Beneficiaries & TODs - Who Will Inherit Your Accounts?

By Ann Arceo, AAMS®

Estate Planning 101

By: Becky Eason 

Not many people enjoy thinking about the end of their lives, let alone planning for it. Even though estate planning isn’t a “fun” topic it’s something that is critical for everyone to plan for. It’s never too early to start planning. 

If you are young and in your pre-children years your estate plan is most likely very simple. There are a few basic documents that you should have, which include a Health Care Proxy (HCP), HIPAA Release Form and a Power of Attorney (POA).

• A Health Care Proxy allows you to name someone to express your wishes and make health care decisions on your behalf if you’re unable to do so yourself. Make sure you have a conversation with your health care proxy to make sure they actually know what your wishes are. 

• A HIPAA Release Form authorizes medical providers to release your private health information to your named individuals. Without this form medical providers are very limited in the information they can give to anyone about your medical status. This can create a lot of additional stress for family members during a medical emergency. Once you reach the age of 18 medical providers can’t typically even release information to your parents or spouse without this form. 

• A Power of Attorney grants another person the ability to act on your behalf. There are different amounts of power that can be granted so you will want to work with an attorney to determine what is best for your specific needs. Because of the power granted you want to make sure the individual you list is someone that you completely trust. There can be many benefits to having a POA such as if you’re out of the country and you need something taken care of at home that can only be done in person, you have a person in place to handle it.

If you’re in the next stage of life and have a family, especially if you have minor children, you will want all of the documents stated above but you will also want to create a will. When you have children, you want to make sure you know who will be raising them in the event of your premature death. By default, if there is a surviving parent they will generally become the guardian. However, if both parents pass away at the same time your will can have a guardianship clause appointing your chosen guardian as well as a secondary guardian. Before naming a guardian it’s best to have a conversation with that individual/couple to make sure that they would be willing to raise your children. Wills have additional provisions in them, but for young families the guardianship section is super important. 

The next stage of life is for parents whose children are no longer minors and also for couples without any children. At this point you may want to revisit all of your estate documents and update them accordingly. You may want to update your Health Care Proxy, HIPAA Release Forms, and Power of Attorney to give you children additional authority over your well being. You may also want to update your will at this time. Life is always changing and it’s best to make sure that the individuals named in your estate documents are still living and still the best choice. You can also remove your guardianship clause and confirm your executor(s) or change them at this time. 

As you age you may also want to consider prepaying for your funeral expenses. You may also want to pre-plan your final wishes which for example may include deciding if you want calling hours or a celebration of life. Putting these wishes in writing is a best practice because upon your passing it’s likely that your loved ones will be under a great deal of stress and emotion and may not be able to remember the details of your wishes. 

Hopefully your estate plan won’t need to be implemented in the near future, but life is very unpredictable and it’s best to plan for the worst case scenario. Working with an estate planning attorney is the best way to plan for the unexpected.

Protecting Your Financial Decision Making

By Kate Welker, CFP®

At the beginning of my career I began working with a new client and we bonded quickly. She was lonely, her kids moved far and wide and she was excited to talk about my growing family and hear about my children. We had a wonderful working relationship for several years and then our working relationship came to an end and I didn’t hear from her. Fast forward many years and I get a phone call from this past client, but the name of the person she was looking for was not my name; similar but a different person. The first day she called me to access her money, I explained that I had been her previous financial advisor years ago and I no longer had access to her accounts. The next day she called and wanted to upgrade her cable service, I again explained who I was and she got angry with me because she thought it was the cable company but finally said ok and hung up. This cycle repeated over several days but with increasing confusion and anger, each time it was a different provider she was calling for cable company, phone company, and a credit card company. I was concerned for her, and also at a loss as to who to talk to to get her the care she needed, but honor our creed for confidentiality. She had no close family or friends I could find, thankfully I was able to reach out to my local office of the aging and find a wonderful individual who knew the woman’s situation and followed up to get the proper medical, legal and financial care.

