Salines-Mondello Law Firm, PC

Some Surprising Facts about Retirement

“Check out some often-overlooked retirement planning facts of life that everyone should be aware of.”

It’s crucial to have a plan for your retirement, so let’s get educated. There are some facts you might not know about retirement, like the way in which your Social Security benefit can be taxed and how to factor in travel expenses.

Kiplinger’s recent article entitled “5 Surprising Facts to Know About Retirement” gives us five important facts to learn about retirement.

Your Social Security May Be Taxed. Your Social Security benefit can be taxed, up to 85% of it. If your provisional income as an individual is more than $34,000 or over $44,000 as a couple, the IRS says that up to 85% of your benefit is taxable. You only have to receive $25,000 in provisional income as an individual or $32,000 as a couple for 50% of your benefit to be taxed. What’s more, there are several states that impose taxes on some or all Social Security benefits including: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

No Age Limit for Contributing to a Roth IRA. You are able to contribute earned income to a Roth IRA for the rest of your life. You also never have to take required minimum distributions (RMDs) from a Roth. Note that after-tax dollars are contributed to a Roth and qualified distributions are tax-free.

Those 65+ Can Take a Larger Tax Deduction. You don’t have to be retired to get a slightly larger standard deduction. When you turn 65, your standard deduction as an individual goes up by $1,300 and for a couple filing jointly where both members are 65 or older, it increases by $2,600 for the 2019 tax year.

Many Don’t Include Travel Expenses. Many retirees want to travel after they stop working. However, a Merrill Lynch survey found that 66% of those 50 and older say they haven’t saved anything for a trip.

Roughly a Third of Retirees Who Live Independently Also Live by Themselves. Older adults who live outside of a nursing home or hospital are living independently, but about 33% of these adults live alone, according to a study from the Institute on Aging. The study found that the older people get, the more likely they are to live alone. Women are also twice as likely as older men to live alone. This has financial implications, considering the high cost of and likelihood of needing long-term care.

Understanding what your expenses and your income will be in retirement, are the first steps in making a comprehensive plan.

Reference: Kiplinger (Nov. 11, 2019) “5 Surprising Facts to Know About Retirement”

Will the power of attorney expire?

 

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Typically, a general power of attorney will not expire. A limited power of attorney, however, does of a set date in which the power holder can act on behalf of the principal. We're seeing a trend today where financial institutions are questioning power of attorneys that are sometimes five or 10 years olds. I would suggest seeing your attorney to update your power of attorney every three to five years.

How Do I Incorporate My Business into My Estate Planning?

“Running and owning a business is just like raising a child: Both are investments in the future, and both require a lot of time, resources and effort to raise successfully. One can argue that you would treat your business like you'd treat a child; you'd want it to succeed even after you've passed on or retired.”

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about having it continue after you retire or pass away.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they're gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one's mortality to the worry list at the earlier stages in your life.

Business continuity is the biggest concern for entrepreneurs. This can be a touchy subject, both personally and professionally, so it’s better to have this addressed while you’re in charge rather than leaving the company’s future in the hands of others who are emotionally invested in you or in your work. One option is to create a living trust and will to put in place parameters that a trustee can carry out. With these names and decisions in place, you’ll avoid a lot of stress and conflict for those you leave behind.

Let them be upset with you, rather than with each other. This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names successor trustees to be in charge of operating the business, if you become incapacitated or die.

A power of attorney document will nominate a fiduciary agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries. Timely planning will also preserve your business assets, as advanced tax planning strategies might be implemented to establish specific trusts to minimize the estate tax.

Estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it’s vital to plan for all that life may bring.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

How Will the New SECURE Act Impact My IRAs and 401(k)?

“A new law could affect the IRAs and 401(k)s of millions of Americans in 2020.”

The SECURE Act is the most substantial change to our retirement savings system in over a decade, says Covering Katy (TX) News’ recent article entitled “Laws Change for IRA and 401K Retirement Savings Plans.” The new law, called the Setting Every Community Up for Retirement Enhancement (SECURE) Act, includes several important changes. Let’s take a look at them.

