Varian Law LLC

Your Estate Plan May Be Done, but Is the Job Finished?

As life progresses, an estate plan becomes even more important to you and your family.

As a person’s life progresses and the difficulties that can arise do, they are often motivated into creating an estate plan, but that is not necessarily the end of the story, according to the Brentwood Home Page in “The will and estate plan are done, what now?”

Once your Will and estate plan are done, the planning process does not stop, even in the face of an urgent situation. There are still tasks that must be done, and perhaps the most important one of all is talking with family members about the plan and what your wishes are.

Many families get started on their estate plan in the attorney’s office, discussing what they want to happen to their assets, who their executor should be and how they want their end-of-life decisions to be made. However, they find it difficult to discuss those issues with their children, and as a result, when the first parent passes, the only one who knows what the plan is (and where it is) is the surviving spouse.

Will the adult children know where to find the documents if the surviving spouse is so bereft that he or she is not functioning well? Will the surviving spouse or the children know what the next steps should be?  Will the person who was designated the executor know that this is their role?

Once you have completed your estate plan, do not leave out this critical next step. The executor and those left when you (or your spouse) have passed have a big job ahead of them, and you do not want to make it harder.

It can take months or sometimes years to settle an estate.  Here are a few facts to be aware of:

• Wills and estate plans are not filed with the court before death. The estate planning attorney may have a copy, but the court will want the original documents.
• The executor will need original death certificates.
• An attorney, possibly the same one who created the estate plan, should guide you through the settlement of the estate.
• Once the Will is probated and the executor is appointed, the beneficiaries will need to be named and creditors notified.
• The decedent’s property will need to be managed. This can be tricky if he or she owned a business, rental properties or other assets that require day-to-day management.
• Tax returns must be filed.

The administration of an estate is not a simple process, and many people to handle it without professional assistance. However, that is not a good idea.

An experienced estate planning and estate administration attorney can advise you on creating an estate plan that suits your unique situation, and then can help your heirs implement your plan after your death.

Reference: Brentwood Home Page (Oct. 31, 2018) “The will and estate plan are done, what now?”

Decedent’s Estate Held Not Bound By Arbitration Agreement

The Alabama Supreme Court has ruled that the daughter of a deceased dementia patient does not have to submit to binding arbitration with a nursing and rehabilitation center because she did not have the authority to sign the agreement, according to Legal NewsLine in “Alabama Supreme Court: Daughter in wrongful death case didn’t have authority to sign arbitration agreement,”

The woman, Rhonda Stephan, signed an arbitration agreement when her father was admitted to a nursing home (the Millennium Nursing and Rehab center). This is something that many family members do since it is part of many nursing home’s admissions requirements.  However, the Supreme Court said that the woman did not have the power or authority to do so because she signed as a family member and not as a Power of Attorney.  Because of this, when the woman became the personal representative of her father’s estate, she was not bound by the arbitration clause.

By way of background, Stephan, on behalf of her father’s estate, sued the Millennium Nursing and Rehab center for wrongful death following her father’s death in 2015. The facility moved for the enforcement of the arbitration agreement and the Madison Circuit Court agreed when it granted Millennium’s motion to compel arbitration.  Subsequently, the State Supreme Court found that Stephan’s father had been too incapacitated to enter into any legally binding contract when he was admitted, and that Stephan had signed the agreement as a family member, not as a power of attorney.

This case presents an interesting legal issue - if a family member has power of attorney, which is frequently the case, and they sign all the admission papers to have their family member admitted to a care facility, in what capacity are they signing those papers?

If you are serving as someone’s power of attorney, you should consult with an experienced estate planning attorney regarding the responsibilities and liabilities of your role.

Reference: Legal NewsLine (Oct. 30, 2018) “Alabama Supreme Court: Daughter in wrongful death case didn’t have authority to sign arbitration agreement”

You’ve Finished Saving for Retirement, but How Do You Start Spending Wisely?

There are various strategies for spending in retirement years, so pick the one that fits your circumstances.

You have saved, invested, spent wisely and now you are retiring. There are a number of helpful strategies out there for you to begin the journey of spending, but not overspending, according to Nerd Wallet in “Retirement Withdrawal Strategies: Which Should You Use?”

