California Probate - Law Offices of Janet Brewer Blog

How Do I Create a Letter of Last Instruction?

“A letter of last instruction is a document that outlines funeral planning processes and arrangements. A letter of last instruction should not be confused with a will or testament, which is a legal document that expresses an individual’s wishes on how and to whom their estate should be transferred after their death.”

It is important to know that a Letter of Last Instruction does not pass through a legal process. It’s an informal but organized method of providing your family with instructions on the decisions related to financial and personal matters that should be made when you die. This can also be an alternative way of ensuring that your family members are cared for after your death and to prevent issues that could arise from not probating the will.

Qrius’ recent article entitled “How to Prepare a Letter of Last Instruction” explains that preparing it can relieve your relatives of added headaches and stress after your death because it can provide crucial information on personal, financial, and funeral matters. Here are some ideas as to what to include in your Letter of Last Instruction:

Personal info. This is basic information like your full name, date of birth, father’s name and mother’s maiden name, address, Social Security number, and place of birth. Add information about significant people in your life, like family, friends, business partners, clergy, and others you’d like to be notified about your death.

Business and Financial Contacts. List the contact info of your business and financial partners, as well as your accountant and investment adviser. Include information on your insurance policies, as well as your bank account details.

Legal Document Location. Make sure your executor can find important legal documents, such as your will, tax returns, marriage license, Social Security card, birth certificates, trust documents, deeds, veteran benefits info, and contracts. State the location of those documents in your Letter of Last Instruction.

Loan and Debt Info. Make a list of creditors containing collateral and payment terms, along with any credit card account numbers and loan account numbers. Likewise, list the people who owe you money, including their contact info and collateral and payment terms.

Usernames and Passwords. Include a section with your usernames and passwords for your online banking accounts, social media email, computer, smartphone, and other electronics, so your executor or someone responsible for overseeing your estate can be certain your accounts and financial information are not compromised after your death.

Beneficiaries. Make a list of the names and contact details of all your beneficiaries with additional information on specific instructions you may want to give to clarify your intentions on the distribution of the assets.

Funeral Arrangements. Include your desires as to your funeral arrangements, such as the type of flowers, pictures, and service music. You can also state the clothes in which you wish to be buried, the type of service and location, and other items that will help your family with this task.

Once you have the letter, be sure your executor or at least a close family member knows where it can be located after your death.

Ask an experienced estate planning attorney for pointers on writing your Letter of Last Instruction and keep updating it regularly. 

If you have any questions about your current estate plan, please call or email us today.

Reference: Qrius (Dec. 8, 2020) “How to Prepare a Letter of Last Instruction”

What Estate Planning Documents Should I Have when I Retire?

“Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.”

Research shows that most retirees (53%) have a last will and testament. However, they don’t have six other crucial legal documents.

Money Talks News’ recent article entitled “6 Legal Documents Retirees Need — but Don’t Have” says in fact, in this pandemic, 30% of retirees have none of these crucial documents — not even a will — according to the 20th annual Transamerica Retirement Survey of Retirees.

In addition, the Transamerica survey found the following among retirees:

• 32% have a power of attorney or medical proxy, which allows a designated agent to make medical decisions on their behalf
• 30% have an advance directive or living will, which states their end-of-life medical preferences to health care providers
• 28% have designated a power of attorney to make financial decisions in their stead
• 19% have written funeral and burial arrangements
• 18% have filled out a Health Insurance Portability and Accountability Act (HIPAA) waiver, which allows designated people to talk to their health care and insurance providers on their behalf; and
• 11% have created a trust.

The study shows there is a big gap that retirees need to fill if they want to be properly prepared for the end of their lives.

The coronavirus pandemic has created an even more challenging situation. Retirees can and should be taking more actions to protect their health and financial well-being. However, they may find it hard while sheltering in place.

Now more than ever, seniors may need extra motivation and support from their families and friends.

The Transamerica results shouldn’t shock anyone. That is because we have a long history of disregarding death, and very important estate planning questions. No one really wants to ponder their ultimate demise, when they can be out enjoying themselves.

However, planning your estate now will give you peace of mind. More importantly, this planning can save your heirs and loved ones a lot of headaches and stress, when you pass away.

Talk to an experienced estate planning attorney today to get your plan going.

You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Money Talks News (Dec. 16, 2020) “6 Legal Documents Retirees Need — but Don’t Have”

Should I Consider a ‘Life Settlement’?

