Family Security Law Group, APC

Don’t Make These 401(k) Mistakes!

“Many Baby Boomers might not be ready for retirement, but younger workers have a chance to do better–if they make the most of their 401(k)s.”

Kiplinger’s recent article, “The 7 Most Common 401(k) Mistakes to Avoid,” provides three good news/bad news retirement plan statistics. First, the Investment Company Institute reports that the 401(k) plan retirement system held $4.8 trillion in assets as of March 2016. That represents 52 million active participants, former employees, and retirees. Vanguard also recently reported that the average 401(k) balance reached a record high of $101,650.  However, 38 million working-age households (45%) don’t own any retirement account assets, either an employer-sponsored 401(k)-type plan or an IRA.

The employer-sponsored 401(k) plan started in 1978.  Therefore, it’s been available to millions of workers who are now 65-years-old and who could’ve been using it to save for retirement and save on their taxes. However,  only half of Baby Boomers have more than $100,000 in a 401(k) or other retirement plan.

The good news is that younger workers have much of their working lifetime to accumulate a retirement fund. They also have the advantage of participating in 401(k) plans that have become far more sophisticated. This means that it’s a little bit more complicated for participants to understand all of the plan choices. As a result, some will make mistakes. A good goal is to save $1 million over your career to allow you to withdraw $5,000/month for 30 years with a 6% annual investment return.

Here are some common mistakes that retirement plan participants make and what they should be doing to avoid them.

Not Saving Enough. Simple math, right? To accumulate $1 million in monthly increments, you need to defer about $1,000 per month, every month, for 30 years with a 6% annual return.

Starting Too Late. Time and the power of compound interest must be worked to your advantage. The more time you have to accumulate savings, the more time the returns will have to work in your favor. Start to save right out of college, even if it’s a small amount to make saving easier on you down the road.

Not Maxing Out. You need to “max out” your employer match. For example, if you make $75,000 per year and put away 3% ($2,250), and the employer matches, your total annual contribution is $4,500. That won’t even get you halfway to that $1 million. But on that same salary, if you defer 13% into the retirement plan ($9,750 or $812.50 per month), and your employer matches the first 3% of your contribution, that’s an additional $2,250, for a total of $12,000. The employer match is like getting a 23% return on your contribution!

Priorities. Many people don’t pay themselves first. Most 401(k) plans have an option to set an increase in your contribution rate annually, until you’re making maximum contributions. If you’re a single taxpayer, a $9,750 contribution will save you at least $2,437 in federal income tax.

Taxes. There are tax savings that are possible. How about $200 per month? Your paycheck won’t go down quite as much as the entire contribution to the plan, because there are fewer withholding taxes. In our example, we assume a conservative 6% annual return. Two factors affect returns in a retirement plan. They are fund selection and asset allocation.

Doing Nothing. This means not taking advantage of the plan’s available tools to develop an allocation plan. Spread your contributions over a variety of funds that represent a broad selection of asset classes. A high percentage of plan participants don’t even take the time to change their fund selections from the default fund the plan offers.

Monitoring. You should rebalance your plan to keep the risk profile of your retirement plan portfolio consistent, over time.

Now’s the best time to review your retirement plan options.

Reference: Kiplinger (July 2017) “The 7 Most Common 401(k) Mistakes to Avoid”

Estate Planning for My Pets

“A pet can't inherit property, but you can arrange for care after your death.”

You want to plan for the care of your pets, in the event you pass before they do. Many people wonder if they can leave an entire estate to a pet and what happens after the family pet is deceased.

The answer is no. You can't leave an estate directly to your pet.

NJ.com’s recent article, “Can you leave an estate to a pet?”, explains that animals can’t own property. Your cat doesn’t have the necessary legal capacity. However, your estate or part of an estate can be left for the benefit of a pet. There are two options.

Pet Trust. This is a trust document that establishes the purpose of the trust, who it will benefit and how the assets held in the trust are to be administered for the beneficiary. Think of Leona Helmsley. She was a hotel heiress who left $12 million to her dog. Technically, she left the money in trust and a trustee managed the funds for the life of her Maltese.