There is a higher age for RMDs. The current law says that you must start taking withdrawals or required minimum distributions from your traditional IRA and 401(k) or similar employer-sponsored plan when you turn 70½. The new law delays this to age 72, so you can hold on to your retirement savings a while longer.

No age limit for contributions to traditional IRAs. Before the new law, you could only contribute to your traditional IRA until you were 70½. However, now you can now fund your traditional IRA for as long as you have taxable earned income.

Stretch IRA Limitations. Previously, beneficiaries could stretch taxable RMDs from a retirement account over his or her lifetime. Under the SECURE Act, spouse beneficiaries can still take advantage of this "stretch" distribution, but most non-spouse beneficiaries will have to take all the RMDs by the end of the 10^th year after the account owner dies. Therefore, non-spouse beneficiaries who inherit an IRA or other retirement plan could have tax issues, because of the need to take larger distributions in a shorter amount of time.

Early withdrawal penalty eliminated for IRAs and 401(k)s when new child arrives. Usually, you must pay a 10% penalty when you withdraw funds from your IRA or 401(k) if done prior to 59½. However, the new legislation allows you take out up to $5,000 from your retirement plan without paying the early withdrawal penalty, provided you withdraw the money within a year of a child being born or an adoption becoming final.

There are provisions of the SECURE Act that primarily impact business owners, which include the following:

New multi-employer retirement plans. The new law allows unrelated companies to coordinate to offer employees a 401(k) plan with less administrative work, lower costs and fewer fiduciary responsibilities than individual employers now have when offering their own retirement plans.

Tax credit for automatic enrollment. There’s now a tax credit of $500 for some small businesses that create automatic enrollment in their retirement plans. A tax credit for establishing a retirement plan has also been increased from $500 to $5,000.

Annuities in 401(k) plans. The Act makes it easier for employers to add annuities as an investment option within 401(k) plans. Before the SECURE Act, businesses avoided annuities in these plans because of the liability related to the annuity provider. However, the new rules should help decrease any concerns.

Talk to an experienced estate planning attorney to examine the potential impact on your investment strategies and determine any possible tax and estate planning implications of the SECURE Act.

Reference: Covering Katy (TX) News “Laws Change for IRA and 401K Retirement Savings Plans”

Why should I hire an elder law attorney?

 

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By hiring a certified elder law attorney, you can be assured that the attorney possesses the knowledge, skills, and proficiency in the area of elder law to examine all of the issues in your family, to help to enhance your life, and put protections in place as you age.

Is It Time to Sell My Baseball Card Collection?

“Call it an astute estate planning move, but I didn’t want to leave eight notebooks of baseball cards encased in plastic sleeves for my children to sort through down the road.”

It may be time to sell your baseball card collection.

Arizona Daily Star’s recent article entitled “The valuable lessons learned from collecting baseball cards” explains that the market is strong for 1960s-era cards.

If you have a card collection, whether its Pokémon, Star Wars, the World of Warcraft, or a Honus Wagner 1909-11 T206 baseball card (estimated to be worth $3.5M), you should ask your estate planning attorney about working with a knowledgeable broker.

A collecting hobby can teach kids things about money, such as saving for a goal, deferred gratification, wants and needs and doing research before making purchases.

Collectibles can be any type of property a person wants to collect. However, as far as estate planning, the collection will typically have particular value due to factors like quality of the items, age, historical importance, uniqueness and market demand.

Some examples of frequently collected items include art, precious metals, antiques, furniture, wine, books, sports memorabilia, cars and historic memorabilia.

Whether it’s cards, coins, or stamps, collecting is still a terrific way for children to learn early, valuable money lessons. You can encourage your children or grandchildren to collect for fun and to buy what they like and counsel them on strategies.

If you have a collection that you want to preserve and give to a member of your family, be certain they truly are interested in it. You can also think about selling your collection and using the proceeds to help fund a college 529 savings account for grandchildren.

