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Archive for the ‘Estate Planning’ Category

Saturday was a beautiful spring day in New England. Temperatures were moderate.  No humidity.  It was bright and sunny with languid puffy clouds hanging in the noon time breeze.  A beautiful day to be outside especially after the gloomy weather that Mother Nature has thrown at us during the winter and spring so far. A beautiful day for gathering with family and friends and celebrating the milestones of life whether a birth, a marriage, a graduation or connecting with others.

It so happened that I was attending the funeral celebration for a friend and client. Celebration is the right word.  While sadness always is part of these things, it truly was more fitting and proper to highlight and remember the qualities that we all should aspire to.

In this case we were gathered to celebrate a sister, aunt, daughter and friend who lived fully during her short 50 odd years.  A global traveler, talented cook and baker, gifted woodworker and gardener and charitable sort who always thought of others less fortunate.

Regardless of one’s religious persuasion, the celebrant of this service, a Roman Catholic priest, expressed it best when he said that many of us think a long life is synonymous of a good life.  But in reality, he emphasized, the teachings of many religions focus on the quality of life as opposed to its length. And this person, my friend and the sister of my very best friend, truly made her short time in the temporal world full and rich.

Like a light switch, one moment someone’s vivacious smile is there and in the next instant it is gone leaving us only with the warm glow of memory.  Whether it is better to have a sudden death or have time to prepare for the inevitable is a constant debate.  In this case, my friend was there one moment and in the next she was gone.

Inevitably, when confronted with such sudden tragedy, we tend to think of our own mortality.  I recall after the Twin Towers came down in NYC, how families were drawn closer together even if they didn’t have a direct connection to the victims of the terrorist attack.  And the interest in insurance and estate planning was at a high point.  Lawyer friends reported doing more wills and guardianship plans.  Insurance agents were fielding calls for new insurance policies.

It shouldn’t take a tragedy – whether public or personal – to get people motivated to act in their best interests but we are frail humans and tend to look at the present disregarding the future.

But we do that at our own peril.

Someday is Today

A person with friends is truly rich – remember “It’s a Wonderful Life.” While I truly believe that sentiment, it doesn’t mean abdicating one’s responsibility to care for family and friends by skipping the planning.

It is frustrating to be a financial planner and in trying to deal with such issues receive either blank stares or promises to deal with it later. At other times there is the all-encompassing answer to all: I’m All Set.

  • Someday, I’ll draft a will.
  • Someday, I’ll check my insurance coverage.
  • Someday, I’ll talk to my brother (or sister or friend) about guardianship of the kids.
  • Someday, I’ll deal with all these financial planning issues.

Someday is now.

Planning for the inevitable is not for you.  It is to help others.  It is selfish to think that things will just take of themselves.  Sure, plans will together.  But the stress on the family, friends and loved ones left to deal with picking up the pieces is not something you should burden someone with lightly when taking a few steps will help smooth the transition.

  1. At the very least, get a Will.  You don’t need to be rich to have one of these.  Better yet, make sure you have a Durable Power of Attorney in place so that your financial affairs can be coordinated.
  2. Review and update your Will periodically. Even if you do have a Will doesn’t mean that it still works for you.  Times change and so do tax and estate laws.
  3. Include written instructions.  Do you want to be buried or cremated? Who do you want to have certain sentimental, personal effects?
  4. Have a list of online passwords for your banking and social media accounts in a safe but accessible place.  Without them your heirs will have trouble dealing with some of your financial matters or your social media accounts could possibly be shut off.  And since most of our lives and communications are now so much online, your family might not be able to notify your extended network of your passing unless they can get online.
  5. Review your insurance as part of a comprehensive financial needs analysis regularly.  Too often people simply think that what they have in place covers them regardless of the simple fact that personal circumstances change and dictate changes in coverage.
  6. If you own property and have a mortgage or have young kids who would be raised by someone else when you’re gone, make sure you have insurance that at least covers the bills.  This means having a term insurance policy for at least the balance of the mortgage.  And if you have kids, figure out the costs to raise them (and pay for college maybe) and put a policy in place to equal that.  Otherwise, you may be leaving a spouse, friend, family member or business partner with trying to carry the costs without benefit of the resources.
  7. Check and update the beneficiaries on insurance policies, annuities, company-sponsored 401ks and personal IRAs. Maybe you had a divorce and never updated this so your ex-spouse may be the unintended recipient.  Or new kids, nieces or nephews have been born since the last time you did this.