The trust should also state who receives any money left in the trust, when the pet dies. That’s known as a remainder beneficiary.

From a legal standpoint, animals are considered property, even though pet lovers consider them furry friends or family members. You need to name someone to take ownership and care for your pet.

You can also forego a trust and simply leave your pet and a sum of money to care for the pet to a designated person without a trust. But there’s no guarantee that after you die, the person you selected won’t just pocket the money and give the pet away. There’s less structure and certainty in this, but it’s a less expensive option to set up.

Animal Charities. There are organizations that care for animals when their owners die. You can donate to the organization and leave your pet to them. They will do the rest. You can add these instructions to your will.  However, be sure to research the organization and the housing arrangements before choosing this option. You want to be totally comfortable with the group that will care for your pet after you’re gone.

Reference: NJ.com (July 12, 2017) “Can you leave an estate to a pet?”

What Is Fair?

One of the struggles that many parents have in estate planning, is determining what it means to be fair to all of their children. It can mean different things for different families.

Parents understand that being fair to all of their children does not always mean treating them all the same. Different children need different things and most parents attempt to meet their children's individual needs, whenever possible.

Despite that, when it comes to estate planning, the first instinct of many parents is to divide the estate equally between the children. However, dividing an estate equally is not necessarily dividing it fairly in every case as the Wills, Trusts & Estates Prof Blog discussed in "Be Fair to Your Heirs: Treating Children Fairly in Your Will.”

An estate plan that is fair to the children may be one that considers their different life circumstances.

If one child is independently wealthy and another is not, due to a career in public service, it might fair to give the wealthy child less than the other in an estate plan.

In some cases, this approach might not be fair, as it is possible that the wealthy child could fall on hard times.

Another important consideration is the amount of assistance parents have already given to the children.

If one child has received more from the parents than the other, then that can be rectified in an estate plan.

It is important for parents to think about what is truly fair for their families.

If the parents are going to do something their children might think is unfair, then let them know the reasons for it, instead of surprising them in a will or trust.

Reference: Wills, Trusts & Estates Prof Blog (July 31, 2017) "Be Fair to Your Heirs: Treating Children Fairly in Your Will."

Financial and Estate Planning for Singles

“I’m single, do I need to do anything differently with my finances?”

According to a recent Forbes article, “5 Financial Planning Strategies For Singles,” most of the advice on this topic isn’t very different from what’s given to married couples. Nonetheless, here are a few tips to consider, especially if you’re single.

Start saving for retirement now. Many of us will bank on Social Security along with our own personal savings in retirement. Some may have a pension or will possibly continue working in retirement. Whatever the exact plan, a good retirement savings objective is 15% of your salary and include your employer match, if you get one in your 401(k) plan. If you don’t have a plan through work, consider starting a personal IRA.

Prepare for the unexpected. Singles don’t have the luxury of second income as a fall back, so build up an emergency fund that can cover three to six months of expenses. Singles should aim toward the six-month cushion, so any unexpected expenses can be paid off without having to use your credit cards or retirement savings. Keep the money in a liquid account.

Consider insurance. Life insurance can be a replacement income for those who depend on you. With no dependents, it might not be needed, but consider a small policy to cover funeral expenses.

Estate planning. Perhaps you think you don’t need an estate plan, because you’re single.  However, you should have certain documents prepared, if you become incapacitated, so a trusted friend can make health and financial decisions on your behalf. This document is called a durable power of attorney for health care or an advance health care directive. You need this, along with a durable power of attorney for financial and legal matters.

If you’re single and have minor children, have a will drafted to designate a guardian to care for them. Likewise, if you’re single, most of your assets are in your own name. It’s important that your beneficiary information is up-to-date. In addition to your will, beneficiary designations on your retirement accounts and life insurance policy will direct how those assets are to be distributed.

You can also title some accounts to “transfer on death” to move the account directly to another person.

