The article from Prudential below has a very good discussion of this topic and includes a case study as well.
There are 19 states that currently impose an estate tax or inheritance tax, these taxes usually have lower threshold for you to qualify which pose a significant challenge for your estate plans.
The article from Prudential below has a very good discussion of this topic and includes a case study as well.
In our last blogpost, we discussed factors to consider when purchasing QLAC. Now the question - which carriers have the best QLAC products?
We recommend products from AIG, Lincoln, and Principal.
Below is up-to-date information about AIG's QLAC product, including producer and consumer guides, sales ideas, fact sheets, and more. If you are interested in the other carriers' QLAC products, please contact us.
In our previous blogposts, we discussed what is QLAC and showed an example of QLAC. Now we will discuss what factors to consider before purchasing QLAC.
The decision to purchase a QLAC is a personal one and should take into account your family's needs and financial goals. For instance, you may not want to take RMDs on the entire pretax balance of your IRA if doing so would provide you with more income than you need. But will your financial standing be as strong 20 or even 10 years from now? A QLAC would allow you to enjoy your earlier retirement years knowing that you have guaranteed income in place when you really might need it.
Specifically, the following QLAC related decisions should be considers.
Single or joint life?
If you are married, you can choose a joint contract, which will provide income payments that will continue for as long as one of you is alive. Choosing a joint contract may decrease your income payments—compared with a single life contract—but may also provide needed income for your spouse should you die first.
Include a cash refund death benefit?
When purchasing a QLAC, the income lasts for your lifetime (joint contracts pay income for you and your spouse, as long as one of you is alive). You may also want to consider adding a cash refund death benefit. This provides for a lump sum paid to your beneficiaries if your lifetime payments do not exceed the dollar amount you invested in the QLAC. While a contract without the cash refund death benefit may provide higher income payments, it does not include beneficiary protection for your heirs.
When to start income?
A QLAC should be part of a broader income plan, to help ensure that your essential expenses like food, health care, and housing are covered during retirement—ideally with lifetime income sources such as Social Security, a pension, or lifetime annuities. Deciding on an income start date will depend on how this income stream will best fit into your overall plan. Here are some hypothetical examples of how someone might choose an income start date:
Need to change the income start date?
For contracts that include a cash refund death benefit, you typically have the ability to change the income date by up to 5 years in either direction (subject to an age-85 maximum). For example, if you initially select age 78 as your income start date, you could subsequently change this date to any time from age 73 to age 83. Of course, the amount of income that you will receive will typically be adjusted to a lower amount if you decide to change the date to an earlier age, and a higher amount if you change the date to a later age.
In our next blogpost, we will show you some of the best QLAC providers.
In our last blogpost, we discussed what is QLAC, now we will show how to use QLAC to create steady later in life income streams.
Let's say you own one or more traditional IRAs with a total balance of $200,000 as of December 31 of the previous year. You would be limited to using $50,000, which is 25% of $200,000 and is less than $135,000, to fund the QLAC. But if your total IRA balance is worth $540,000 or more, the maximum you can contribute to a QLAC is $135,000. Keep in mind that in both cases the money that remains in your IRA or 401(k) is still subject to RMDs.
Let's assume a woman is approaching age 70½ and does not need her full RMD to cover current expenses. By investing a portion of her traditional IRA assets in a QLAC at age 70, she would not have to take RMDs on the assets invested in the QLAC, and she would receive guaranteed lifetime income starting at a date of her choice, up to age 85.
During the deferral period, she would rely on Social Security, RMDs from the remaining money in her IRA, withdrawals from investments, and other income, such as part-time work or a sale of a business, to cover expenses. If she invests the $135,000 in a QLAC and defers to age 80, her guaranteed income would be $15,200 a year no matter what happens over time, and she would receive a total of $228,000 in payments if she lived to age 95—or more if she lived longer.
In our next blogpost, we will discuss what factors to consider if you should purchase QLAC or not.
Q. What is QLAC?
A. A QLAC is a Deferred Income Annuity (DIA) that can be funded only with assets from a traditional IRA or an eligible employer-sponsored qualified plan such as a 401(k), 403(b), or governmental 457(b).
The US Treasury Department issued a rule creating Qualified Longevity Annuity Contracts (QLACs) in 2014. QLACs allow you to use a portion of your balance in qualified accounts—like a traditional IRA or 401(k)—to purchase a deferred income annuity3 (DIA) and not have that money be subject to RMDs starting at age 72.