In my banking and financial planning careers, I have seen both personally and professionally the impact on survivors left behind to pick up the pieces.  There was the client who needed to refinance to help pay for an elder parent’s funeral.  There was the friend who battled bravely against cancer but eventually succumbed leaving behind a wife, a three-year old toddler and a mortgage.

The pain caused by the loss of a loved one doesn’t need to be compounded by the stress, frustration and confusion of having to unexpectedly deal with financial challenges.

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Below is a post from the Boston Tax Institute (May 31, 2011) from Kurt Czarnowski, formerly with the SSA as Regional Communications Director in New England.  Kurt presented to the Merrimack Valley Estate Planners Council, one of my groups a while ago and always had a knack for making the complex and dry information from Social Security enlightening and fun.

Unfortunately, many people do not completely understand how work and earnings impact a person’s ability to collect Social Security retirement benefits. As a result, they may be losing out on monthly payments which are rightfully theirs.

The good news is that the Senior Citizens’ Freedom To Work Act of 2000 eliminated the Social Security annual earnings limitation beginning with the month a person reaches Full Retirement Age (FRA). (From 2000 through 2002, FRA was age 65. However, in 2003, it began increasing, so that FRA is now age 66 for people born between 1943 and 1954.)

This means that if you are at Full Retirement Age or older, and you work, you can receive a full monthly Social Security benefit, no matter how much you earn. In addition, any earnings you may have had prior to the month you reach your FRA do not impact your ability to collect benefits from FRA going forward.

But, if you are under FRA, there is still a limit on how much you can earn and still receive full Social Security benefits. In 2011, the annual limit is $14,160, and if you are younger than full retirement age during all of 2011, you lose $1 in benefits for each $2 you earn above that amount.

If you retire in mid-year, you already may have earned more than the yearly earnings limit, but that doesn’t mean you can’t collect benefits for the remainder of the year. There is a special rule that applies to earnings for one year, usually in the first year of retirement. In 2011, this rule lets you collect a full Social security check for any month your earnings are $1,180 or less, regardless of the yearly earnings total.

It is important to note that if some of your retirement benefits are withheld because of your earnings, these payments are not completely lost. Starting at your full retirement age, your benefit amount will be recalculated, and it will be increased to take into account those months in which payments were withheld.

Retiring? Consider your options and the role of Social Security

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One thing that I will add here is that I have seen first hand the problems that can occur when folks do not understand the rules.

As a registered tax preparer with XtraRefunds, I have had several folks come in to have us prepare their taxes.  They invariably have had false information about Social Security benefits.

I had one case where an individual came to me as a new client.  During the initial intake he failed to answer certain questions. Although he was over age 65, he was still working a full-time job and running a small business on the side.  Only after we had completed the return, did he happen to mention that he was receiving Social Security benefits but he had no paperwork (1099-R or annual benefits statement for instance).

When we finally got the paperwork from SSA and inputted the amounts, his tax status changed considerably from a refund to a liability. This was because a portion of his benefits were taxed.  Not everyone realizes that up to 85% of Social Security benefits can be taxed when you have a gross income above certain levels.

This example stresses the need for having a trusted adviser to work with before you make major money moves instead of relying solely on what friends and relatives might say.

Need help?  Consider a 30-minute free call at 978-388-0020.