Take time to prioritize a financial and estate plan and review it regularly. Share this with your trusted family members so that you all will have peace of mind.  We are here to assist you.  Contact one of our Thousand Oaks estate planning attorneys at Family Security Law Group, APC for a complimentary consultation.

Reference: Forbes (July 5, 2017) “5 Financial Planning Strategies For Singles”

Use an IRA to Help the Grandkids

“Help to start building your grandchild's nest egg early.”

In the midst of summer, teens and college students are typically working summer jobs.

Kiplinger Retirement Report explains in a recent article, “Seed a Roth IRA for Your Grandkids,” that the income they earn, can give their grandparents a chance to help them build a nest egg. Grandparents can contribute to a Roth IRA on their grandkids' behalf.

Your grandchildren can later use the funds in these accounts for expenses like purchasing a home or building tax-free retirement income.

Another result of this gesture is to teach your grandchild the value of saving from a young age. As an illustration, if you were to contribute $2,000 a year over four years beginning when a grandchild is 15—with a modest 6% annual rate of return—those contributions will grow to more than $143,000 by the time the grandchild is age 66.

If he or she has a summer job or works while attending school, a grandchild has most likely earned income to be able to contribute to a Roth IRA. That contribution can't be more than he or she earned during the year or the maximum of $5,500 (in 2017 per the IRS), whichever is less. One idea is to deposit the money into the account for your grandchild and let your grandson or granddaughter hang onto his or her earnings. If she was to earn $3,500 from a summer job, then she can use it to buy a car. If you give $3,500 to the grandchild, then that money can be contributed to the Roth IRA.

The contribution you make to your grandchild is considered a gift to the child, so be certain to arrange that with your other gifts for the year. A grandparent can give up to $14,000 per year per person, without having to file a gift tax return (or a total of $28,000 to one person from both grandparents).

You can also “pre-fund” an account. However, in the event your grandchild's job falls through or she earns less than was expected, you’ll need to make sure the excess contribution and its earnings are withdrawn from the account before the next tax filing deadline.

Depending on state law, you will be able to maintain control of the money until the grandchild turns 18 or 21, and then the grandchild can use it however she wants.

Reference: Kiplinger Retirement Report (May 2017) “Seed a Roth IRA for Your Grandkids”

Beneficiary Designation Horror Story

“Even though you’re busy, take a moment to fill out your beneficiary forms.”

Regardless of your income or net worth, there’s one estate planning task you should do right now: check the beneficiary designations for your life insurance policies, bank accounts, brokerage firm accounts, and retirement accounts. You should update these forms as necessary. If you don’t, the consequences can be dire.

MarketWatch’s recent article, “Make this estate planning move right now: Check your beneficiary designations,” explains how the Fifth Circuit Court of Appeals reversed the trial court by finding that a pension plan administrator didn’t abuse her discretion in determining that a deceased plan participant’s stepsons weren’t considered his “children” under the terms of the plan. As a result, the deceased participant’s siblings, not his stepsons, were entitled to inherit the plan benefits in Herring v. Campbell (5th Circuit 2012).

In that case, John Hunter died in 2005. He had retired from Marathon Oil, where he was a participant in the company pension plan, which let him name a primary and secondary beneficiary. Hunter designated his wife as the primary beneficiary but didn’t designate any secondary or “contingent” beneficiary. After his wife died, he didn’t update the document to add a new primary beneficiary. Under the plan’s terms, when a participant died without designating a valid beneficiary, the deceased participant’s benefits were distributed in the following order of priority: (1) surviving spouse, (2) surviving children, (3) surviving parents, (4) surviving brothers and sisters (siblings), and finally (5) participant’s estate.

After he died, the plan administrator rejected the claim that Hunter’s two stepsons would qualify as “children” who’d be entitled to all the benefits. Instead, the plan administrator distributed the benefits of more than $300,000 to Hunter’s six siblings.