Stories like this are unfortunately common. What can you do to protect yourself and those you care about from falling into a similar situation? 

List a Trusted Contact. This is a person you name to your financial advisor or brokerage firm. If they are not able to reach you or have concerns regarding potential fraud or diminished capacity they can reach out to your trusted contact to inquire about you. The trusted contact will not be able to make any financial decisions or changes, but would be there to protect against signs of concern your advisor may see. Inform your contact that you have named them so they are not surprised if someone reaches out to them. 

Establish a Durable Power of Attorney. This is a legal document granting another person the power to act on your behalf financially and legally if you are no longer able to do so. Choosing who to name as your power of attorney can be a difficult decision. This should be someone close to you, but also a person you believe will follow through on your wishes and keep your best interests a priority.  We recommend working with an attorney to draft this agreement.

It is important to surround yourself with people who care for and about you. Many people find having conversations around mental decline and estate issues very difficult, but they are important to the aging process. Letting those close to you know what you expect from them and that it is ok to seek help makes it easier on all. It is also surrounding yourself with people who will be there to see the warning signs of dementia, poor decision making, and fraud.

Plan now for these issues that are likely to happen to your parents and to you. Many of our clients are familiar with a program called “Whealthcare” that we use to guide us through these difficult conversations and decisions, if this is of interest to you, give us a call to schedule a time to chat with one of our planners.

Estate Planning 101

By: Rachel Poe

Estate planning can sometimes come across as a section of planning that is completed later in life after retirement has begun and “it’s time” to start thinking of life’s next stage. Au contraire, estate planning is a part of one’s portfolio that deserves equal attention pre and post the date of retirement. The time is now! As net worth, investments, personal property, real estate, relationships, and other intrinsic items change in status, value, and possession over the years, it is important to consistently update (or begin creating) your estate planning documents. 

According to caring.com 2019 Will and Living Trust Survey, considering individuals between 35-54, more than 60% of people do not have wills. Out of individuals 65+, about 35% are without a will. The top two reasons why people do not have a will is “I just haven't gotten around to it” and “I don't have enough assets to leave to anyone.” 

Below are some introductory terms for those stepping into the estate planning process

CLICK HERE to download a FREE poster of the definitions listed!

Estate Planning - the arranging for disposition and management of someone's estate at death through the use of wills, trusts, insurance policies, and other devices. 

Estate Tax - a tax levied on the net value of the estate that amounts above the minimum threshold by the state of a deceased person before distribution to the heirs. This is important to consider and plan for throughout the estate process!

Will - Aka Last Will and Testament - A legal declaration of a person’s wishes regarding the disposal of his or her property or estate after death

Living Will - a written statement detailing a person’s desires regarding their medical treatment in circumstances in which they are no longer able to express informed consent, especially an advance directive. 

Executor - a person who is responsible for making sure all assets within the will are accounted for. In addition, this person is responsible for transferring these assets to the appropriate party as designated by the deceased.

Beneficiary - the person designated to receive the income of an estate that is subject to a trust; a person to receive proceeds or benefits. Beneficiaries are typically assigned within life insurance policies, retirement assets (401K, IRA), investments, real estate bank/brokerage accounts, etc. 

Power of Attorney - a legal instrument authorizing one to act as the attorney or agent of the grantor. This usually includes decisions regarding health care management. Hospitals and other third parties use POA to legally carry out decisions made by the appointed agent. 

Trusts - an arrangement whereby a person (trustee) holds property as its nominal owner for the good of one or more beneficiaries. A Living Trust can be open prior to or post death for a trustee.

Revocable Trust- A living trust that can be changed

Irrevocable Trust- A living trust that can rarely be changed

Testamentary Trust- Established after the death of the grantor through the will

Probate - the official proving of a will; the will is reviewed to determine validity. 

According to Investopedia.com, probate also refers to the general administering of a deceased person’s will or the estate of a deceased person without a will.