“A growing number of seniors are facing challenges to achieving financial security in retirement. From rising healthcare costs to the economic turmoil caused by Covid-19, financial stressors are leading even those who thought they saved enough for retirement to look for ways to bolster their income and savings.”

Even in this volatile environment, many seniors may have an option for more retirement income available in the sale of their life insurance policy. A “life settlement” could provide them with an average of four or more times the cash surrender value of their policy.

The Street’s recent article entitled “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?” explains that anytime a senior isn’t going to keep a life insurance policy, they should look into a life settlement to bring them the most money when they terminate the policy.

When a policy is lapsed, the policy owner gets nothing. When a policy is surrendered back to the insurance company, the policyowner receives little, if any, cash surrender value. So, in instances where a policy is being lapsed or surrendered, a life settlement makes financial sense.

According to 2019 life insurance industry data, over 90% of life insurance policies (by face amount) that terminated in 2018 were lapsed or surrendered. In 80% of those cases, the policyowners received nothing in return for years of premium payments to the insurance company, because they lapsed their policies.

Over the next decade, more than $2 trillion in life insurance policy death benefits that could qualify for a life settlement is anticipated to be lapsed or surrendered—about $850 billon is projected to be policies between $100,000 and $1 million.

To qualify for a life settlement, an individual must usually be at least 70 years old and own a whole life, universal life, or convertible term insurance life insurance policy, with a death benefit of $100,000 or more.

Traditionally, life settlements have been available only where the insured has developed a significant health impairment since the policy was started, but now even those insureds without a change in health can qualify for a life settlement, depending on their age and the type and size of the policy.

Some life settlement companies take several months to make an offer to purchase a policy, asking for full medical records and independent underwriting. However, recently, life settlement companies have shortened the time in evaluating a policy and making an offer.

Reference: The Street (Dec. 22, 2020) “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?”

What Questions Keep Pre-Retirees Awake at Night?

“Do you have answers for these four questions? Then congratulations and rest easy: You really are ready to retire.”

As we get to the final part of our careers, thoughts of how retirement will look can create mixed emotions. For many, it will be a time to dream about doing those things on their bucket list, such as traveling abroad, learning a hobby, making memories with grandchildren, or pursuing a new business venture.

However, for others, it may be a time of stress and uncertainly because of the extent to which our identity has been tied to our career success and advancement. The routines and structures we’ve followed for years will end, and we face a new reality.

Kiplinger’s recent article entitled “4 Questions That Keep Most Pre-Retirees Awake at Night” explains that for many people coming to this next phase of life, there are four questions that will keep them awake at night. Knowing the answers to these four questions, can give confidence to those who are prepared to make this a smooth transition.

Exactly When Can I Retire? With the traditional pension becoming a thing of the past, the answer may not be so obvious. We also can’t overlook the emotional piece of retirement. Research shows that the happiest people in retirement will be retiring to something, instead of retiring from something. Several pursuits in retirement can bring purpose and meaning to daily life. As you near retirement, consider what pursuits you may enjoy and allow yourself to look forward to getting started.

Will I Have Enough Money? What’s the “magic number” that makes it appropriate to retire? However, more importantly, what is your “magic number.” This may be tied emotionally to a vision you’ve had your entire career, like accumulating $1 million or paying off your mortgage. However, there’s no one-size-fits-all answer to this question. Start by creating a retirement budget and understand what percentage of your monthly expenses can be covered by fixed sources of income, like your Social Security, pension and investments. The closer this percentage is to 100, the better. You should also be certain that you parse out the purpose of your money and specifically dedicate it to things, like creating monthly income, covering future health care costs and growth to outpace inflation. If you do this, you’ll be better able to allocate your portfolio appropriately among various tools, such as savings, investments, annuities and life insurance, etc..

Will My Nest Egg Last Throughout Retirement? A major issue for retirees is having negative returns in their investment portfolio during their early years of retirement. Unlike your working years, when you may have been contributing money to your retirement plan on a regular basis, the opposite may now happen. Monthly withdrawals may be needed to generate needed income. This is referred to as a Sequence of Returns Risk, where the order in which the annual returns hit a portfolio matters significantly. The best way to manage this risk is to avoid taking systematic distributions from a fluctuating account. Earmark a portion of your portfolio to create the monthly income needed to cover fixed expenses that are beyond what your Social Security and your pension will provide. Once you have this, you’re ready to see what combination of investments and insurance tools are right for you.