The stepsons sued for the benefits, claiming that they were, in fact, Hunter’s children because, by his actions, he’d “equitably adopted” them. The evidence seemed to indicate that he probably did mean to leave his benefits to the stepsons, so the trial court concluded that the plan administrator abused her discretion by failing to consider the stepsons’ equitable adoption claim. But the plan administrator appealed to the Fifth Circuit.

The Fifth Circuit agreed with the administrator’s interpretation that the term “children,” and for purposes of the plan, it meant biological or legally adopted children as opposed to un-adopted stepchildren. The District Court’s decision was reversed, and Hunter’s pension benefits went to his six siblings.

Typically, whoever’s named on the most-recent beneficiary form will get the money automatically, if you die. This brings up another advantage of designating individual beneficiaries—it can help you avoid probate, because the money goes directly to the named beneficiaries by “operation of law.”

Doing a beneficiary checkup and making any needed changes will take just a few minutes. Don’t wait, or it could be too late, like it was for Mr. Hunter’s stepsons.

Reference: MarketWatch  (June 30, 2017) “Make this estate planning move right now: Check your beneficiary designations”

When Can I Get the Life Insurance Company to Pay Out the Death Benefit?

“If you have the policy and death certificate when you file a claim, it may take as few as five business days to receive a check.”

A common question in settling the affairs of a loved one, is how long it generally will take after that person dies for the life insurance company to pay out the death benefit.

As a follow-up, what happens if the beneficiary doesn't know about the life insurance policy?

As Kiplinger explains in recent article, “How to Speed Up a Life Insurance Payout,” the more information you have about the life insurance policy, the quicker you can get the payout.

If you have a copy of the life insurance policy and a copy of the death certificate when you file a claim, it will expedite the process. If you have these items available, it can take as few as five business days after filing the claim to receive the payout.

If the beneficiaries don't have any idea that they are coming into money from the life insurance policy, the insurer may track them down, but not always.

The Social Security Death Master File will usually have deaths reported. Some state laws also require insurers to compare their files against those records and make contact with the beneficiaries when a death is reported. Some insurers will do this voluntarily.

If you believe the deceased had a life insurance policy but don't know the insurer, you might review their financial records and check for canceled checks, and contact any insurers or agents mentioned.

You can also make a request of the National Association of Insurance Commissioners' policy locator service. This service asks many life insurance companies to check their records for the policies.

You can also consult with the American Council of Life Insurers for more tips on locating a policy.

Reference: Kiplinger (June 7, 2017) “How to Speed Up a Life Insurance Payout”

Are All Living Trusts Created Equal?

“There can be many benefits in having a living trust, dependent on your goals and how the trust is drafted.”

The two biggest reasons for choosing a living trust are for the privacy and efficiency of avoiding public probate and for the protection that can be provided to beneficiaries, like protection from divorce, creditors, nursing home costs, and legal actions.

The Green Bay Press-Gazette’s recent article, “Common questions about a living trust,” notes that this can be especially important for a beneficiary who may have special needs. A Special Needs Trust can be created so their government program benefits, like Medicaid, won’t be impacted by their inheritance. Let’s look at some specific situations:

Avoiding probate. A living trust can help avoid probate, but a trust only controls assets that are in the trust. You must put assets into the trust to “fund” the trust. A person can have a well-drafted trust, but if it’s not properly funded, they will most likely lose out on some of the trust benefits.

Tax savings. There may be some tax savings, but most folks aren’t worried about estate taxes. An individual can pass up to $5.49 million without any estate taxes in 2017. Anything above that is subject to a 40% estate tax. Note that a living trust can be structured, so a married couple can pass double the exemption amount free of estate tax between the two of them. There’s usually no estate tax due when the first spouse passes away.  However, the surviving spouse, who may inherit from his or her spouse, would be potentially subject to estate tax at his or her death. A living trust can be used to potentially avoid that and pass the maximum assets without any estate taxes.

Assets requirements for a living trust. There’s no specific dollar amount required for a trust. More importantly, it should be a discussion with your estate planning attorney about your goals and how they can best be accomplished.

There is some expense with creating a trust, but most of the time the amount you spend on a living trust is less than what the cost would be for your family and loved ones to administer your estate plan after you pass away.

