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Should I Use My 401(k) Now in the Pandemic?

November 3, 2020 No Comments

Many Americans are struggling with what to do with their retirement savings, as we endure the COVID-19 pandemic. Many don’t know if they should stand pat or cash in their savings.

The new CARES Act makes it easier for us to tap our 401(k) and retirement accounts. However, there may be significant long-term effects on your financial security.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress signed into law by President Trump on March 27. The law provides more than $2 trillion in economic relief to protect the American people from the public health and economic impacts of COVID-19. The Act provides fast and direct economic assistance for American workers, families, and small businesses, as well as preserving jobs for American industries.

CNBC’s recent article entitled “Tapping Your 401(k): Is now the right time to do it?” says that if you need emergency cash and your 401k is your only source of funds taking a short-term loan from your retirement account as a “last resort” may be a better option.

While you will be repaying yourself rather than paying 11% interest on average on a personal loan, know that you’re borrowing from your financial future and possibly risking your financial security in retirement.

The CARES Act lets you borrow up to $100,000 (double the previous loan limit of $50,000) from your 401(k) and delay repayment for up to a year. After you borrow, you’ll typically have to repay the loan within five years, depending on the terms of your 401(k) plan. Under the CARES Act, loan payments due in 2020 can be delayed for up to a year from the time you take out the loan. However, if you can’t pay back the loan within the time frame designated by your plan, your outstanding balance will be taxed like a withdrawal. That means you’ll also pay a 10% early withdrawal penalty.

If you leave your job — regardless of whether by choice — there’s a good chance your plan will require you to repay the money back quickly. If you don’t, your account balance will be decreased by the amount owed and considered a taxable distribution. This choice must factor in the length of time before you need your money, your ability to save, and your comfort level with risk.

You can also take a penalty-free distribution from your IRA or 401(k) of up to 100% of your balance or $100,000, whichever is less. You aren’t required to pay the 10% early withdrawal penalty if you’re under age 59½ and you can pay taxes on the money you take out over a period of three years or pay no tax if you pay it all back. However, your employer must agree to adopt these new rules for your existing 401(k) plan.

Reference: CNBC (April 20, 2020) “Tapping Your 401(k): Is now the right time to do it?”

 

Caring for a Loved One from a Distance

October 30, 2020 No Comments

Trying to coordinate care from a distance becomes a challenge for many, especially since as many as 80% of caregivers are working. Add COVID-19 into the mix, and the situation becomes even more difficult, reports the article “When your parent is far away and you are trying to care for them” from the Pittsburgh Post-Gazette.

The starting point is to have the person you are caring for give you legal authorization to act on their behalf with a Power of Attorney for financial affairs and a Health Care Directive that gives you the authority to receive health information under HIPAA (Health Insurance Portability and Accountability Act). It is HIPAA that addresses the use, disclosure, and protection of sensitive patient information.

Next, have a conversation about their finances. Find out where all of their important documents are, including insurance policies (long-term care, health, life, auto, home), Social Security, and Medicare cards. You’ll want to know where their tax documents are, which will provide you with information on retirement accounts, bank accounts, and investments.

Gather up family documents, including birth, death, and marriage certificates. Make sure your loved one has completed their estate planning, including a last will and testament.

Put all of this information into a binder, so you have access to it easily.

Because you are far from your loved one, you may want to set up a care plan. What kind of care do they have in place right now, and what do you anticipate they may need in the near future? There should also be a contingency plan for emergencies, which seem to occur when they are least expected.

Find a geriatric care manager or a social worker who can do a needs assessment and help coordinate services, including shopping for groceries, medication administration, and help with basic activities of daily living, including bathing, toileting, getting in and out of bed, eating and dressing.

If possible, develop a list of neighbors, friends, or fellow worshippers who might create a local support system. If you are not able to visit with any degree of frequency, find a way to see your loved ones on a regular basis through video calls. It is impossible to accurately assess a person’s well-being, without being able to see them. In the past, dramatic changes weren’t revealed until family members made a trip. Today, you’ll be able to see your loved one using technology.

You may need to purchase a smartphone or a tablet, but it will be worth the investment. A medical alert system will provide further peace of mind for all concerned. Regular conference calls with caregivers and your loved one will keep everyone in touch.