At the time of purchase, you can select an income start date up to age 85, and the amount you invest in a QLAC is removed from future RMD calculations. QLACs address one of the biggest concerns among individuals in retirement: making sure they don't outlive their savings.
Why Purchase QLAC?
There are two main reasons.
First, you can delay required minimum distributions (RMDs) on the money in your QLAC. Without a QLAC, you would be forced to start taking distributions based on the total value of that retirement account at age 72 (formerly 70 ½) - and paying income tax on those distributions. Many people don’t need distributions at that age, and don’t want to pay tax on that money yet. With a QLAC, you won’t have any RMDs on premiums paid until age 85.
Second, longevity. If you are worried about outliving your funds, a QLAC solves the problem. It provides guaranteed monthly income as long as you live. Plus, you get the amount you were promised at purchase, no matter what’s happened to the stock market or interest rate in the interim. You're effectively transferring that risk to the insurer.
In our next blogpost, we will show you a few QLAC examples about how it works.
Below is a Barron's article that lays out a 5-year plan for anyone whose retirement is 5 years away -
Five years out
Start building cash reserves, if you haven't already, to tap during market downturns in retirement. Experts suggest savings at least equivalent to a year of expenses.
Take advantage of post-tax savings opportunities in qualified retirement plans.
Beyond those 2020 contribution levels, post-tax contributions are possible. The Internal Revenue Service allows for a total of $57,000 in contributions between the employee and employer, which bumps up to $63,500 for people over age 50. A survey by the Plan Sponsor Council of America shows 17% of 401(k) plans offer the option of making contributions on an after-tax basis.
Why put post-tax money in a 401(k)? It's another way to fund a Roth IRA, he says, which allows tax-free growth if the money is rolled over. However, making a post-tax 401(k) contributions can be complex, so people should both work with their financial advisor and read through the plan summary or other documents to confirm what their plans allow.
Three years out
Make major purchases while still employed.
It sounds counterintuitive, but look to repair or replace expensive goods with long lifespans such roofs or cars ahead of retirement.
For those who might want to work part-time in retirement or turn hobbies into businesses, look into certification programs or other training now.
Pay off loans from 401(k)s and other qualified plans to avoid carrying debt into retirement and creating a taxable event that qualifies as ordinary income. Loans from 401(k)s need to be repaid within 60 days of leaving an employer. Whatever isn't repaid is considered a retirement distribution and creates a taxable event and if you're not 59½, a penalty, too.
Two years out
Review estate planning if not up to date, including updating wills, reviewing power of attorney, health-care proxies, and beneficiaries.
Decide whether to pay off the mortgage and review other debts. For people who have debt, plan to stay in their homes, and aren't concerned about leaving a financial legacy, consider refinancing to a lower interest rate.
Meet with a financial planner to review tax strategies and firm up retirement cash flow projections.
Some retirement experts, including Nobel Laureate William Sharpe, say professional advice can be worth the cost even for do-it-yourself types. “When you retire and make your initial decision on buying annuities, investing, and adopting some sort of spending plan, I would think that it would make sense to sit down at least once, at the outset, with a financial advisor,” he told Barron’s.
One year out
Confirm all financial resources—pensions, profit sharing, Social Security, and other income.
Pre-retirees should call previous employers to see if they have left behind retirement benefits, says Jackie Cooper, a financial fitness coach.
For 401(k)s or other qualified plans subject to Employee Retirement Income Security Act of 1974 rules that may have been terminated when the company dissolved, search the U.S. Department of Labor’s Employee Benefits Security Administration; the EBSA maintains a searchable “Abandoned Plan Database”. Pre-retirees may find the name and contact information of the Qualified Termination Administrator, who can be contacted for information on the retiree’s account.
Lastly, check with the state treasurer's office for any unclaimed property.
Do a retirement lifestyle dry run.
Even while earning a paycheck, experts suggest pre-retirees start living on their retirement income to get comfortable with that cash flow. Save any excess cash in liquid assets to build those emergency reserves as needed in a high-yield money-market account or fund, certificates of deposit, or short-term Treasuries.
Begin conversations with human resources for formal transition plans if necessary.
Three months out
Gather copies of all plan documents including qualified plans, health savings accounts, medical plans, and other information before leaving. Those documents are easier to access while still employed.
Confirm with human resources final financial compensation.
That includes getting current information about 401(k), profit sharing and any vested or unvested balances in those plans.
Confirm total vacation and sick leave balance and check the company's employment policy to see what unused leave may be cashed in at retirement. Check state laws about a company's requirement to pay these balances.