Talk about your options for a trust with an experienced estate planning attorney at Family Security Law Group, APC, and then decide.

Reference: Green Bay Press-Gazette (June 29, 2017) “Common questions about a living trust”

3 Essentials - for College Parents' Peace of Mind

Away at college—kids can: get seriously ill or be in an accident

If your child is over age 18, he or she is an ADULT in the eyes of the law.  Accordingly, parents lose the legal power to act on behalf of their own child, unless the child has given legal written authorization to them.  If your child were to become very ill, suffer some disability or pass away, you do not want to become a participant in a conservatorship or probate proceeding concerning your child.  Nobody wants to incur the time, expense, or emotional toll that these proceedings will command.

The GOOD NEWS is that it’s easy to circumvent court intervention should any of these life events happen, but only if your child executes these 3 essential legal documents:

1. SIMPLE WILL

Your legally adult child is the only person who can direct who is to receive the child’s personal belongings, car, bank accounts or digital property.  Without this will, the state laws of intestacy will dictate the recipients.

2. DURABLE POWERS OF ATTORNEY

If your child was to become temporarily or permanently incapacitated (illness, memory loss, injury) there needs to be a person legally appointed to act on behalf of your child both financially and medically.  A properly drafted Durable Power of Attorney over Finances will allow your child to say who that person will be (generally the parent) to make any financial decisions, apply for public benefits, or sign tax returns. 

For medical decisions, a Durable Power of Attorney for Health Care (aka Advance Health Care Directive) states your child’s direction on life support, the administration of nutrition and hydration, and donation of body parts/organs as well as appoint the person(s) to legally carry out this intent.

Without Durable Powers of Attorney a court conservatorship is instituted.

3. HIPAA

The medical privacy laws known as “HIPAA” do not permit medical personnel to disclose medical information about you without your written authorization.  If your child becomes temporarily unable to sign his/her name, then there will be no HIPAA release and the parents may be left in the dark at a time when they desperately need to receive medical information about their child.  A signed HIPAA document alleviates this problem.  There have been numerous reports of college nurses who refuse to talk with parents because the child was unable to sign a HIPAA form.  You don’t want to be in this position.

So to protect your child and yourself from life events that can, and do, occur every school year, these 3 essentials are a MUST.

To help families, our firm offers a 20% discount so this protection can take place NOW.  Like insurance, until you have these documents in place, there is no coverage.

At Family Security Law Group, APC, our estate planning attorneys look forward to working with you and bringing your family “Legal” Peace of Mind, contact us today at (805) 409-0108. 

 

When Can I Get the Life Insurance Company to Pay Out the Death Benefit?

“If you have the policy and death certificate when you file a claim, it may take as few as five business days to receive a check.”

A common question in settling the affairs of a loved one, is how long it generally will take after that person dies for the life insurance company to pay out the death benefit.

As a follow-up, what happens if the beneficiary doesn't know about the life insurance policy?

As Kiplinger explains in recent article, “How to Speed Up a Life Insurance Payout,” the more information you have about the life insurance policy, the quicker you can get the payout.

If you have a copy of the life insurance policy and a copy of the death certificate when you file a claim, it will expedite the process. If you have these items available, it can take as few as five business days after filing the claim to receive the payout.

If the beneficiaries don't have any idea that they are coming into money from the life insurance policy, the insurer may track them down, but not always.

The Social Security Death Master File will usually have deaths reported. Some state laws also require insurers to compare their files against those records and make contact with the beneficiaries when a death is reported. Some insurers will do this voluntarily.

If you believe the deceased had a life insurance policy but don't know the insurer, you might review their financial records and check for canceled checks, and contact any insurers or agents mentioned.

You can also make a request of the National Association of Insurance Commissioners' policy locator service. This service asks many life insurance companies to check their records for the policies.

You can also consult with the American Council of Life Insurers for more tips on locating a policy.

Reference: Kiplinger (June 7, 2017) “How to Speed Up a Life Insurance Payout”