, to keep the heirs updated on how the sale of the house is progressing.

The biggest roadblock to selling the family house is often the emotional attachment of the children. It’s hard to clean out a family home, with all of the mementos, large and small. The longer the process takes, the harder it is.

This is not the time for any major renovations. There may be some cosmetic repairs that will make the house more marketable, but substantial improvements won’t impact the sale price. Remove all family belongings and show the house either empty or with professional staging to show its possibilities. Clean carpets, paint, if needed and have the landscaping cleaned up.

Keep tax consequences in mind. Depending on where the property is, where the heirs live and how much money is being inherited, there can be estate, inheritance and income taxes.  It is usually best to sell an inherited property, as soon as the rights to it are received. When a property is inherited at death, the property value is “stepped up” to fair market value at the time of the owner’s death. That means that you can sell a property that was purchased in 1970 but not pay taxes on the value gained over those years.

Talk with an experienced estate planning attorney about what will happen when the home needs to be sold. It may be better for parents to create a revocable trust in advance, which will direct the sale, allow a child to continue living in the home for a certain period of time, or instruct the one child who loves the home so much to buy it from the trust. Trusts are typically easier to administer after parents pass away and can be very helpful in preventing family fights.

Reference: The Washington Post (May 16, 2019) “With proper planning, selling a parent’s house can be a relatively painless process”

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How Do a Prenup and a Postnup Vary?

Investopedia recently published an article, “Prenup vs. Postnup: How Are They Different?” It explains that if you or your spouse is wealthy, anticipating a big inheritance, or getting married for the second, third, or fourth time, divorce or death could result in serious financial trouble. In death, these issues are greater, if the spouse leaves children from a previous marriage. That’s why more couples are choosing to sign a prenuptial or postnuptial agreement.

As prenuptial agreement is made prior to the marriage, where the couple determines how they’ll divide their assets should the marriage end.

Although negotiating a prenuptial agreement before your wedding may seem unromantic, these agreements can save a lot of heartache and money in the event of divorce—especially when it’s not a first marriage. When a couple decides to divorce, prenups can prevent nasty, drawn-out, excessively expensive litigation. A prenup details everything, so everyone knows exactly who gets what and there’s no room for argument. These agreements also can dictate financial distributions in case of a spouse’s death, which is especially important for couples with children from previous marriages.

Prenuptial (before a marriage) and postnuptial (after a marriage) agreements detail how a couple will divide their assets if the marriage ends. Prenups are useful if one spouse has substantial assets, a large estate, or anticipates getting a large inheritance or distribution from a family trust. A prenup can protect each spouse’s premarital assets, as property and income in a marriage would otherwise be deemed community property.

Have an attorney draft one of these agreements, because tax law can create complications.

A prenup can have terms that state how much your spouse will receive of your estate, if you get divorced or die. This is critical if you have a significant estate and children from a previous marriage to whom you want to leave some of your estate. If you don’t sign a prenuptial agreement that states this, most states will automatically give your surviving spouse a share of your estate at your death. With a prenup, you can predetermine a specific alimony amount or even eliminate this.

Postnuptial agreements are almost identical to prenups. The big difference is that postnuptial agreements are made after the wedding. You will decide how to divide marital assets, as well as any future earnings, in your postnuptial agreement.  Not every state allows for postnuptial agreements, so make sure you visit with an estate planning attorney to do proper planning.

Reference: Investopedia (April 25, 2019) “Prenup vs. Postnup: How Are They Different?”

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Special Needs Families and Special Needs Trust

If nothing prepares a person for parenting, consider how much harder it is to be prepared to raise a child with special needs. Parents often sink in uncharted waters. It’s not just a matter of negotiating all of the day-to-day details, says Newsday in the article “Be ‘biggest advocate’: Parents plan future for adult children with special needs.” Special needs families need to plan for what will happen as the parents age, become ill or die.

As an adult child with disabilities ages, eventually there will be medical issues. If the parents are gone, who will be able to make medical decisions? Where they live, who will oversee their finances and who will be there for them to rely on in a parenting role? There are many questions and they all need answering.

For one family, raising their special needs daughter was a full-time challenge. Their daughter, now 24, has autism. The couple sought out others in their same situation, noting that often even their own family members could not relate to their daily experiences.

It takes a village for special needs families to do more than survive. That includes estate planning and elder law attorneys with deep experience in special needs planning, social workers, therapists and medical professionals. Here’s what needs to be top-of-mind:

Don’t wait to plan. Families often think they have time, but you never know when unexpected events occur. Have a plan in place for legal guardianship, finances and health care.

Work with experienced legal help. You want to work with an attorney who has a great deal of experience and knowledge in special needs law and estate planning. Someone who dabbles on the side of a real estate practice is not the right professional for the task.

Stay in control. When children turn 18, they are adults. Parents and guardians will need to go through Surrogate’s Court to become the child’s guardian. Unless that is done, the parents and guardians will have no legal rights about the child’s medical, financial or other affairs. A successor guardian also needs to be named, so that when the parents are no longer able to serve, someone is in place to care for the child.

Create a Special Needs Trust. A trusts attorney with experience in Special Needs planning will be able to work with the family to create and structure a Special Needs Trust (SNT). A disabled person usually cannot earn enough to support himself, or the caregiver who remains at home to care for them and care-related expenses. The SNT helps to meet current needs and plan for future needs. The trust is used to preserve eligibility for any means-tested state and federal benefits. It allows the individual to have a better quality of life, by providing for expenses that are not covered by their benefits.

It’s very important that no assets be left to the child in an inheritance. Any assets must be placed in the trust. A well-meaning relative could put their eligibility for aid in jeopardy.

Parents and guardians also need to name a trustee and a successor trustee. The person needs to be competent, good with money management, organized and focused on caring for the loved one. It cannot be an emotional decision.

Parents of special needs children are advised to create a Letter of Intent, a narrative that outlines their child’s likes and dislikes, strengths and weaknesses, activities and friends they enjoy and other details that will help them to continue an enjoyable life, when their parents are gone.

Parent’s own estate planning must be done with an eye to maintaining the SNT and caring for their other children. This is a case when assets need to be distributed in a realistic and fair manner. If one sibling is the successor trustee, for example, they may need a larger portion of an estate to help care for their sibling.

Reference: Newsday (May 9, 2019) “Be ‘biggest advocate’: Parents plan future for adult children with special needs.”

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