Probably the best known is the 4% Rule. Published in 1994 by a retired financial planner, this number was said to be a safe annual withdrawal rate, after it was tested on the toughest financial crises in history, including the 1929 Great Depression. Using that rule, you withdraw 4% from your savings in the first year of retirement and then take out the same dollar amount, adjusted for inflation in the years that follow.

Let’s say you have $800,000 in retirement savings. You would take out $32,000 for the first year. The next year, inflation is at 3%. Therefore, you would take out $32,960 the next year. As long as half of your savings are invested in a portfolio that does better than 4%, you are okay. However, this plan is also inflexible and does not account for how spending patterns change or how markets dip.

Another approach is known as “Dynamic Withdrawals.” This comes in many different types, but the essence is that you change your withdrawal amount when things change, like investment returns. This approach lets you make sure your retirement accounts will last as long as you need them to. If your investments are not performing, it makes sense not to pull out more money. Or, if you had an emergency that required a lot of money in the previous year, you take out less the following year. The downside: this can get complicated.

There is also the “Bucket Strategy.” You split up your savings into different types of accounts, based on your goals. It is a very personal approach. For example, let’s say you set them like this: an emergency savings, living expenses and long-term savings. You might put six months (or years, depending on the health of your retirement accounts) into an emergency savings account. Then you would put three years of living expenses aside with one of the three years in a savings account and two years’ worth in a bank CD. Your longer-term savings would then go into stocks and bonds.  The idea is to spread out your risk across a number of different savings vehicles. You will have cash on hand, when the markets are volatile. You also do not have to sell into a down market.

Whatever your withdrawal approach, do not forget these basics:

Do not forget about your tax burden. If you take money out of a traditional IRA or a 401(k), you are going to need to pay income tax. That can be avoided with a Roth conversion.  An estate planning attorney can help you with these tax issues.

Review your plan annually. Like your estate plan, retirement planning is not a one-time situation. Life and laws change, and you will need to make changes too.

Look at other income sources. The withdrawal strategies do not include Social Security or any other income sources, like part time work.

Eliminate as much debt as you can. That reduces fixed expenses, which can take a bite out of your retirement.

Be flexible. Adjusting withdrawals as you go will give you much more control over your retirement funds.

An estate planning attorney can help you to begin the path, or continue on the path, of an estate plan and a retirement plan that fits your unique circumstances.

Reference: Nerd Wallet (Oct. 31, 2018) “Retirement Withdrawal Strategies: Which Should You Use?”

Having a Family Get Together? Be Cautious When Discussing Finances or Estate Planning

It is generally a good idea to avoid discussions about money.

It is usually a wonderful event when you gather the family for a big holiday dinner with various personalities and interests.  However, it is wise to avoid certain discussion topics, according to U.S. News & World Report in “How to Handle Financial Conversations at the Thanksgiving Table.”

It is not always easy when you are gathering with cousins, uncles, aunts, sisters, brothers, in-laws, nephews, nieces and grandchildren. You want to share your good news about work, fun new purchases, vacations and other things that by their nature send a clear signal of a happy financial picture. However, if others are not enjoying such good fortune, you may be creating an uncomfortable, even hurtful, atmosphere.

Downplay your wealth or achievements. No one is saying you should not be proud of your accomplishments, but you may be seen as a selfish braggart. What if your relatives decide to ask for a loan? Do more listening than talking and keep your descriptions modest.

Do not talk about your expensive toys. The family probably knows who at the table has a second home, the one luxury car that is parked in the driveway and the designer clothes and handbags. If your shopping list includes a trip to Tiffanys and everyone else is going to Walmart, tone it down.

If someone is open about their struggles, be a good listener. Maybe you have heard the same story from cousin Bob for the last 20 years, or maybe Jill is facing foreclosure due to a health crisis. They are sharing their stories and are probably not looking for the most successful person in the room to give them advice in front of a crowd. A sympathetic ear is more helpful.  If you do want to help, have a conversation privately, away from the table or after the holiday.

Say no to loans or business for family members at the holiday table. Be firm, be polite, but decline. Explain that you want to keep the focus on the family. If there is something of interest, you can speak about it another time.