Ask about the final paycheck: what pay period does it cover, how much will it be, when will vacation and medical leave balances be paid. Pre-retirees who are moving should give human resources their final mailing address to receive W2 statements and other correspondence.
Pre-retirees with employer stock in their qualified plans should consider taking advantage of net unrealized appreciation planning to reduce taxes.
Rather than rolling over the entire qualified plan balance into a traditional IRA, first take a lump-sum distribution of the employer stock, and then roll the balance of the qualified plan to an IRA. To take advantage of net unrealized appreciation planning, a retiree doesn't have to roll the remaining 401(k) balance into an IRA. However, at retirement, an IRA may offer greater investment selection options and planning flexibility that may not be available with a 401(k).
You would pay ordinary income tax on the cost basis of the employer stock distributed out of the qualified plan. However, you then can sell the employer stock outside of the qualified plan and enjoy long-term capital gain treatment on the gain in the employer stock that exceeds the cost basis.
Q. What is IRMAA and why I should know about it before retire?
A. IRMAA is for Medicare Income Related Monthly Adjustment Amount surcharge, and it refers to the extra premiums for Part B and Part D that higher income beneficiaries pay for Medicare coverage.
In some cases, even a tiny increase in your income can put you in a higher income bracket and trigger the surcharge, a married couple, for example, could suddenly be paying as much as $1,000 a month more than planned. And if you convert a traditional IRA into a Roth account, thinking it’s a smart strategy for avoiding higher taxes later in retirement, your additional income could put you in surcharge territory and wipe out some of your expected savings.
What is the IRMAA trigger?
For 2020, the surcharge is triggered when your modified adjusted gross income - your adjusted gross income plus tax-exempt interest income - exceeds $174,000 for taxpayers who are married and file jointly or $87,000 for individual taxpayers.
Part B premiums combined with premium surcharges for Part B and Part D range from a total of $214.60 to $568.00 per month per person in 2020.
Not only are many pre-retirees unaware of the surcharge, they also don’t understand how it works. For example, the surcharge is calculated based on your tax returns from two years prior.
How to tackle it?
If you are married and one spouse is still working, coordinate your health insurance coverage. You don't need to enroll in Medicare and pay the related IRMAA surcharge as long as your spouse is still working and you are covered under that plan.
Before using this strategy, confirm whether your spouse’s health plan requires you to enroll in Medicare at age 65. In companies with fewer than 20 employees, for example, the employer plan may pay secondary to Medicare when an enrollee is Medicare eligible.
You also can appeal the surcharge. Request a reconsideration by calling the Social Security Administration at 800-772-1213. An inaccurate tax return or a life-changing event, such as divorce or death of a spouse, can qualify for an appeal.
Q. What are the key changes with the new SECURE act?
A. Changes are coming to retirement rules, following the passage and signing into law of the Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act).
But for most people, there are three general areas addressed in the new law worth considering:
1. Retirement plan access
The new law helps make it easier for more employers, especially smaller ones, to offer 401(k) retirement savings plans. Businesses can get a tax credit to help cover the costs of starting an automatic-enrollment retirement plan. Small businesses can also band together to set up and offer 401(k) plans through a third-party to help them manage fiduciary responsibilities and costs on an easier basis than exists today.If such changes mean your employer will probably start offering a 401(k) plan, you’ll likely want to take advantage of it.
And if you are a business owner, you may want to investigate taking advantage of the law’s provisions as a way of rewarding workers or attracting talent.
2. New age limits for retirement plans
The new law pushes back the age at which you will be required to start withdrawing money from those accounts. It was 70 ½ years of age. But, as the new law takes effect, will be increased to 72 years of age. That means savings can grow longer.
The new law also pushes back the 70 ½-year-old limit on contributing to a traditional IRA to 72.
3. Annuity Considerations
The new law also opens the door for more in the way of annuities to be offered in retirement plans.
Generally, an annuity is a financial contract where, in exchange for a lump-sum payment or a series of payments, the annuity will make payments to you at a future date or series of dates. Annuities tend to appeal to those who may be concerned about outliving their savings and want a guaranteed income stream in retirement.
But annuities can vary widely in type and function. And what is appropriate for one person may not be appropriate for another.
Q. What are the benefits of converting my retirement accounts to Roth IRA?
A. Here are a few key benefits by converting your retirement accounts to Roth -
The only thing you need to be careful is every dollar you convert will be taxed as ordinary income in the year, you don't want your current year's income balloon to a higher tax bracket.