Caring from a distance is difficult, but a well-thought-out plan and preparing for all situations will make your loved one safer.

Reference: Pittsburgh Post-Gazette (Sep. 28, 2020) “When your parent is far away and you are trying to care for them”

 

Estate Planning for a Second Marriage and Blended Family

October 27, 2020 No Comments

It takes a certain kind of courage to embark on second, third, or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals, and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Rite of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together, or naming each other as beneficiaries on various assets, including life insurance or investment accounts.

Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs, which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy, an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.

When applying for Medicaid, the assets of both spouses are at risk, regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property, but assets must go through probate, which can be costly, time-consuming, and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy, and deflect family squabbles.

Creating a trust and placing the joint home and any assets, including cash and investments, inside the trust, is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and, by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries, or is influenced by others—a new will could leave the deceased spouse’s children with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage.”

 

Is Your Estate Really as Set as You Think?

September 11, 2020 No Comments

Next Avenue’s recent article entitled “Is Your Estate as Planned As You Think?” explains that when you pass away your executor will have many tasks to perform when settling your estate.

It’s helpful to add clarity and lessen the burden of that person’s work in advance. Look at this list of things to make sure your estate is as planned as you think it is:

Is your will current? If you’ve written your will, how long has it been since you drafted it? Have there been any major changes in your life since that time? If so, it’s likely time to update it. Review your will to make certain that it’s an accurate representation of your assets and your wishes now.

Is your will detailed? Yes, you’ve addressed the big stuff, but what about smaller items with sentimental value? You should list who gets what, to avoid fighting.

Have you set out your wishes, so they’re legally binding? Each state has different rules as to what is required for a valid will. Work with an experienced estate planning attorney to make sure your will is valid.

Are your financial affairs organized? Your executor will need to know if you have any recurring payments, as well as your account number, and online passwords. Create a list of regular monthly bills, along with your account numbers and access codes to simplify your executor’s job.

You will also need to let the executor know about any automatic deductions or charges on your credit card, internet-based subscriptions, club memberships, recurring charitable donations, and automatic utility payments.

Do you have a way to distribute your personal items? You should determine how your family will divide up the possessions not explicitly listed in your will, such as the lawnmower, dishes and photographs. All of it will need to be either distributed to one of your beneficiaries, donated, or sold.

Conducting comprehensive planning of your estate with an attorney can help ensure that there’s less stress and easy distribution of your assets.

While speaking with your estate planning attorney, ask about appointing a guardian for your minor children in your will, a healthcare directive, a living will, a HIPAA waiver, and whether you should have a trust.

Reference: Next Avenue (Feb. 25, 2020) “Is Your Estate as Planned As You Think?”

 

How Does Planning for a Special Needs Child Work?

September 11, 2020 No Comments

Funding a Special Needs Trust is just the start of the planning process for families with a family member who has special needs. Strategically planning how to fund the trust, so the parents and child’s needs are met, is as important as the creation of the SNT, says the article “Funding Strategies for Special Needs Trusts” from Advisor Perspectives. Parents need to be mindful of the stability and security of their own financial planning, which is usually challenging.

Parents should keep careful records of their expenses for their child now and project those expenses into the future. Consider what expenses may not be covered by government programs. You should also evaluate the child’s overall health, medical conditions that may require special treatment, and the possibility that government resources may not be available. This will provide a clear picture of the child’s needs and how much money will be needed for the SNT.

Ultimately, how much money can be put into the SNT, depends upon the parent’s ability to fund it.

In some cases, it may not be realistic to count on a remaining portion of the parent’s estate to fund the SNT. The parents may need funds for their own retirement or long-term care. It is possible to fund the trust during the parent’s lifetime, but many SNTs are funded after the parents pass away. Most families care for their child with special needs while they are living. The trust is for when they are gone.

The asset mix to fund the SNT for most families is a combination of retirement assets, non-retirement assets, and the family home. The parents need to understand the tax implications of the assets at the time of distribution. An estate planning attorney with experience in SNTs can help with this. The SECURE Act tax law changes no longer allow inherited IRAs to be stretched based on the child’s life expectancy, but a person with a disability may be able to stretch an inherited retirement asset.

