California Probate - Law Offices of Janet Brewer Blog

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”

What Kind of Estate Planning Do I Need During the Pandemic?

“The COVID-19 pandemic has made 2020 a nightmare for many people, and inadequate estate planning can exacerbate the pain.”

Having a valid will and a complete estate plan is important for everyone, but it’s crucial as you approach retirement.

Richmond Times-Dispatch’s recent article entitled “Estate planning during the pandemic” says that it’s because you’ll probably have more assets at this stage of your life, and it’s important to consider whom you’d like to inherit.

It is critical that you plan to be sure your spouse and family will be cared for financially, in the event that something happens to you. This can be accomplished with proper estate planning with the help of an experienced estate planning attorney.

If you die without a will or estate plan, state probate laws of succession may direct the way in which your assets are distributed. This can be an expensive process, but it can also be a significant burden on your family during a time of grieving and sadness.

Even with a will, going through the court-supervised probate process of passing assets through a will can be time consuming and expensive.

One way to avoid probate is to ask an experienced estate planning attorney to help you set up a trust. A frequently used trust is a revocable living trust, which lets you modify the terms if you like.

Individuals with children or real estate can particularly benefit from setting up a trust. A trust allows you to avoid probate and makes certain that your assets are transferred to the intended people. It also lets you control exactly how the money can be used. You can also name someone to take control when you’re not available, known as a secondary trustee.

The executor of a will is really an administrator who transfers assets from one person to another. In contrast, a trustee is more of a decision-maker who will take your place and make decisions you would want to make, if you were still around to make them.

After you set up your estate plan, you should review it every few years.

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: Richmond Times-Dispatch (Nov. 19, 2020) “Estate planning during the pandemic”

What are the Top Cities For Retired Military?

“If you’re searching for the right place to live after the military, you’re not alone.”

Roughly 250,000 service members are estimated to separate or retire each year from the armed forces. After a career full of PCS moves, choosing the right place in which to settle is a major issue for them.

To make this quest a little easier, Navy Federal Credit Union released its 2020 edition of “Best Cities After Service,” according to an article in Military Times’ entitled “Top 10 cities for veterans, ranked.”

The credit union surveyed more than 1,000 veterans and civilians to develop a list of their top picks. Questions quantified factors, such as the cost of living, real estate prices, access to activities and the ease of transportation.

The results from Navy Federal Credit Union research showed that transitioning service members prioritize having a strong community of veterans, low crime rates, low costs of living and easy access to outdoor recreation. With those priorities as a guide, Navy Federal and its partner nonprofit Operation Homefront, which seeks to support military families, ranked more than 400 U.S. cities from best to worst. Here’s the Top Ten List from Navy Federal:

1. Charleston, South Carolina
2. Fort Myers, Florida
3. Savannah, Georgia
4. Daphne, Alabama
5. Norwich, Connecticut
6. San Diego, California
7. Norfolk, Virginia
8. Duluth, Minnesota
9. Gulfport, Mississippi
10. Fort Worth, Texas

Last year, the credit union provided a list of the best careers after service. However, in 2020 they opted to return to cities because of the way the COVID-19 pandemic has caused priorities to change.

The full city list with descriptions is at Navy Federal’s website.

Reference: Military Times (Nov. 9, 2020) “Top 10 cities for veterans, ranked”

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”

Estate Planning: How to Maximize What You Leave Behind

Anticipating and arranging what you leave behind for your heirs is imperative. Knowing how to maximize what you leave behind is the key. 

Many people in the United States feel woefully underprepared for retirement, let alone leaving behind assets for loved ones. However, the estate planning process provides many opportunities to protect your assets and minimize your tax liability, ensuring that they last for your lifetime and that more of your money is passed to loved ones.

A knowledgeable estate planner will be able to give you advice that ensures you are able to transfer the maximum assets possible by employing several strategies, including:

1. Set Up a Trust

Trusts protect the interest of your heirs, and they ensure that asset transfers occur according to your wishes. They also allow your heirs to avoid probate court and protect assets from creditors and divorce proceedings in the family. If your assets are substantial, you may also want to consider setting up a Dynasty Trust (also referred to as a Legacy Trust or Generation-Skipping Trust). 

These trusts can leave some assets for future generations of your beneficiaries, such as grandchildren and great-grandchildren. Depending upon your unique circumstances, you may want to consider several different types of trusts. An experienced estate planner can help you understand all of your options and decide which is the best choice to meet your unique needs.