Will My Family Be OK? If you die, will your spouse be OK and able to carry on? It’s essential to be sure that both spouses are comfortable with the finances and how decisions on investing and retirement have been made.

Reference: Kiplinger (Oct. 29, 2020) “4 Questions That Keep Most Pre-Retirees Awake at Night”

How Do You Ask Parents about Estate Planning?

“Do you expect your parents to leave you a financial legacy? Nearly half of working-age Americans assume that they will receive an inheritance that will support them later in life, according to a survey by financial services company HSBC. Perhaps the bigger question, though, is how to even approach this topic with your parents.”

How do you ask your parents about their estate planning? No matter how you slice it, it’s a touchy subject to bring up.

You don’t want to come off as greedy when asking your parents about their estate planning.  However, you may need answers to certain questions to ensure that their financial wishes are carried out and there is a smooth transition of wealth and assets.

Yahoo Finance’s recent article entitled “How To Talk to Your Parents About Their Estate Plan (Without Making It Awkward)” shows us how to approach this touchy subject and get the info that you need.

Begin by asking your parents about whether they have an estate plan. You can tell them that they don’t need to share the numbers and that you just want to be able to follow their instructions. A good way to start this conversation is to acknowledge how awkward and difficult this conversation is for you. You should emphasize that you don’t want to think about their deaths but are just trying to sort things out.

Experts say that you’ll likely get a better reception from your parents if you let the conversation happen organically and not schedule a time to talk. No matter how you approach the topic of an inheritance from your parents, the objective of the discussion is to make certain they have a plan in place, so there will be a clear path for whoever is left behind to go forward. You can start by asking if they have these key legal documents:

• A will
• A power of attorney; and
• A living will or health care directive.

Ask where your parents keep these documents and how you can access them, if necessary.

You should also ask if your parents have written funeral or burial instructions. You also need to ask them to give you other important information, so you can handle their finances if they are unable to or when they die. This includes account numbers and passwords, insurance policies, information on their retirement plan or pension administrator, as well as the contact information for their accountant, attorney, financial planner, or other financial professionals.

If you have any questions about your current estate plan, please call or email us today.

Reference: Yahoo Finance (Oct. 7, 2020) “How To Talk to Your Parents About Their Estate Plan (Without Making It Awkward)”

What Estate Planning Documents Do I Need for a Happy Retirement?

“Most people can't wait for retirement, and even more would likely opt for some form of early retirement if they had the opportunity. Whenever you ultimately decide to cut down your time at work or leave the workforce altogether, you need to ensure that you have a full slate of estate planning documents in place.”

Estate planning documents are made to help you and your family, in the event of your untimely demise or incapacitation.

These documents will give your family specific instructions on how to proceed.

The Winston-Salem Journal’s recent article entitled “4 Must-Have Documents for a Peaceful Retirement” looks at these critical documents in constructing an effective estate plan.

1. Power of Attorney (POA). If you become incapacitated or become unable to make your own financial decisions, a POA will permit a trusted agent to manage your affairs. Have an estate planning attorney review your POA before it's executed. You can give someone a limited POA that restricts their authority to specific transactions. You can also create a springing POA, which takes effect only at the time of your incapacitation.

2. Will. About 40% of Americans actually have a will. Creating a valid will prevents you from leaving a mess for your heirs to address after you die. A will appoints an executor who will manage your affairs in a fiduciary manner. The will also details your plan for the distribution of your property. Make certain that your will is also in agreement with other documents you've set up, so it doesn’t create any questions.

3. TOD/POD Designation Forms. A Transfer-on-Death (TOD) or Payable-on-Death (POD) designation lets you to assign your investment accounts to a named beneficiary. The big benefit here is that accounts with a named TOD/POD beneficiary pass directly to that person when you die. Any accounts without a TOD/POD beneficiary will be subject to the terms of your will and will be required to go through the probate process.

4. Healthcare POA/Advance Directives. These are significant health-related documents. A healthcare POA allows your named agent to communicate your wishes to medical professionals, if you are unable. They also include instructions as to whether you want to have life-saving measures performed, if you have a cardiac or respiratory arrest. These healthcare documents also remove the need for your family to make difficult decisions for you.

Reference: Winston-Salem Journal (Sep. 20, 2020) “4 Must-Have Documents for a Peaceful Retirement”

Make Your Nest Egg Last When Retiring Early

“Retiring ahead of schedule may seem like a dream, but it is doable with the proper planning. Depending on when you were born, the normal retirement age is currently 66 or 67. If you’re planning to retire five, 10, or even 15 years early, one of the most important things to consider is how to make your savings last for the long haul.”