Morningstar has an article that discusses how early retirement, especially the uncertainty surrounding it, can have significant implications on required retirement savings. It quantifies the costs associated with this uncertainty, a very interesting read if you are planning your retirement.
The Motley Fool has a good article that discusses various topics one needs to consider with the decision to retire in 2020 -
The following topics are covered in the article:
New York Times had an article that reviews the changes in the past decade how Americans pay for health insurance, a good read for people who care about this topic!
Workers who lost their jobs in the recession often lost not only their incomes but also their health insurance. Older jobless people who were not yet eligible for Medicare were at the mercy of the individual insurance market, where the likelihood of pre-existing conditions meant that they paid much higher premiums — and higher deductibles — if they could find coverage at all.
But the passage of the Affordable Care Act in 2010 changed that, and the number of pre-Medicare older Americans without health insurance has dropped during the decade.
This year, 9.4 percent of adults ages 50 to 64 were uninsured, a decline from 14 percent in 2010, according to the Commonwealth Fund. The decline would have been much greater if 14 states had not rejected the law’s Medicaid expansion, according to Commonwealth — in states that expanded, the rate for this age group has fallen to 6.4 percent.
“People in that age group have much better protection now,” says Sara Collins, vice president for health care coverage and access at Commonwealth. “If they have to leave a job, or elect to leave to do something different as they approach age 60, they can buy a policy in the individual market — that used to be quite risky and often out of reach due to pre-existing conditions.”
In Medicare, the decade has been marked by sharp increases in enrollment and federal spending — and privatization.
This year, 61 million Americans are enrolled in Medicare, 33 percent more than in 2010. Program spending will be $749 billion, up 47 percent compared with 2010. And an aging population means there are just 2.9 workers contributing to the system for every Medicare enrollee this year, down from 3.4 in 2010, according to a Kaiser Family Foundation analysis of Medicare data.
The standard premium for Part B (which covers outpatient services) in 2020 will be $144.60 — 31 percent higher than it was in 2010. And Medicare’s trustees project annual increases of nearly 6 percent over the coming decade.
“The numbers speak to an underlying question and challenge that we have yet to embrace: How will we pay for a growing and aging population?” says Tricia Neuman, director of Kaiser’s program on Medicare policy.
Another striking trend has been the growth of privately offered Medicare Advantage plans, the all-in-one managed-care alternative to original fee-for-service Medicare. This year, 34 percent of enrollees are in Medicare Advantage plans, up from 24 percent in 2010, according to Kaiser.
The growth comes despite studies that raise doubts about Advantage plans. For example, a report last year by federal investigators found a pattern of inappropriate denial of patient claims; other studies have questioned their quality of care. And this week, a report released by the U.S. Department of Health and Human Services Office of Inspector General raised concerns that Advantage plans were overbilling the program by improperly adding conditions to patient records.
“The growing role of private plans — Medicare H.M.O.s and PPOs — stands out as perhaps the most significant change to Medicare over the past decade,” Ms. Neuman said. “This growth has occurred without an explicit policy debate or major change in policy.”
In our last blogpost, we used two examples to illustrate the risk of sequence of returns. Now we will discuss two ways about how to protect yourself from the sequence of returns risk.
In our last blogpost, we introduced the sequence of returns risk for retirees. Now we will use two hypothetical examples to illustrate this risk.
The following two people having $100,000 in the market during a 10-year period and withdrawing 5% each year. You will see that the order of the returns of the market plays a big role in the final outcome.
If you look back, you will see both people started with $100,000, however, one ran out of money after 15 years, withdrawing a total of $77,593, while another has withdrawn $95,000 over the same amount of time and still has $58,043 left in her account.
In our next blogpost, we will discuss how to protect yourself from the sequence of returns risk.
You have been saving diligently for your retirement, but one retirement risk you may have not considered - the sequence of returns, or the order of the returns in your portfolio.
During your accumulation years (while you’re working), you are not subject to this risk because you are not withdrawing money. But when you retire (during your distribution phase) you will be.
Sequence of returns risk is a result of the timing of withdrawals from a retirement account that can have a negative impact on the overall rate of return on the investment. This may seriously hurt a retiree who depends on the income stream from a lifetime of investing.
In our next blogpost, we will use two examples to illustrate this risk.
Whether you are self-employed or the owner of a small business, there is a wide range of retirement plans designed to meet your specific needs. All of these retirement plans can help you save money for retirement while potentially providing tax advantages.