Whole or permanent life insurance that insures the parents, allows the creation of an asset on a leveraged basis that provides tax-free death proceeds.

Since the person with a disability will typically have their assets in an SNT, a trust with the correct language—“see-through”—will be able to stretch the assets, which may be more tax-efficient, depending on the individual’s income needs.

Revocable SNTs become irrevocable upon the death of both parents. Irrevocable trusts are tax-paying entities and are taxed at a higher rate. Investing assets must be managed very carefully in an irrevocable trust to achieve the maximum tax efficiency.

It takes a village to plan for the secure future of a person with a disability. An experienced elder law attorney will work closely with the parents, their financial advisor and their accountant.

Reference: Advisor Perspectives (April 29, 2020) “Funding Strategies for Special Needs Trusts”

 

Does Medicare Cover COVID-19-related Medical Expenses?

September 10, 2020 No Comments

Knowing the way in which Medicare is offering coverage for COVID-19 can help seniors protect their health and their finances at the same time.

Motley Fool’s recent article entitled “How Will Medicare Cover COVID-19? Your Top Questions Answered” answered some common questions seniors have about the COVID-19 pandemic.

Will Medicare cover COVID-19 testing? The testing for the coronavirus can be difficult to obtain, depending on where you live. However, the good news is that Medicare Part B will pay for this. In addition, Medicare Advantage plans must also cover COVID-19 testing.

How much must Medicare enrollees pay to get tested? While COVID-19 testing may be a stressful process, if you’re on Medicare, you won’t pay to get the results. There’s no cost for your actual test and no co-pay for seeing a doctor who can order one.

Does Medicare pay for COVID-19 treatment? There’s no standard treatment for the coronavirus, but some patients with severe symptoms are being hospitalized. Medicare Part A will usually cover inpatient hospital treatment. As a result, if you’re admitted because of COVID-19, you’ll have your normal deductible under Part A ($1,408 per benefit period). Note that coinsurance won’t kick in during your first 60 days of consecutive hospital care, but beyond that, you’ll pay $352 per day until you reach the 90-day point in the hospital. If you have supplemental insurance, your Medigap plan may cover the cost of some of the out-of-pocket costs you have for getting hospital treatment.

Does Medicare cover a COVID-19 vaccine when it’s available? While a vaccine is at least a year out, if one becomes available, it will be covered by Medicare Part B and you won’t have a copay for it.

Will Medicare cover mental health services? Many seniors are having a hard time coping with the pandemic and its effects. Some are feeling isolated in their homes, and others are feeling anxious. Medicare does cover mental health services, and you may be able to meet with a professional remotely via telemedicine. Generally, you will be subject to your Part B deductible, plus 20% coinsurance. Seniors who are struggling with mental health issues can also call the Substance Abuse and Mental Health Services Administration’s Disaster Distress Helpline at 1-800-985-5990.

The COVID-19 crisis has been especially tough on seniors.

Knowing what to expect from Medicare could make a this a little easier.

Motley Fool (April 30, 2020) “How Will Medicare Cover COVID-19? Your Top Questions Answered”

Medicare vs. Medicaid

Steps to Take When a Loved One Dies

September 8, 2020 No Comments

This year, more families than usual are finding themselves grappling with the challenge of managing the affairs of a loved one who has died. Handling these tasks while mourning is hard, and often families do not have time to prepare, says the article “How to manage a loved one’s finances after they die” from Business Insider. The following are some tips to help get through this difficult New York probatetime.

Someone has to be in charge. If there is a will, there should be a person named who is responsible for administering the estate, usually called the executor or personal representative. If there is no will, it will be best if one person has the necessary skills to take the lead.

When one member of a married couple dies, the surviving spouse is the usual choice. Otherwise, a family member who lives closest to the deceased is the next best choice. That person will need to get documents from the local court and take care of the residence until it is sold. Being physically nearby can make many tasks easier.

It is always better if these decisions are made before the person dies. Wills should be kept up to date, as should power of attorney documents, trusts and advance directives. When naming an executor or trustee, let them know what you are asking of them. For instance, don’t name someone who hates pets and children to be your children’s guardian or be responsible for your beloved dogs when you die.