Work with your estate planning attorney to make a clear expression of your wishes in your will, as to how you’d like to see your collection handled as part of your estate. If you have a family member interested in your collection, specifically direct the collection to that heir. However, if you want the collection sold, draft specific directions as to the chosen venue for sale of your collection.

Reference: Arizona Daily Star (Jan. 4, 2020) “The valuable lessons learned from collecting baseball cards”

 

I’m Between 55 and 64, How Do I Boost My Retirement Savings?

“If you're between 55 and 64, you still have time to boost your retirement savings. Whether you plan to retire early, late, or never ever, having an adequate amount of money saved can make all the difference, both financially and psychologically. Your focus should be on building out—or catching up, if necessary.”

It’s never too soon to begin saving. However, the last decade prior to retirement can be crucial. By then you’ll probably have a pretty good idea of when (or if) you want to retire and, even more important, still have some time to make changes, if need be.

If you discover that you need to put more money away, Investopedia’s article “Top Retirement Savings Tips for 55-to-64-Year-Olds” gives you several time-honored retirement savings tips to consider.

1. Fund Your 401(k) to the Max. If your employer has a 401(k) or a similar plan, and you aren’t already funding yours to the maximum, up your contributions. These plans are an easy and automatic way to invest, plus you’ll defer paying taxes on that income until you withdraw it in retirement. You may be in a higher marginal tax bracket now than you will be during retirement, because you’re in your peak earning years. As a result, you’ll see a smaller tax bill in retirement. This applies to traditional 401(k)s and other plans. If your job offers a Roth 401(k) and you participate, you’ll pay taxes on the income now but be able to make tax-free withdrawals later.
2. Review Your 401(k) Allocations. Experts tells us that you should invest more conservatively as you get older, with more money in bonds and less in stocks. That’s because if your stocks drop in a prolonged bear market, you won’t have the time needed to recover. As a result, you may have to sell your stocks at a loss. Stocks still have growth potential and are a hedge against inflation, unlike bonds. Therefore, remain diversified in both stocks and bonds, but do this in an age-appropriate manner.
3. Look into an IRA. If you don’t have a 401(k) plan to join at work—or if you’re already funding yours to the max—another retirement investing option is an IRA. There are two types: traditional and Roth. With a traditional IRA, the money you contribute is generally tax-deductible upfront. With a Roth, you receive a tax break later with tax-free withdrawals. Each has its own set of rules for contributions, so educate yourself on the differences.
4. Know Your Sources of Income for Retirement. Your level of aggressiveness in saving also depends on the other sources of income you can reasonably expect to have in retirement. When you hit your mid-50s or early 60s, you can get a much better estimate than earlier in your career. After you’ve contributed to Social Security for 10 years or more, you can get a personalized estimate of your future monthly benefits using the Social Security Retirement Estimator. Your benefits are based on your 35 highest years of earnings, so they may increase if you continue working. Your benefits will also vary, based on when you start collecting them. You can start taking benefits as early as age 62, but they’ll be permanently reduced from what you’ll receive if you wait until your “full” retirement age (currently between 66 and 67 for anyone born after 1943). You can also wait and start getting your Social Security up to age 70 and see the largest amount possible.
5. Don’t Mess with Your Retirement Savings. After age 59½, you can begin making penalty-free withdrawals from your traditional retirement plans and IRAs. With a Roth IRA, you can withdraw your contributions (not their earnings) penalty-free at any time. In addition, the IRS has an exception known as “the Rule of 55.” This waives the early-withdrawal penalty on retirement plan distributions for workers 55 and over (50 and over for some government employees) who lose or leave their jobs. This is a complicated rule, so speak to your estate planning attorney. It is important to understand that just because you can make withdrawals doesn’t mean you should, unless you absolutely need the money. The longer you keep your retirement accounts “in the bank” (up to age 72, when you must begin to take required minimum distributions from some), the better off you’re likely to be.
6. And Remember the Taxes. When you make withdrawals from a traditional 401(k) plan or traditional IRA, you’ll be taxed at your rate for ordinary income—not the lower capital gains rate.