2. Minimize Your Tax Burden

Depending upon the financial vehicles you use to transfer assets, various tax treatments may apply. For instance, certain inherited assets, such as stocks and mutual funds, receive favorable tax treatment, and leaving these assets to heirs can result in significant tax savings. Gifting assets to beneficiaries while still alive is another common strategy. 

Eligible gifts that are excluded from the gift tax (generally those below $15,000 in value given to an individual or $30,000 for a married couple) are entirely tax-free and do not require a gift tax filing. Similarly, any bequests made to charitable organizations are not subject to taxation, and they are deductible from your ordinary income. If you plan to leave any assets to charity, it’s a good idea to understand how they can benefit you and your estate by reducing your tax liability.

3. Establish Life Insurance or Tax-Deferred Variable Annuities

When life insurance policies are paid out, the beneficiary receives the proceeds without paying taxes on the funds. This leaves a guaranteed benefit to your heirs, unlike other investments that rely on market performance. In addition to these policies, you might want to consider fixed or variable annuities, which allow you to invest in mutual funds or fixed-income investments. 

Another benefit is that annuities held in a 401(k) plan are portable, allowing those who inherit them to transfer the annuity into another plan, rather than forcing them to liquidate it immediately, which can result in charges and fees. Before identifying which plans or annuities might be beneficial for your assets, it’s important to understand that some of these plans come with hidden fees or charges, so you must understand all of the fine print up front. 

This is another area where a skilled estate planner can help you understand your options and their benefits and drawbacks.

4. Creating Timelines & Managing Debt

In many instances, retirement accounts, such as IRAs and 401(k)s allow you to defer paying taxes until the money is withdrawn. Once retired, you can withdraw from these plans and pay taxes on the derived income. When it is beneficial for you to defer withdrawing, an estate planner can help you understand when the best time would be for you or your heirs to start deriving benefits from these types of accounts. 

Knowing when to start can often result in significant savings, allowing more of your assets to be enjoyed by you and your surviving heirs. Properly managing debt is another crucial aspect of maximizing your transferable assets. Your heirs don’t necessarily inherit your debt, but creditors can come after your assets to cover any outstanding debts, which can reduce the value of your estate. While you are alive, it is best to create a plan for settling outstanding debts and ensure that you do not accumulate new ones.

Estate planning can be complicated, and thinking of one’s demise is never a fun activity. But what you leave behind is your legacy. And even those who have many assets might be leaving their beneficiaries a much smaller amount if they haven’t adequately planned and taken advantage of strategies for maximizing the value of the assets that they can transfer upon death. 

For these reasons, you must work with an expert estate planner. The amount of money they can save your estate for your beneficiaries makes this action one of the best financial moves you can make.

What Can I Do to Catch Up on Retirement Savings?

“Are you among the millions of workers who have fallen behind on retirement savings?”

Many workers haven’t created any plans to save for their retirement. However, you can start turning that situation around now. Money Talks News’ recent article entitled “The 7 Fastest Ways to Catch Up on Retirement Savings” says that, even if you can’t add to retirement savings at the moment, here are some ideas to plan for how you’ll address this shortfall, when you’re back on your feet financially.

Review your budget. If you need more money for retirement savings, change your budget. Make certain that all your money is identified and working for you. Reduce or cut expenses that prevent you from achieving goals.

“Catch up” your 401(k). If you are over 50, take advantage of the ‘catch-up contribution’ in your 401(k). In 2020, the base limit for contributions to workplace retirement accounts is $19,500. In addition, starting at age 50, workers with a 401(k) plan can contribute an extra $6,500 per year. If you have an IRA — either traditional or Roth — you can contribute $6,000, plus an extra $1,000 beginning at age 50.

Leverage all investment opportunities. When you invest in your 401(k), put enough in to at least get any full employer matching funds. There are also employers that match contributions to a health savings account, which can be a great hidden way to save for retirement. You can also maximize IRA contributions (Roth or traditional), depending on what is possible given your income. Any money left over can be invested it in a taxable account.

Bolster your earnings. If you’re behind in saving for retirement, you might need to boost your earnings more quickly. To earn more income, consider changing jobs, get training to update your skills, or finding a side gig. If income doesn’t grow over time, it’s hard to have savings strategies accelerate retirement success.

Be wise with raises and windfalls. When you get a raise, split the amount and put half in a checking account and half toward retirement savings.