Don’t delay. Grief is a powerful emotion, especially if the death was unexpected. It may be hard to get through the regular tasks of your day, never mind the additional work of managing an estate. However, there are risks to delaying, including becoming a target of scammers.

Get more death certificates than seems necessary. Make your life easier by getting at least a dozen certified copies, so you don’t have to keep going back to the source. Banks, brokerage houses, phone companies, utilities, credit card companies, etc., will all want to see the death certificate. While there are instances where a copy will be accepted, in many cases you will need an original, with a raised seal. In fact, in some states it is a crime to photocopy a death certificate.

Who to notify? The first call needs to be to the Social Security Administration. You may also want to send an email. If Social Security benefits continue to be paid, returning the money can turn into a time-consuming ordeal. If there are any other recurring payments, like VA benefits or a pension, those institutions need to be notified. The same is true when it comes to insurance companies, banks and credit card companies. Fraud on the credit cards of the deceased is quite common. When a notice of death is published, criminals look for the person’s credit card and Social Security numbers on the dark web. Act fast to prevent fraud.

Protect the physical property. Secure the home right away. Are there plants to be watered or pets that need care? Take pictures, create an inventory and consider changing locks. Take any valuables out of the house and place in a secure location. If the house is going to be empty, make sure to take care of the property to avoid any deterioration.

Paying the bills. Depending on the person’s level of organization, you’ll have to identify where the money is and if anything is being paid automatically. Old tax returns can be helpful to identify income sources. Figure out what accounts need payment, like utilities.

Some accounts are distributed directly to beneficiaries, like transfer-on-death accounts like 401(k)s, IRAs and life insurance policies. Joint bank accounts and real property held in joint tenancy will pass directly to the joint owner. The executor’s role is to inform the institutions of the death, but not to distribute funds.

File tax returns. You’ll have to do the final taxes, due on April 15 of the year after death. If taxes weren’t filed for any prior years, the executor has to do those as well.

Consider getting help. An estate planning lawyer can help with the administration of an estate, if it becomes overwhelming. Regardless of who handles this process, expect the tasks to take anywhere from six months to two years, depending on the complexity of the estate.

Reference: Business Insider (May 2, 2020) “How to manage a loved one’s finances after they die”

When Should I Update My Estate Plan?

September 3, 2020 No Comments

Forbes’ recent article entitled “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve” discusses eight ways a trust can help you achieve specific legacy planning goals. The first step is to meet with an experienced estate planning attorney.Should I Create a Trust?

Everybody needs a will, but not everyone requires a trust. A trust provides greater flexibility and control over how your property and assets are distributed. Many people create a trust to avoid probate. As a result, it’s faster and easier for your named trustee(s) to distribute your assets to your heirs. There are a many different types of trusts with advantages and disadvantages. Talk about what will be best for you with your estate planning attorney.

  1. No probate. This process can take months or more to complete, and it can be very expensive. A trust is designed to settle your estate in a timely and relatively inexpensive manner.
  2. Privacy and confidentiality. Probate is public, so your will and other private financial and business info is available to everyone. However, a trust maintains privacy and confidentiality.
  3. Protection for beneficiaries. A trust can shield beneficiaries from lawsuits, creditors, or divorce. A trust can also protect the interests of a minor, by including direction for when distributions are made.
  4. Provide for children with special needs. This type of trust provides for the health care and personal needs of a minor child or adult who has special needs and won’t impact their eligibility for Medicaid benefits.
  5. Flexibility. As the creator of the trust, you determine the terms of the trust, and can put restrictions on how trust assets are managed. For instance, the trust could state that assets may only be used by the beneficiary to purchase a home or to pay medical bills but may not be distributed directly to the beneficiary.
  6. Preserve family wealth. Divorce and remarriage can result in assets that were supposed to stay in the family wind up leaving with the ex-spouse. A trust can make certain that your estate is preserved for grandchildren.
  7. Family values. A trust can be a wonderful way to pass down family values concerning education, homeownership, land conservation, community service, religious beliefs and other topics.
  8. Lessening family conflict. Challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your family, reduces the potential for misunderstanding.