Investopedia’s article “Early Retirement: Strategies to Make Your Wealth Last” says there are several things to consider to be certain retiring early won’t leave you lacking in your later years.

Set a Realistic Budget. Be realistic about your budget. Calculating how much you can reasonably afford to spend each year depends on what you’ve saved, your life expectancy and your anticipated expenses. If you don’t know how much annual income you will need in retirement, you’re not ready to make a decision about retiring. If it’s been more than a year since you’ve considered this, it’s time to review your calculations.

Retiring Early and the 4% Rule. This has long been the baseline for determining your withdrawal rate. The rule says that you withdraw 4% of your savings the first year in retirement, then withdraw that same amount, adjusted for inflation, going forward. In theory, if you draw down your nest egg at that rate, it should last for 30 years. However, if you need your savings to last another 10 years or more, the 4% rule may not be realistic. You might need to consider reducing your withdrawal rate to 3.5% or 3%. If you run the numbers, and your estimated withdrawals aren’t going to be enough to cover your expenses, you’ll need to either find a way to lower your cost of living or delay your retirement date, so your income aligns with your spending.

Plan for Medical Expenses. Seniors can enroll in Medicare starting three months before they reach age 65. If you retire before that, you’re going to need health insurance until you are eligible for Medicare at 65. You can save money in a Health Savings Account (HSA) while you’re still employed to prepare for future medical expenses, if you’re planning to retire early. The withdrawals are tax-free, if they’re used for healthcare expenses. Once you turn 65, you can take out money from an HSA for any reason without a penalty. However, you’ll still pay taxes on the distribution. Another tactic is to buy long-term care insurance. This will keep you from having to spend down your assets to qualify for Medicaid, if you need nursing home care in the future.

Delay Social Security Benefits. Full retirement age is 66 or 67 if you were born in 1943 or later, but you can start taking Social Security benefits as early as 62. However, that decreases the overall amount of benefits you’ll receive. Waiting to apply, increases your benefit amount. If you’re retiring early, taking benefits at 62 might help to stretch your savings, but you’ll get more money if you can afford to delay.

Making early retirement a success requires you to review the financial aspects, and the longer your retirement outlook, the more important it is to have a plan for how you’ll spend what you’ve saved.

Reference: Investopedia (Oct. 30, 2019) “Early Retirement: Strategies to Make Your Wealth Last”

Is My Stuff Worth as Much as I Think?

“Can you imagine a millennial with a china hutch?”

Don’t take downsizing personally, when their adult children decline your furniture and other possessions.

The Street’s recent article entitled “If You Think Your Kids Want Your Stuff, Think Again,” says that baby boomers are getting ready to pass trillions of dollars to their heirs in coming decades.

Most of the money will pass from wealthy parents to their already well-off children. However, the inheritance many people will have to deal with is unwanted china, unfashionable furniture and memorabilia that reflects someone else’s memories.

Understandably, younger generations hate the thought of sorting through a parent’s lifetime accumulation, since many parents think their children will change their minds, or their grandchildren will want this stuff someday.

However, the reality is that lifestyles have changed. Younger people typically don’t have the time or the inclination to polish silver, hand-wash china, or iron linens. They don’t usually want heavy, dark wood furniture. Neither do buyers, because the values for old furniture have dropped.

While there probably is a hutch-loving millennial out there somewhere, but parents should ask what their children want. They also need to listen to their answers.

People with things their children don’t want can ask extended family members if they’d like them, prior to deciding whether to sell or donate, that is if a charity will even want them.

You can research the potential value of possessions by looking at the “sold” listings on eBay - Get Report or other auction sites.

You can also hire a personal property appraiser. You can get referrals from an estate planning attorney and expect to pay about $100 to $350 an hour.

It’s important not to put this off. The older people get, the harder it can become to clear out all the clutter.

The thinning-out process should happen sooner not later.

Reference: The Street (July 22, 2020) “If You Think Your Kids Want Your Stuff, Think Again”

Why Should I Think about My Death?

“Talking about death makes most of us uncomfortable, so we don't plan for it. That's a big mistake, because if you don't have an end-of-life plan, your state's laws decide who gets everything you own. A doctor you've never met could decide how you spend your last moments, and your loved ones could be saddled with untangling an expensive legal mess after you die.”