Minimize your spending. This can be the toughest part, but it’s also perhaps the most important. Reducing spending increases your savings, and it also teaches you to live with less. If you learn to live more modestly, you won’t need to save as much to continue your lifestyle in retirement. If you’re unsure where all your money is going, monitor your spending. List all the expenses and track them over time. When you know where your money is going, you’ll have the information needed to determine if there are places where spending can be diverted to savings.

Make a “mortgage payment” after the house is paid off. If you’ve worked hard to pay off the mortgage, save the money that was budgeted for the house. Save it in an investment account to use for retirement spending. Do the same when you pay off a car loan and watch your wealth grow.

Reference: Money Talks News (Oct. 8, 2020) “The 7 Fastest Ways to Catch Up on Retirement Savings”

What Does an Estate Planning Attorney Actually Do?

“Estate planning is crucial, setting up a peace of mind for you, as you enter your senior years. Most people don’t create a will because they are afraid to even think about the possibility of death. It feels like too big of a responsibility.”

It’s critical to understand what will happen to your estate after your death. That’s where the help of an experienced estate planning attorney comes in, says VENTS Magazine’s recent article entitled “What Does an Estate Lawyer Do Exactly?”

An experienced estate planning attorney is a legal professional, upon whom you can rely to help protect your estate after your death or in the event that you become incapacitated.

He or she will make certain that your assets and property are handled correctly.

In addition to assisting you with your estate, an estate planning attorney can help handle any family members trying to get involved in your legal affairs.

It may be difficult to please everyone when creating your will. Having an estate planning attorney will help you make the best decisions when it comes to distributing your wealth.

Estate planning is critical—especially if you’re older, experiencing chronic illness, or just want to be smart about protecting your assets.

As we grow older, we can accumulate a long list of stressful issues and responsibilities. You may worry that your estate will be gobbled up by creditors once you pass away, or that your children will fail to distribute your assets as you intended.

Much of this stress is eliminated with the guidance and counsel of an experienced estate planning attorney. Having an estate plan allows you to enjoy a better quality of life, once you’re older. You won’t have to live every day with worry or stress about the future after you’re gone.

An experienced estate planning attorney is a valuable resource for your family, in the event someone tries to contest the will after your death. Estate planning attorneys also aid in distributing the wealth, protecting your property from creditors, and lowering estate taxes.

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: VENTS Magazine (Sep. 28, 2020) “What Does an Estate Lawyer Do Exactly?”

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”

Protecting Inheritance from the Taxman

“Received an inheritance of cash, investments, or property? Here are four ways that can help you keep it from being swallowed up by taxes.”

Wealth Advisor’s recent article entitled “4 Ways to Protect Your Inheritance from Taxes” explains that inheritances aren’t considered income for federal tax purposes—whether it’s cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. You must report the interest income on your taxes. Any gains when you sell inherited investments or property are also taxable (but you can usually also claim losses on these sales). Remember that state taxes on inheritances vary, so ask an experienced estate planning attorney for details. Let’s look at fours steps you can take to protect your inheritance:

Look at the alternate valuation date. The basis of property in a decedent’s estate is the fair market value (FMV) of the property on the date of death, but the executor might use the alternate valuation date, which is six months after the date of death. This is only available, if it will decrease both the gross amount of the estate and the estate tax liability, typically resulting in a larger inheritance to the beneficiaries. If the estate isn’t subject to estate tax, then the valuation date is the date of death.

Use a trust. If you know you’re getting an inheritance, ask that they create a trust for the assets. A trust lets you to pass assets to beneficiaries after your death without probate.

Minimize retirement account distributions. Inherited retirement assets aren’t taxable, until they’re distributed. There are rules as to when the distributions must happen. If one spouse dies, the surviving spouse usually can take over the IRA as his or her own. Required minimum distributions (RMDs) would begin at age 72, just as they would for the surviving spouse's own IRA. However, if you inherit a retirement account from someone not your spouse, you can transfer the funds to an inherited IRA in your name. You have to start taking minimum distributions the year of or the year after the inheritance, even if you're not yet 72.

Make some gifts. It may be wise to give some of your inheritance to others. It will be a benefit to them, but it could also potentially offset the taxable gains on your inheritance with the tax deduction you get for donating to a charitable organization. If want to leave money to people when you die, you can give annual gifts to your beneficiaries while you're still living up to a certain amount—$15,000 for to each person without being subject to gift taxes. Gifting also reduces the size of your estate, which can be important if you're close to the taxable amount. Talk with an experienced estate planning attorney to be certain that you're staying current with the frequent changes to estate tax laws.

Wealth Advisor (Sep. 15, 2020) “4 Ways to Protect Your Inheritance from Taxes”