Do not do your family estate planning meeting at a holiday dinner. This is a very important meeting and it is one you should have more than once every 10 years—every year is ideal—but not around the holiday dinner table.  Agree that this is something that needs to be done and set a date, if that works for your family.  However, let everyone enjoy each other’s company on holidays.

Reference: U.S. News & World Report (Oct. 30, 2018) “How to Handle Financial Conversations at the Thanksgiving Table.”

Early Stages of Dementia? There Is Still a Future

There can be a future, but plans must be made.

A diagnosis of early stage Alzheimer’s does not mean the immediate end. However, it does mean that plans have to be made quickly, as explained in The New York Times article “Leading an Active Life with a Diagnosis of Dementia.” The article is a story about a busy sales executive’s handling of a diagnosis of Alzheimer’s.

The number of people with Alzheimer’s disease who are 65 and older is expected to soar to 7.1 million in 2025 and 13.8 million in 2050. That’s a significant increase from today, when 5.5 million suffer from the disease, according to the Alzheimer’s Association. Add to that 200,000 people younger than 65 who are estimated to have the disease, and that is not counting those with dementia from vascular disease, Lewy body, and other kinds of dementia.

There is the possibility, however, that people in the early stages of the disease can still pursue fulfilling lives. They must, however, make plans immediately for future care.

The first step is to create a team of professionals, including an estate planning attorney, a physician, a geriatric care manager and a financial planner. Trusted family members should be in on all planning to coordinate and oversee their work.

The challenging legal question is whether a person with a diagnosis of dementia sign estate planning documents? These necessary documents include financial and health care powers of attorney, a Will and possibly some Trusts. Sometimes the person’s attorney may need to seek a clinical evaluation to determine whether the client still has the decision-making skills to permit them to sign documents.

It is necessary to act quickly because most types of dementia progress over time. Having the person evaluated will not preclude anyone from challenging the documents, but it is a strong step in their defense.

A person with dementia is capable of living a very long time with their condition, so Powers of Attorney and Advance Medical Directives should be carefully drafted.  

Planning to pay for long-term care is also an important part of planning for a long life with dementia. For some people, it makes sense to protect assets from long-term care costs. Medicaid, financed by state and federal governments, pays only for people with limited assets.  To help in this complex area of the law, you should seek the help of an experienced estate planning and elder law attorney.  

Reference: The New York Times (Oct. 5, 2018) “Leading an Active Life with a Diagnosis of Dementia”

How Involved Should Children Be in Parents’ Finances?

Adult children of aging Americans are finding themselves caught in a delicate situation of whether they should look into the finances and investments of their parents, according to U.S. News & World Report in “How to Help Aging Parents Manage Portfolios.”

It is not easy to talk with parents about their finances and their vulnerability to scam artists. Today’s thieves are very savvy. They use Facebook and other forms of social media to learn about family members travelling outside of the country, then they prey upon the elderly parents.

Older adults, who are lower in numerical skills, tend to rely on their emotional response in making financial decisions. Loneliness and depression, common in aging seniors, also increase the risk of becoming a victim of a scammer - that is especially so in the case of someone who has recently become a widow or widower.

It is often hard for seniors to discuss finances with their children unless they have done so over the course of their children’s lives.

The biggest problem for many elderly people is the loss of their ability to drive, and that is followed by the inability to handle one’s own finances.  And this problem is only growing as investors live longer.  It only takes a few mistakes for an impact to hit the portfolios and often there is no recourse.

The first step for adult children is to be aware of any signs of mental decline. Just be careful not to jump every time someone cannot find the right word or remember someone’s name. Keep an eye on their behavior - such as a formerly neat person who is now leaving bank statements lying around open on their desk, past-due notices arriving or an extreme amount of mail from questionable charities (versus large nationally-known organizations). This mean it is likely they are having a problem handling day-to-day finances.

But do not confront the issue in a challenging manner. Have a pleasant conversation, possibly starting with a talk about your own finances and how you speak with your own children, or plan to, to get them moving into the topic. Once they are comfortable talking about money, start discussing other important issues, like whether they have a Will, Advance Directive or Power of Attorney.