Reference: Investopedia (June 11, 2019) “Top Retirement Savings Tips for 55-to-64-Year-Olds”

Some Estate Planning Blunders by Celebrities in 2019

“The sad reality is that many of us have not taken the time to execute a will or develop an estate plan. The estates of individuals who die without properly drafted and executed wills are distributed in accordance with the law of the states in which they reside at death.”

The passing of celebrities used to focus solely on movies or television shows they brought to life, but these days, a lot of attention is paid to their deaths, as lessons in what not to do in estate planning. A few examples are offered in the article “Lessons in estate planning from the rich and famous” from Florida Today.

The deaths of Prince and Aretha Franklin illustrate the expensive disasters that occur when estate plans are incomplete or completely lacking. However, outdated estate plans, or estate plans that don’t recognize the differences between state laws can be equally problematic.

When Phillip Seymour Hoffman’s will was reviewed, there were two glaring issues. The will was prepared by a real estate attorney who had little knowledge of New York’s tax or estate planning laws. Second, the will was 10 years old. Mr. Hoffman had another child after the will had been prepared, so the child was not included in the will. The estate was rumored to be valued at around $35 million, with the entire estate left to his longtime partner and the mother of his children. The two had never married. Had proper planning been done, or if they had married, the family would not have lost a third to a half of the entire estate to taxes.

Ric Ocasek, lead singer for The Cars, died in the fall. For 30 years, he was married to supermodel Paulina Porizkova. The couple was separated at the time of his death. Ric had a new will created that said, “I have made no provision for my wife Paula Porizkova, as we are in the process of divorcing,” and “Even if I should die before our divorce is final…Paulina is not entitled to any elective share … because she has abandoned me.”

In New York State, this language may be enough to disinherit Paula. However, in Florida, it would not. Florida’s elective share provides a surviving spouse a mandatory minimum share of the deceased spouse’s estate, regardless of what the estate planning documents say.

While a person cannot completely disinherit a soon-to-be former spouse in Florida. If the divorce is not yet finalized, there are numerous planning opportunities to provide control over the distribution of assets. If it is done correctly, with the guidance of an experienced estate planning attorney, an elective share trust can be used to satisfy the elective rights of a spouse. The right to make the distributions of the rest of the assets is retained. This can be especially important, when there are children from a prior or subsequent marriage.

Working with an experienced estate planning attorney who understands the details of the laws in your state will save the family not only taxes, but the potential time and costs of litigation that results when estate plans are poorly prepared. You don’t have to be rich or famous to avoid estate planning mistakes.

Reference: Florida Today (Dec. 27, 2019) “Lessons in estate planning from the rich and famous”

Turning 65 in 2020? Some Pointers for a Special Year

“Turning 65 is a major milestone for many Americans, as it is the traditional age at which they start thinking seriously about retirement.”

Many things change when celebrating your 65^th birthday. For one thing, if you haven’t already retired, chances are good that you’ve set a retirement date and it’s not too far away. There are a number of things to be considered, advises the article “Points to ponder before turning 65” from Knox News.

The year you turn 65 is the year that you enroll in Medicare. Coverage begins at age 65, and the initial window to enroll opens three months before your 65^th birthday and ends three months after. Miss that deadline, and there may be penalties when you do at last sign up for Medicare.

You can sign up for Medicare, whether you are working or not. If you are turning 65 and already collecting Social Security, you’ll automatically be enrolled in Medicare Parts A and B. You’ll need to sign up for Part D to avoid penalties, unless you have coverage through a spouse’s employer.

Here are some details:

• Part A covers hospital care and is generally free for enrollees.
• Part B covers diagnostic and preventive care. You pay for it with a monthly premium.
• If you’re still working at age 66 and have health insurance through your employer, you may choose not to enroll in Part B. You can sign up for Part A, at no cost, and delay Parts B and D.
• If you’re still working past 65 and have creditable coverage through your employer or your spouse’s employer, then you can defer Medicare.