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Consumers and homeowners in particular tend to think that financial planning is all about investing.  In reality, the key to proper financial planning is making smart moves with your money to protect your hard-earned wealth.  Too often consumers fret about the specific investment’s return and ignore the things that they can control such as how to not lose money.

One of the key parts of a good financial plan is proper estate planning.  And one element of an estate plan is controlling for risks that can wipe out your wealth such as from a lawsuit or a creditor.

To that end the revisions that became effective with the updated Massachusetts Homestead Law will help all homeowners.

New Law in Massachusetts Will Protect Homeowners and Vital for Seniors

As reported in the Boston Tax Institute newsletter of May 31, 2011, the Massachusetts Legislature has enacted a new law that will increase homestead protection for homeowners in Massachusetts. Homestead protects a person’s residence from most creditors. If a homeowner is sued by a creditor or files for bankruptcy, a portion of their equity in their home – the “homestead estate” – is deemed unavailable to their creditors. The new law was passed on December 16, 2010, and became effective on March 16, 2011.

What a homestead exemption does is protect the property against attachment, levy on execution or a court-ordered forced sale to satisfy payment of a debt.

The new law essentially puts in place a minimum amount of coverage for all homeowners (now $125,000) and each homeowner can file the form to gain protection up to the extended amount ($500,000 or $1 million for an elder couple).

Cheap Protection Against Lawsuits or Creditors

This is cheap protection.  And vital for anyone.

Consider this: One lawsuit can not only ruin your day but force you to lose the equity in your home.

If you have teens at home and there is a severe car accident, you can be sued.  If you lose the lawsuit and are assessed a civil judgement by the court, the other party could put a lien on your home or even force the sale of the property to pay the claim.

An elder driver could drive through a wall or onto a sidewalk and cause property damage or personal injury that exceeds their insurance liability coverage.

These are only a couple of examples that could put someone’s home at risk.  This new law at least provides some basic protection and the extended coverage will provide more peace of mind.

Key Updates to the Law

Under the amended Massachusetts Homestead law (Estate of Homestead):

  • Massachusetts homeowners will receive automatic $125,000 protection against debt collectors (if they hold that much equity in their home) without having to do anything.
  • Homeowners can elect to file a homestead declaration with the Registry of Deeds, which will give homeowners up to $500,000 in equity protection from non-exempt creditors.  Homestead forms, or homestead deeds, are filed at the Registry of Deeds in the county in which the residence is located. The filing fee ranges from $35-$100.
  • For married couples, both spouses will now have to sign the form. Before only one spouse signed and protection was only afforded to the spouse who signed.  If a single person declares a homestead and subsequently gets married, the Homestead automatically protects the new spouse.
  • Homesteads now pass on to the surviving spouse and children who live in the home.  The protections also remain for transfers between relatives.
  • There is new protection for homeowners who receive insurance proceeds from fire or other damages.
  • There has always been confusion whether a homeowner had to re-file a homestead after a refinance.  The new law clarifies this issue – homeowners do NOT have to re-file a homestead after a refinance.  Under the new law, Homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
  • Homesteads are now available for single families, condominiums, coops, manufactured homes and now for 2-4 unit homes; and also for homes that are held in a trust for estate planning or other reasons.
  • Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.
  • There is no need to re-do/re-file an existing homestead under the new law.

The form itself is pretty easy to fill in and file with the registry where your primary residence is located and recorded.  For a $35 registry fee you could get $300,000 in protection from creditors (now up to $500,000).

Special note:  Attorney Ed Adamsky provided a clarification (thanks, Ed):

If you have already filed a homestead, you do not have to update it to get the benefits of the updated Massachusetts law. If you have not filed one, you should do so. In New Hampshire there is nothing to file

For specific guidance on legal issues, speak with a qualified attorney. For help in putting in place a financial plan or road map for your money that looks at all the pieces of your plan, then call a qualified financial planner who can help make sense of all the moving parts regarding your money.

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