An experienced estate planning attorney can advise families how to deal with this delicate situation.

Reference: U.S. News & World Report (Oct. 22, 2018) “How to Help Aging Parents Manage Portfolios”

Boomers and Retirement: Big Decisions, Changes

A key challenge that is likely to be faced by baby-boomers as retirement approaches is how much should be set aside for the retirement years, according to Florida Today in “Some important considerations for retirement.”

The biggest issue in many families is deciding how much money to spend from their retirement savings accounts and investments. There are many guidelines and formulas. However, no one formula is correct for every situation. Proper planning also requires a closer look to consider where to draw funds from - such as retirement accounts vs. non-qualified investment accounts.  Adjustments also need to be made for market volatility and risk tolerance.

It is hard to adjust from living on a steady stream of income from work, to depending on withdrawals from what used to be accounts that were only for savings. A well-designed plan and a specific set of actions on how to live on retirement savings without taking too much money, especially at the start of retirement, is critical.

Retirees need to understand that they may, if they are lucky, be retired for more than one or two or more decades. A balance of taking not too much, nor too little, is what is needed to avoid running out of money, or frankly, not enjoying the last decades of their lives.

Savings need to last longer and must also retain their purchasing power, so that inflation, taxes and healthcare costs do not decimate accounts. We have lived through a historically low interest rate environment for many years. However, that is starting to change and we must be prepared.

Adding to the stress for retirees is not having an estate plan in place.  You should speak with an estate planning attorney to ensure that you have a Will, a Medical Directive, a Power of Attorney and other estate planning documents.

Resource: Florida Today (Oct. 22, 2018) “Some important considerations for retirement”

Postponing Retirement Can Be a Good Plan

Just because someone reaches the age of 65 does not mean that they are ready to head into retirement. Extra years of working can pay off in the long run, according to Bloomberg Business News in “Seventy Is the New Sixty-Five.”

By continuing to work through their 60s and beyond, older workers are not only giving their portfolios five more years of growth, but they are also adding to their Social Security benefits and compressing the amount of time that they will be drawing down from their savings.

A survey by CareerBuilder in 2017 found that half of U.S. workers over age 65 have no intention of retiring before age 70. While about a third of adults between the ages of 65 and 74 have full or part time jobs, the Bureau of Labor Statistics expects that number to jump by 2026.

Working for just a few more years has been found to offer a bigger boost to retirement savings than saving more over the decades.

The downside? Not everyone is able to keep working past age 65. Some lose their jobs and find it hard to get hired again. While there is no longer a mandatory retirement age, age discrimination is still present in the workplace. Employers often push out older workers, eliminating their positions by “restructuring,” which lets them hire younger workers at lower salaries.  Others need to slow down their careers to care for ailing parents or spouses.

A recent survey by AARP found that 44% of older job applicants were asked about age-related information by their potential employers (even though doing so is illegal). 

However, the tight labor market has also led more companies to rely on older employees. People 55 and above are expected to comprise more than a quarter of the workforce by 2020. While companies are often reluctant to discuss ageism in the workplace, many have realized the value of the older worker.

One large corporation that makes industrial equipment reports that a third of its workforce is currently over age 50, and many are choosing to stay into their 60s, especially those in white collar positions. Those who have technical experience and knowledge about products and can mentor younger workers are especially important to the company’s continued growth.

Working a few more years can offer a bigger payout than saving more money during younger years - that is according to a recent study from Stanford University.

An experienced estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, and that can include more working years for a better retirement.

Reference: Bloomberg Business News (Sep. 27, 2018) “Seventy Is the New Sixty-Five”

Retirement for Baby-Boomers Will Require Adjustments

Baby-Boomers, who may well have worked their entire lives, are likely to find themselves having to make adjustments for retirement by remaining on the job past the age of 65 and/or finding they need to reduce their standard of living, according to CBS’s MoneyWatch in “Tough retirement realities for baby boomers.”

A Stanford Center on Longevity study says that boomers, who have often made changes and adjustments to society’s rules during their decades of work, may now have to do some more soul searching and adjusting.