Planning for the end of life isn't about you, says NPR’s recent article entitled “End-Of-Life Planning Is A 'Lifetime Gift' To Your Loved Ones.” As the owner of the estate, you really don’t get to see the benefit of your estate planning. The NPR article gives us some easy and practical steps to planning for the end of life.

Name your executor. If you're an adult, you should have a last will. This is because estate planning isn’t just for the rich. With a last will, you name an individual you trust to take care of everything when you die. That is the executor or personal representative. It's a good idea to choose someone from your family or a person with whom you have a good relationship. This person also should have a good attention to detail, because an executor would have to locate all your financial assets and communicate with everyone you've named in your last will.

Conduct an inventory. Create a list of everything you own. This includes financial assets—such as bank accounts, retirement savings or car—as well as things that have sentimental value, like jewelry, furniture and mementos. Once this is done, specify in writing those persons you want to have these items. If you have young children, designate a guardian for their care, in case you and your spouse are no longer alive. This person will be responsible for your child's schooling, health care decisions and value system. Digital accounts are also part of your property, such as your social media accounts, online photos, and whatever is in your Google Drive or iCloud. This also includes any online subscriptions and airline or credit card rewards. Create a secure list of all those accounts and the login and password details. Let your executor know where to find it. Make specific instructions about what you'd like to have happen with your online information.

Your decisions will change over time, so review and update your last will.

Think about your health care decisions. Your last will addresses what happens after you die. However, an advance directive is a legal document that addresses your health care and protects your wishes at the end of your life. There are two parts to an advance directive: a medical power of attorney, which is granted to someone to make decisions for you if you’re incapacitated; and a living will, in which you detail how you should be cared for by healthcare professionals.

Remember the emotional and spiritual aspects of death. The way in which you want to die is personal and about much more than just the medical aspect. It may be about being at peace with God or having your pets nearby.

Plan ahead to give you and your family peace of mind.

Reference: NPR (June 30, 2020) “End-Of-Life Planning Is A 'Lifetime Gift' To Your Loved Ones”

Some States are Lowering Taxes to Entice Retires to Relocate

“Maryland is known as the Free State, reflecting its tradition of political freedom and religious tolerance, along with its resistance to Prohibition. Talk to retirees, though, and they’ll tell you the nickname is a misnomer, at least as far as taxes are concerned.”

The State of Maryland excludes from taxes up to $31,100 in income from pensions and 401(k) plans. However, its state and local taxes on other types of income—including distributions from IRAs—can run as high as 9%.

Kiplinger’s March article entitled “States Lower Taxes to Court Retirees” explains the good news for Marylanders willing to relocate, is that there are other states which give retirees a break. For example, Delaware and Virginia are both friendlier to tax-conscious seniors, according to Kiplinger’s state-by-state guide to taxes on retirees. Marylanders can move to Florida, which has no income tax and is on Kiplinger’s list of most-tax-friendly states.

To address his state’s image and tax issues, Maryland Governor Larry Hogan has introduced a bill that would eliminate state taxes on the first $50,000 of income for retirees making up to $100,000 in federally adjusted gross income. Therefore, retirees with incomes of $50,000 or less would pay no state tax.

Other states are also trying to find ways to keep retirees from heading off to lower-tax states. Illinois Governor J.B. Pritzker recently signed legislation that will make it easier for seniors in Cook County (which includes Chicago) to apply for a property tax break of up to $8,000 a year. Kiplinger has designated Illinois as one of the least tax-friendly states for retirees, mostly due to its high property taxes. West Virginia got a “mixed” rating from Kiplinger for the way it taxes retirees. They are phasing out taxes on Social Security benefits over three years. New Mexico lawmakers are considering several bills that would repeal or reduce taxes on Social Security. The Land of Enchantment also received a “mixed” rating from Kiplinger.

Here are the states where the most retirees are moving, based on the number of people age 60 and older who moved into a state versus the number of people who moved out.

State - Net Migration

• Florida - 68,918
• Arizona - 31,201
• South Carolina - 12,001
• North Carolina - 9,209
• Nevada - 8,582
• Tennessee - 8,259
• Texas - 8,296
• Washington - 3,964
• Idaho - 2,966
• Delaware - 2,605

Source: Smart Asset analysis of 2017 census data

Whether you’re planning to stay where you are when you retire or move somewhere else, it’s critical that you understand and include the cost of federal and state taxes, when estimating your retirement budget.

Reference: Kiplinger (March 4, 2020) “States Lower Taxes to Court Retirees”