Wednesday, April 25, 2018

You Don't Need Life Insurance - Or Do You?

“I don’t need any,” was David M. Cordell’s conclusion after doing some soul-searching combined with financial planning. Cordell, director of finance programs at the University of Texas at Dallas, came to the conclusion that his life insurance policy, with its seven-figure death benefit, would no longer be part of his retirement plan.

Rules of thumb in financial planning aren’t always applicable to everyone’s situation, Cordell explains in an article in the Journal of Financial Planning. One particular rule is that the amount of life insurance a person needs is seven to ten times his annual income. In Cordell’s case, though, there was little reason to continue to fund the policy:
  • Cordell’s wife is a retired teacher with a pension
  • He has reached full retirement age
  • They don’t own either a farm or business, so do not need insurance proceeds for estate equalization
  • They aren’t wealthy enough to worry about estate tax
  • They live in a state with no inheritance tax
  • Their estate plan is structured to avoid probate
  • They have prepaid funeral and burial arrangements
  • Although Cordell has earning capacity going forward, it generates excess income
  • In the event of his death, there would be only a modest decrease in income, but the outflows would shrink even more.
As an estate planning attorney, I couldn’t help admiring Cordell for all the thought he’d obviously put into his decision to drop the life insurance.  How I wish all our clients were that organized in their planning!  At Geyer Law, we follow Cordell’s line of thinking.  Rules of thumb should never be followed blindly, because they are not appropriate for every situation.

As just one example, we help prepare advance directives, which are written instruments that give others advance instructions on how to manage health care and finances should you become incapacitated Although Indiana law grants authority for certain individuals to make health care decisions for you if you cannot speak for yourself, tailor-making advance directives based on your specific, perhaps non-traditional situation, and on your specific concerns helps ensure that your wishes are respected.

There may be areas of estate planning where solutions exist about which you are not aware.  In other areas, your response might well be “I don’t need any.” From the arsenal of tools and opportunities available, our process involves helping clients choose only what they do need, and what works for them!

Wednesday, April 18, 2018

Contingency Estate Planning for Pets

Pet owners are turning to their financial advisors for guidance, Margarida Correla reports in  Most of the upswing, Correla notes, is coming from young, single individuals who have not yet settled down but who are committed to their pets and concerned about who would take care of the pet should they die. But for people of all ages who live alone, removed from family members, pets play an important role as companions, and the number of people planning for pet care is notable, with more than four in ten pet owners making financial arrangements for pet care. “They’re part of the family,” as one advisor puts it.  “If you care for them and want to make sure they’re taken care of, you have to have a contingency plan for them or else they end up at the Humane Society.”

At Geyer Law, estate planning steps and choices we recommend to pet owners include:
  • microchipping each pet’s unique ID number
  • designating  a pet caretaker
  • designating a trustee or representative to distribute the money to the caretaker over time
  • setting up an “animal care panel” (consisting of veterinarian and other professionals to check on the pet to make sure care is happening in the manner intended)
  • bequeathing pets to nonprofit pet sanctuaries where the pets can stay until a proper home is found for them
Important facts to consider in deciding how much money to transfer to a pet trust:
  • type of animal and what the life expectancy is for that type of animal
  • the standard of living you wish to provide
  • what is to happen when the caretaker is on vacation, out of town, or in the hospital
  • whether transferring an unreasonably large sum of money to a pet trust might encourage other heirs to contest the trust
Our work at Geyer Law is dedicated to helping clients provide for those who have been important in their lives.  Quite often, that list of heirs includes our clients’ beloved pets.

Wednesday, April 11, 2018

Seniors Can Move and Buy, Using a Reverse Mortgage

“The HECM is a safe plan that can give older Americans greater financial security,” is the way Ben Carson, U.S. Housing and Urban Development Secretary puts it. Carson is referring to reverse mortgages, which allow seniors aged 62 and older to access some of the equity in their homes without having to move.

But, as Marcia Honz of Finance of America Reverse explained in a recent lecture to the Financial Planning Association, “reverse mortgage financing” can be used in a number of other creative ways to help seniors improve their own lifestyles while still fulfilling their planning goals. In fact, a reverse mortgage can be a tactic for seniors who want to move into a new home.