According to the SCL report, nearly 30% of boomers have nothing saved for retirement. For those who do have savings, the median balance was $290,000 for those born between 1948 and 1953 and $209,246 for those born between 1954 and 1959.  Here’s a reality check for you: If you have $290,000 in retirement savings, you can expect to generate about $11,900 in annual income, based on a 4% annual withdrawal. Next, add in Social Security benefits. But that is certainly no panacea.  The average Social Security monthly benefit for new retirees in 2018 is $1,460, or $17,520 annually, according to Social Security. Therefore, the total retirement income grows with Social Security benefits added in to $29,420 annually.  This is far less than the commonly recommended retirement income goal of 70 to 80% of your working income.

Are boomers making up for lost time by accelerating their retirement savings rates? Not according to this study that shows they are not even putting away the amounts they should have been putting away all along.  The SCL study summarized two analyses that suggest the amounts that boomers should be saving and compares those amounts to what boomers are actually saving.  The Boston College Center for Retirement Research says that workers who start saving at age 25 and want to retire at age 65 should save 10% of their income during those years. However, only 36% of all workers who have a retirement plan through their work actually contribute 10% or more.  Workers who start saving at age 35 and retire at age 65, should be saving 15% of their pay. However, in actuality, less than 20% are contributing this much through their workplace retirement plan.

Reference: CBS MoneyWatch (Oct. 22, 2018) “Tough retirement realities for baby boomers”

Steps to Plan for Retirement

Planning for retirement may be a hard job. However, it can turn into some joyful years later in life.

Planning for your retirement is not only a big job but a really important and serious job that can be used to create a pleasant and even youthful retirement that has a good chance of being a lot of fun, according to Kiplinger in “A Pre-Retirement Checklist: 8 Steps to Take Right Now.”

Most large tasks or projects are more likely to be completed if broken down into a series of steps. Here are eight steps that can make planning for your retirement more successful:

Where do you want to live? Think about the lifestyle you want and find a location that will support it. If travel is your focus, a “lock and leave” condo means you don’t have to think about your home while you are out exploring. If you are a homebody and like a peaceful setting, a small town may work well for you. If you have more money, you will have more options but need to know your priorities.

Start practicing being retired now. What happens if you don’t have a job to go to every day? Take a week of vacation time to do nothing. How do you feel by the end of the week? Bored? Anxious? Ready to go back to work? Post-retirement depression occurs to people who have a hard time adjusting to the loss of their role in the workplace. Start thinking about who you want to be when your identity is not tied to your job.

Eliminate as much debt as you can. With no mortgage, car payment or credit card debt, you have more control over your expenses, but that takes planning.  Start by listing all your current debts, then rank them not by amount, but by interest rates from highest to lowest. Start paying down the highest interest rates and work your way down until you are debt free.

Shift your risk profile. Once you get within five years of retirement, it’s time to adopt a more defensive investment philosophy.  Maybe you were an aggressive investor in your early or middle earning years but now is the time to reduce risk. Rebalance your portfolio quarterly to get there slowly, reduce exposure to equities and create stop-loss strategies to mitigate downside risk.

Health care costs. This is the ugly part of retirement that we tend to hope not to have to deal with at all. As we age, your health care costs are likely to go up. Do your research and plan for what Medicare does not cover, like long-term care or health care costs that happen when you are overseas.

Make a budget and live on it. You should actually make two budgets: necessities and discretionary items. What do you need to live now, including housing, transportation, food and health care? What are the things you’d like to enjoy: recreational activities, travel and entertainment? Create a plan that gives you the best possible chance of getting your necessities covered, then play around with the luxuries. If there’s no breathing room, then consider upping your savings or working longer.

Apply for Social Security early. Apply three months in advance of the date you would like to start getting retirement benefits. You are allowed to apply four months in advance of your Full Retirement Age. Get up to speed with all the data on Social Security: when should you start taking benefits, should your spouse start taking benefits before you, how will your income impact your benefits, etc.

Could rolling over your 401(k) work for you? There are several moves that can be made with your 401(k), including rolling into an IRA, which could increase investment options, give you more flexibility and offer more distribution options.

Reference: Kiplinger (Oct. 9, 2018) “A Pre-Retirement Checklist: 8 Steps to Take Right Now”