Guardianship - a person who is appointed to obtain custody of a minor child, protect the child's emotional and financial well-being, provide growth and protection to the child, and maintain assets left in their name. 

Financial literacy around some of these specialized planning topics can be muddy and overwhelming. It is important to partner with a planner and attorney who you can be transparent with, share experience, and build trust. Here at Rooted Planning Group, both our Nourish and Deepen program allows us to review a few basic estate planning documents to prepare for your estate planning attorney’s needs. We communicate with your attorney while continuing to share and educate the power of planning with you. It is our desire to break down the process and help you feel confident with your future.  

While it may seem uncomfortable to plan for death while alive, strategic planning while living will ensure that the legacy you have built during your lifetime will pass to those you value.

SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019

At the very end of 2019 the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 was signed into law.  It gave this weeks blog author and Financial Planner, Amy Irvine, CFP®, EA, MPAS®, CCFC, flashbacks to the 2017 tax law changes that happened at the very end of that year too. There are a lot of little nuggets in this Act, below is our interpretation of the Good, the Bad, and the Weird …

The Good

• If you are turning under the age of 70½ this year, you can now push the required minimum distribution down the road.  The new age is now 72.

• Beginning this year (2020), if you continue to work past the age of 72 (was 70.5), you can now make a contribution to your Traditional IRA.  Prior to this Act, even if you had earned income, you couldn’t contribute once you reached the “magic” age.

• This does not change the Qualified Charitable Distribution age though, that is still 70½ 

• If you receive a stipend or fellowship, that is now considered qualifying income for an IRA (or Roth IRA) Contribution.

• Small businesses will be able to join a pooled employer plan (called a MEP or Multiple Employer Plan), which is meant to reduce the cost to small employers  And if the employer plan has an automatic enrollment feature, they get a small tax credit.

• If you are a volunteer firefighter or EMC, then you will have a one-year repeal of the SALT limit on your federal tax return.  Remember SALT stands for State and Local Tax.

• If you are planning on having a baby, or adopting a child, in 2020 you can now take a $5,000 distribution from your retirement plan WITHOUT penalty.  Of course you have to pay tax on it, but if you redeposit it within 60-days of withdrawing it, then it would not be considered taxable.

• We are thrilled that you can now withdraw up to $10,000 during your lifetime from a 529 plan to repay student loans WITHOUT tax or penalty.

The Bad

• If you turned 70½ in 2019 but elected to defer the RMD until 2020, sorry, but you still have to take it before April 1, 2020.  Also, only those that turn 70½ in 2020 can defer until age 72. If you’re 71, sorry, but you still have to take yours.

• Stretch IRA’s won’t be able to stretch as far in the future.  Historically, your beneficiaries have been able to elect to take the remainder of your IRA over their life expectancy.  That has been nixed in the SECURE Act and the maximum number of years they can defer the account is 10-years. This does not apply to spouses, disabled beneficiaries, chronically ill beneficiaries, certain minor children (until they reach age of majority) and existing inherited accounts.  Based on this, we will be looking at our clients situation to determine if it makes sense to convert taxable retirement accounts to Roth Sources.

• Employers will now be able to add annuity options to their retirement plan programs.  This was fought for very hard by insurance companies and we are very concerned about how this is going to play out. We are not the only ones that feel that way.    Read Rick Kahler’s commentary in an article published on December 30 - “Accessing the Damage Done by the Secure Act.”

The Weird 

We think these are weird considering the Act is called Setting Every Community Up for Retirement Enhancement and the following have absolutely nothing to do with retirement.

• The credit for installing an electric car charger has been restored

• Anyone under the age of 21 will be prohibited from purchasing cigarettes and e-cigarette products (i.e. vaping)

• The medical expense deduction was set to go up to 10%, but the Act has it at 7.5% once again in 2020.

• 529 plans can now be used to pay for Apprenticeships

We will be looking at each of our clients' individual situations to determine how this new Act will fit into their financial lives...so more to come!