Whether you have a trust in place or are thinking about creating one, it’s important to meet regularly with your estate planning attorney to be certain your strategy and estate planning documents reflect any new state and federal tax laws, as well as any changes in your goals and circumstances.

Reference: Forbes (Feb. 24, 2020) “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve”

 

When Do I Need a Special Power of Attorney?

September 1, 2020 No Comments

Yahoo Finance’s recent article entitled “What is Special Power of Attorney?” explains that with a general power of attorney (POA), you can designate a person to make decisions when you are unable, due to illness or incapacitation. Your agent (the person you select) may be able to file your tax returns, access bank records, or sign financial contracts in your name.Alzheimer's Signs to look out for

A special power of attorney only applies to specific circumstances. This is also called a limited power of attorney. An agent named as a special or limited power of attorney can only act in situations included in your power of attorney document. A special power of attorney can be for one specific instance or multiple uses. However, it depends on the conditions under which your agent is authorized to act. There are four ways you can set up special power of attorney:

  • Durable: Stays in force for your lifetime or until you decide to cancel it.
  • Limited: Starts and ends on a specific date or ends once a specified event has happened.
  • General: Starts immediately and ends when you become incapacitated.
  • Contingent/springing: Starts when you become incapacitated and are unable to make decisions on your own.

You can have multiple powers of attorney, depending on your situation. The main reason to use a special power of attorney is to make certain your finances and other legal affairs continue to be managed in the way you want when you’re not able to do things for yourself.

Remember that a power of attorney only applies during your lifetime. The POA ends when you pass away. Your assets would then be managed pursuant to the terms of your will or trust if you have either. If a person dies without a will, her assets are distributed according to the probate laws of the state.

Creating a power of attorney looks easy enough. However, there are specific rules you must follow. An experienced elder law or estate planning attorney can guide you on the specifics and answer any questions you might have. Typically, creating special power of attorney involves the following:

  • Naming a person to act as your agent
  • Detailing the specific terms under which a power of attorney will take effect
  • Determining which authority your agent will have
  • Designating a successor agent, if necessary, and
  • Choosing an end date for the power of attorney to terminate

A power of attorney is just one of the documents you may need for your estate plan. You should also ask your estate planning attorney about a last will and testament and a living trust to help you manage assets, according to your wishes after you pass away. Another critical document is an advance health care directive which states the kind of care you should receive in any end of life situation. Ask an experienced estate planning attorney about the documents you need.

Reference: Yahoo Finance (Feb. 28, 2020) “What is Special Power of Attorney?”

 

What Can I Do To Plan For Incapacity?

August 25, 2020 No Comments

Smart advance planning can help preserve family assets, provide for your own well-being, and eliminate the stress and publicity of a guardianship hearing, which might be needed if you do

nothing.

A guardianship or conservatorship for an elderly individual is a legal relationship created when a judge appoints a person to care for an elderly person, who’s no longer able to care for herself.

The guardian has specific duties and responsibilities to the elderly person.

FEDweek’s recent article entitled “Guarding Against the Possibility of Your Incapacity” discusses several possible strategies.

Revocable (“living”) trust. Even after you transfer assets into the trust, you still have the ability to control those assets and collect any income they earn. If you no longer possess the ability to manage your own affairs, a co-trustee or successor trustee can assume management of trust assets on your behalf.

Durable power of attorney. A power of attorney (POA) document names an individual to manage your assets that aren’t held in trust. Another option is to have your estate planning attorney draft powers of attorney for financial institutions that hold assets, like a pension or IRA. Note that many financial firms are reticent to recognize powers of attorney that are not on their own forms.

Joint accounts. You can also establish a joint checking account with a trusted child or another relative. With her name on the account, your daughter can then pay your bills, if necessary. However, note that the assets held in the joint account will pass to the co-owner (daughter) at your death, even if you name other heirs in your will.

There may also be health care expenses accompanying incompetency.

This would include your health insurance and also potentially disability insurance in the event your incapacity should happen when you are still be working, and long-term care insurance, to pay providers of custodial care, at home, or in a specialized facility, such as a nursing home.

Reference: FEDweek (March 5, 2020) “Guarding Against the Possibility of Your Incapacity”

 

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