At Geyer Law, when we’re advising clients on their estate planning, we explain that a HECM transaction has the power to lower the value of their estate (since they themselves are using part of their assets during their lifetime). On the other hand, we find that seniors are often choosing to relocate in order to be closer to children and grandchildren. Using a HECM (Home Equity Conversion Mortgage) for Purchase allows them to buy a new home or condo without taking on a monthly mortgage payment.

Borrowers who qualify for a HECM for Purchase loan, explains, include those who:
  • are at least 62 years old
  • will be using the home as their primary residence
  • are able to pay the property taxes, insurance premiums, homeowners’ association dues, and maintenance costs
Does the reverse mortgage cover the entire cost of the home? No. The loan typically covers only 38-71% of the new home’s purchase price. The variation is dependent on several factors, including:
  • age of the borrower and his/her spouse
  • current interest rates
  • appraised value of the home
  • the mortgage insurance program

The buyer must come up with the rest of the purchase price from sale of a former home, retirement accounts, or savings.

What can be good for a senior about financing the purchase of a new home using a reverse mortgage? The HECM allows older Americans to buy a house or condo that better suits their needs without dumping all their retirement assets into it, and without dipping into their monthly fixed income.
  • seniors unable to navigate stairs may want to move to a one-story home
  • seniors may choose to move closer to their medical providers
  • seniors may choose to move closer to their family members
What can be not-so-good about a reverse mortgage home purchase?
The senior loses equity in the second home, rather than building equity, points out. When the owner moves or dies, whatever is left in equity after paying off the reverse mortgage - and there may well be only a small amount left, since the loan in accruing compound interest – is the part remaining in the estate.

As an Indiana estate planning and elder law firm, our goal is to offer a full range of options for families facing changing circumstances. Planning for seniors involves so much more than wills, trust, and other estate planning documents. Our work is all about is helping seniors improve their own lifestyles while still fulfilling their estate planning goals   

- by Ronnie of the Rebecca W. Geyer blog team

Wednesday, April 4, 2018

Roth Conversions Changed Under the New Tax Law

Roth IRAs can play an important role in estate planning, and, at Geyer Law, we think it’s important to remind our clients that the rules have changed under the new tax law. “Clients will require more advice,” retirement planning expert Ed Slott writes in Financial Planning, and he’s absolutely right.

Tax law changes that bode well for doing Roth IRA conversions include:
  • Tax rates are lower compared to last year, with a doubled standard deduction and lower rates, which makes a Roth conversion less onerous in terms of paying tax on the money when it is moved from a traditional IRA into a Roth account.
  • Roth IRAs will now be free of estate taxes for most clients, now that the law has increased estate tax exemptions to $11.2 million per person.
  • Since the gift tax exemption has also been increased to $11.2 million, it is easier to gift funds to younger family members to begin their own Roth IRA accounts, or to help the older generation pay the tax on their own Roth conversions.
  • The new tax law raised the bar for generation-skipping transfer taxes, freeing more Roth IRA funds to be passed tax free to younger relatives.
One change in the law about which we need to caution clients contemplating doing a Roth conversion is that, beginning this year, Roth conversions cannot be undone.  For that reason, Ed Slott actually advises waiting until after Thanksgiving to do a 2018 conversion, when you have a more precise estimate of your 2018 tax burden.

At Geyer Law we offer neither tax nor investment advice, but we believe Roth IRAs definitely deserve a place in estate planning discussions for a variety of important reasons:
  • Earnings in a Roth IRA are tax free.
  • You may be able to contribute to a Roth even if you have a 401(k) or 403(b) account.
  • Withdrawals are never required.
  • After age 59 ½, you do not pay tax on “qualified withdrawals” (the account was opened more than five years ago or the balance is being paid to a beneficiary after your death).
  • Having a Roth IRA allows you to offer some tax planning advantages to your beneficiaries as well as to benefit certain ones outside of your will and trust.
  • Your beneficiaries will not pay any income tax on the distributions.
  • Your beneficiaries have the choice of rolling over the money into an inherited Roth IRA, where the assets would continue to grow non-taxed (distributions are required based on the oldest beneficiary’s life expectancy).
Roth IRAs have quite an important role to play in estate planning, and under the new tax law, the benefits can be better than ever!