The table below is provided by Fidelity that summarizes 5 small business plans that you should consider -
If you face a decision of whether to take a lump-sum distribution from your pension or not, and if yes, how, this Forbes article is a very good read, it addresses some of the key factors you should consider and the potential tax traps, for example, you have to do the rollover to a tax-advantaged account within 60 days since you receive the lump-sum payment; you won't owe taxes on the rollover to a traditional retirement account, but will face a tax bill for rolling the money to a Roth account; ...
We discussed the second step to prepare for early retirement here, now the third step.
3. Create a Social Security strategy
You can't begin claiming Social Security benefits until at least age 62, so if you plan to retire earlier than that, you'll need to get by on other sources of income. But it's also important to think about whether you want to claim Social Security at age 62 or wait longer to earn extra money each month.
Although you can start claiming benefits at 62, your checks will be reduced by up to 30% by doing so. If you want to receive the full amount you're entitled to each month, you'll need to wait to claim until your full retirement age (FRA) -- which is either age 66, 67, or somewhere in between. If you wait a little longer (up to age 70), you can receive extra money each month on top of your full amount -- up to 32% more if you have an FRA of age 66 and you wait until age 70 to claim.
There's no right answer for which age you should start claiming because it's a personal decision that depends on your unique situation. If you need the money sooner rather than later, claiming at age 62 might be best. If you expect to live a very long life and are worried you'll run out of savings, waiting to claim until age 70 could be beneficial to take advantage of those bigger checks for the rest of your life.
It's also important to know what benefits you're eligible for and to create a Social Security strategy with your spouse. You may be entitled to receive other types of benefits besides the standard retirement monthly checks -- such as spousal benefits, survivors benefits, and divorce benefits -- and it's up to you to know what you're eligible for since the SSA typically won't notify you.
You may also want to strategize with your spouse to decide who should claim their benefits when. For instance, the lower-earning spouse may choose to claim earlier to start earning extra income right away in retirement, while the higher-earning spouse might delay benefits to earn those bigger checks. No matter when you choose to claim, make sure you've thought about your decision to ensure you're making the most of your benefits.
Retiring early isn't easy, but it can be one of the best decisions of your life. Before you leave your job, though, make sure you've thought about major factors like how much you should save, how you'll cover healthcare costs, and when you'll claim Social Security benefits. If you've done your homework and prepared the best you can, early retirement can be a dream come true.
We discussed step 1 to prepare for early retirement here, now step 2.
2. Have a plan to cover healthcare costs
If you don't have a plan to cover healthcare costs, they could quickly drain your retirement fund. You won't be eligible to enroll in Medicare until you turn 65, so if you retire before that, you'll need another form of health insurance.
One option is to enroll in COBRA coverage, which will allow you to stay on your former employer's insurance plan even after you leave your job. However, COBRA insurance can be incredibly expensive and it doesn't last forever.
When you're enrolled in insurance as an employee, your employer covers the bulk of the annual costs. The average annual premium for family health insurance coverage in 2019 is roughly $20,000, according to a recent report from the Kaiser Family Foundation. Of that amount, employees only paid around $6,000 per year in premiums -- the rest was covered by the employer.
With COBRA insurance, though, your employer won't chip in to help pay for coverage. You're also only able to stay on COBRA insurance for up to 18 months, so if you retire before age 63 1/2, you'll need to find another form of insurance before you can enroll in Medicare.
Another option is to buy insurance through the Affordable Care Act marketplace, although plans may be expensive. You can find plans with lower premiums, but you'll typically face higher deductibles and out-of-pocket maximums. If you have health issues and visit the doctor regularly, those costs can quickly add up.
Before you choose to retire early, make sure you've budgeted for health insurance. One way to do that is to invest in a health savings account (HSA). You have to be enrolled in a high-deductible healthcare plan to be eligible (meaning your deductible is at least $1,350 for individuals or $2,700 for families), but you can invest tax-deductible dollars, let your money grow over time, and then withdraw the money tax-free as long as it goes toward eligible medical expenses.
The third step to prepare for early retirement is discussed here.
Exactly what defines "early" retirement may differ for everyone. However, regardless of the age at which you want to retire, here are 3 simple steps you can take to set yourself on the right path.
1. Know how much you'll be spending each year
This is the foundation of building a strong retirement strategy. When you know what you're spending each year, you can better estimate how much money you'll need to save to last the rest of your life. Then, with that number in mind, you can determine the amount you should be saving now to reach that goal by your desired retirement age.