Note that you may not get a full monthly benefit, if you claim Social Security right away. You can begin collecting Social Security at the young age of 62, but you won’t get the full monthly benefit that you otherwise would get unless you wait until you reach full retirement age. That date depends upon your date of birth. For most people turning 65 in 2020, that means full retirement age is 66 plus two months. Is it worth the wait? Your monthly benefit shrinks by 7.8%, if you file for benefits at age 65.

This is the time to check on your estate planning documents. If you don’t have these already, speak with an estate planning attorney to make sure that you and your family are protected by the following:

• General Durable Power of Attorney for Finances
• Durable Power of Attorney for Healthcare
• HIPAA release
• Revocable Living Trust
• Advanced Health Care Directive
• Last Will and Testament

It’s a great birthday to celebrate but be certain that you take care of the estate planning, Medicare and Social Security aspects of your life, as you prepare for this milestone.

Reference: Knox News (December 26, 2019) “Points to ponder before turning 65”

Why a Will Is the Foundation of an Estate Plan

“If you care about what happens to your money, home and other property after you die, you need to do some estate planning.”

An estate planning lawyer has many different tools to achieve clients’ estate planning goals. However, at the heart of any plan is the will, also known as the “last will and testament.” Even people who are young or who have modest levels of assets should have a will—one that is legally valid and up to date. For parents of young children, this is especially important, says the article “Wills: The Cornerstone of Your Estate Plan” from the Sparta Independent. Why? Because in most states, a will is the only way that parents can name guardians for their children.

Having a will means that your estate will avoid being “intestate,” that is, having your assets distributed according to the laws of your state. With a will, you get to determine who is to receive your property. That includes your home, car, bank and investment accounts and any other assets, including those with sentimental value.

Without a will, your property will be distributed to your closest blood relatives, depending upon how closely related they are to you. Few individuals want to have the state making these decisions for their property. Most people would rather make these decisions for themselves.

Property can be left to anyone you choose—including a spouse, children, charities, a trust, other relatives, a college or university, or anyone you want. There are some limits imposed by law that you should know about: a spouse has certain rights to your property, and they cannot be reversed based on your will.

For parents of young children, the will is used to name a legal guardian for children. A personal guardian, who takes personal custody of the children, can be named, as well as a property guardian, who is in charge of the children’s assets. This can be the same person, but is often two different people. You may also want to ask your estate planning attorney about using trusts to fund children’s college educations.

The will is also a means of naming an executor. This is the person who acts as your legal representative after your death. This person will be in charge of carrying out all of your estate settlement tasks, so they need to be someone you trust, who is skilled with managing property and the many tasks that go into settling an estate. The executor must be approved by the probate court, before they can start taking action for you.

There are also taxes and expenses that need to be managed. Unless the will provides directions, these are determined by state law. To be sure that gifts you wanted to give to family and loved ones are not consumed by taxes, the will needs to indicate that taxes and expenses are to be paid from the residuary estate.

A will can be used to create a “testamentary trust,” which comes into existence when your will is probated. It has a trustee, beneficiaries and directions on how distributions should be made. The use of trusts is especially important, if you have young children who are not able to manage assets or property.

Note that any assets distributed through a will are subject to probate, the court-supervised process of administering and proving a will. Probate can be costly and time-consuming, and the records are available to the public, which means anyone can see them. Many people chose to distribute their assets through trusts to avoid having large assets pass through probate.

Talk with an experienced estate planning attorney about creating a will and the many different functions that the will plays in settling your estate. You’ll also want to explore planning for incapacity, which includes having a Power of Attorney, Health Care Proxy, and Medical Directives. Estate planning attorneys also work on tax issues to minimize the taxes paid by the estate.

Reference: Sparta Independent (Dec. 19, 2019) “Wills: The Cornerstone of Your Estate Plan”