Rather than taking a wild guess at how much you'll spend each year during retirement, really think about your future costs. Do you plan to travel a lot in retirement? Do you have a long list of home renovation projects you want to tackle? Or do you plan to spend most of your time catching up on your reading and enjoying time with family? Your costs in retirement could be similar to what you're spending now or vastly different. But you won't know until you create a rough budget to estimate your future spending.
Once you have this number in mind, subtract the amount you expect to receive from other sources of income (Social Security benefits, a pension, etc.) to figure out how much of your retirement income will need to come from your savings. Keep in mind, though, that you can't claim Social Security until you're at least age 62, so if you retire before that, you won't be able to depend on that income quite yet.
Next, run your information through a retirement calculator to see how much you should aim to save by retirement age. From there, your results will give you an estimate of your overall retirement savings goal, as well as what you'll need to save each month to achieve it. Also, remember that if your employer offers matching 401(k) contributions, those should factor into your monthly saving goal too -- meaning you may not have to save as much on your own as you think.
In our next step, we will discuss the second step you need to take to prepare for an early retirement.
Planning retirement income? How do you size up payout delay versus starting right away? The following table compares a few different scenarios and shows you the breakeven years given different income streams -
Q. I am a solo ager with no spouse and no children, where could I get help to manage my finances when I couldn't?
A. There are 3 options a solo ager faces when protecting finances:
1. Use a trust
You could set up a living trust and put all the assets into it. You could be your ow trustee, or name a relative or a financial institution as successor trustees to take over if necessary.
Eventually, the institution would handle all your bills and investments, the advantages are professionalism, experience, and guidance offered by experts, but the con is it will not be cheap, as traditional trust companies only serve clients with several million dollars, even mainstream financial institutions such as Fidelity, Schwab and Vanguard would charge a few thousand dollars a year.
2. Use bill pay services
You could find bill-paying service companies for day-to-day money management, then hiring accountants and attorneys to make bigger financial decisions. You can find such service companies through the American Association of Daily Money Managers (aadmm.com), or SilverBills who would review bills and authorize payments for a flat monthly fee starting at $99.
3. Do it yourself
While you are still capable and independent, you can do all these by yourself, but you need to start thinking the time when you couldn't.
Q. What's the best way to choose medical part D plan?
A. Those eligible for Medicare have 2 options: A stand-alone Medicare Part D prescription drug plan or an "all-in-one" approach with a Medicare Advantage plan. Here we will focus on Medicare Part D. There are two scenarios when you consider Medicare Part D:
1. If you currently take prescription drugs
Not all Part D plans are created equal. Each plan varies in terms of cost, the drugs covered, special rules, and so on. Just because a friend or family member's Part D plan works for their needs doesn't mean it will work for yours. Instead, do some homework. Here are 5 simple steps to get started.
2. If you currently do not take any prescription drugs
Even if you don't take prescription drugs currently, if you need them later and you try signing up for a Part D plan late, you could face a penalty of 1% for each month you went without coverage. Not having Part D coverage could be a costly—and long-term—mistake.
You should consider enrolling in a Part D prescription drug plan as soon as you become eligible for Medicare (unless you have creditable drug coverage such as from an employer health plan), regardless of your current prescription drug needs.
Q. What's the most economical way to protect my estate, especially it's not much?
A. You likely have money, property and other items of value that you plan to leave to loved ones or charity. Here are 4 steps you can help yourself and your parents avoid becoming victims of inheritance theft:
1. Prepare an estate plan.
Documenting your desires for the disposition of your assets is the first step in preventing people from claiming you made verbal promises to them. Hire an estate attorney that you’ve vetted personally or who is referred to you by a trusted source.
2. Choose a trusted friend or family member to serve as your executor and/or trustee.
Don’t use an attorney, bank or trust company as executor or trustee because they typically charge exorbitant fees, often as a percentage of the estate’s value. And they can be difficult or even impossible to fire.
And to help make sure the trustee follows your instructions, distribute copies of your will and trust documents to all of your heirs. If you feel uncomfortable letting others see your plans, require your executor or trustee to retain the services of an estate attorney (at your or your estate’s expense) to oversee matters. Instruct that the attorney be paid on an hourly basis rather than as a percent of the estate’s value.
3. Keep all your legal and financial documents in a safe place,
This could be a safety deposit box or a fire-resistant home safe. Create digital backups.
4. If you make changes to your documents, inform all concerned.
And that includes your independent, objective, fee-based financial advisor.
Facing a family health crisis, here are first 5 steps to take:
Here are 5 key questions everyone should ask:
PFwise's goal is to help ordinary people make wise personal finance decisions.