DON’T DELAY ESTATE PLANNING: PROTECT YOUR ASSETS WITH A WILL

Death comes at unexpected times for all people. If you were to die suddenly, do you know for certain precisely who would receive your assets? Additionally, if you have children, do you know for certain whom would take care of them? If you do not know the answers to these questions, you are in the same boat as 59% of all Americans, who according to a recent study by the legal website Findlaw.com, do not have wills. There are multiple reasons why people delay serious estate planning. Commonly these reasons are that they believe they have plenty of time to take care of it later; they believe that their assets are not large enough in order to deserve estate planning; they do not understand what would happen to their assets if they died without a will.

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The truth is that dying without a will in place makes things very unpleasant for your children and extended family. Currently, all fifty states have a plan drawn up and ready to go into effect the moment an individual dies: they’re called “intestate succession” laws, and in the worst scenario, the state simply seizes all of your assets while leaving nothing for your children.

A will also helps you by allowing you to personally choose a representative, or executor, to handle your affairs after you die. The executor is empowered to carry out the instructions that you lay down in your will, which can head off potential quarrels about whom receives what portion of your estate.

Within the will, you can name a guardian for your children. The role and function of the guardian is to raise and look after your children if both you and your spouse were to die within the same time frame. The advantage here is that you can choose who will raise your children yourself instead of the court. In addition, you can structure your estate in such a way that your children will always have enough money while they are underage. Whomever you name as guardian must be willing and able to take up the responsibility, and you must make sure that they are willing and able before you name them as your guardian.

Using the will, you would also be able to set up your estate as a trust for any beneficiaries you wish to name that are minors. The trust can be structured in such a way that the guidelines you establish would provide for them until they reach the age of majority, at which time the inheritance would pass fully into their control. The trustee you name will use the assets that you designate for the benefit of the minors and render them able to handle their affairs themselves once they grow up.

Specific items can also be clearly designated to go to certain people in your will. It is impossible to be certain about this without a legal document.

In cases where the estate is set up as a trust, the will tells the heirs and legal personnel how the trust is to be executed. If your holdings and assets are fairly substantial, it may be in you and your heirs’ best interests to talk to an attorney about setting up a living trust. A living trust offers freedom from probate costs and complete privacy of the legal proceedings at any given time.

When making a will, plan for potential disability, as well. Designate someone as having power-of-attorney who can make medical and legal decisions for you. Write the documents in such a way so that the person can take power-of-attorney only when a doctor certifies that you are disabled.

Relying on an estate planning attorney will save you time and money by making sure the legal documents are valid and tailored in the proper way.

BOOMERS NEED TO PLAN FOR POSSIBLE LONG-TERM CARE NEEDS

As millions of baby boomers in the United States rapidly approach old age, experts predict the number of long-term care patients will double over the next 30 years. What does that mean for you? It means that if you don’t have a long-term care plan in place, you and your family may have to face some tough choices down the road.

Read on to learn why a long-term care plan is critical for every baby boomer.

A booming generation

Between the years of 1946 and 1964, the United States experienced an unprecedented baby boom. More than 76 million American babies were born during that relatively short 18-year span. Representing a disproportionate 28% of the U.S. population, the baby boomer generation will certainly make waves as they sail into retirement.

By 2050, the youngest surviving baby boomers will turn 85. That will raise the population of people 85 and over by a whopping 300%. Because the majority of people need some form of long-term care by the age of 85, the long-term care system will be overrun with baby boomers by 2050.

On top of that, Americans are living increasingly longer lives. Recent estimates give a healthy 65-year-old man a 24% chance of living to at least 90 and a healthy woman a 35% chance of living that long. While this is great news, the longer we live, the more likely we are to suffer from a long-term care event.

What does all this mean for you? It means now is the time to put a plan in place.

The hefty price tag

If you or a loved one suffers from an illness that requires long term care, get ready for some sticker shock. A year-long stay in a nursing home can cost between $40,000 and $80,000 or more. While prices vary by state and the type of care required, one thing is consistent across the board when it comes to long term care: it’s phenomenally expensive.

Just take a look at the average costs of long-term care in the U.S.:

• $5,566 a month for a semi-private nursing home room
• $6,266 a month for a private nursing home room
• $2,968 a month for care in an assisted living unit
• $19 per hour for a home health aide

Although this might not seem like a huge expense, these costs can quickly add up and eat away at your nest egg. For example, let’s say you hire a home aide to assist your husband just three times a week for four hours. At $19 an hour on average, that would come out to $228 a week. That adds up to nearly $12,000 a year. Unfortunately, Medicare does not cover these exorbitant long-term care expenses.

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To top it off, informal home care is simply not a realistic option for most families these days. After all, most children of baby boomers are struggling to balance their own work and family life. They simply don’t have the time or resources to care for sick parents.

This is why it’s critical for each and every family to plan ahead for a potentially expensive long-term care event. Without the proper protection, such an event could devastate a family’s finances.

The simple solution

How can boomers handle the skyrocketing costs of a potential long-term care event? The answer is simple: long-term care insurance (LTCI). Without LTCI, a nursing home stay or another long term care event could devastate your family’s finances. Because LTCI covers many of these expenses, this valuable insurance will not only protect your finances-it will also help you to maintain your current standard of living if you or spouse requires long-term care.

Even the affluent need coverage

Let’s say you and your wife are 65, and you have $2 million in liquid assets, not including your home. With that much cash, you probably assume that you’d have more than enough funds to cover a 5-year stay in a private nursing home room.

However, you’ve forgotten to factor in a few additional costs of self-insuring for long-term care:

• Inflation: The ever-increasing rate of inflation could quickly magnify the cost of long-term care. What costs $200 today could cost as much as $1,000 20 years from now.
• Taxes: If you’re forced to sell an asset that has appreciated in value or take an IRA distribution to cover the cost of long-term care, you’ll probably face some hefty tax consequences.
• Lost investment opportunities: If you end up paying out of pocket for long-term care for five years, you’ll lose out on other investment opportunities.

When you factor in these additional costs, it turns out that the real cost of long-term care for you and your wife would be much more expensive than you realize. This is why everyone stands to benefit from long-term care insurance-even affluent seniors.

Gain peace of mind with LTCI

Without LTCI, the cost of a nursing home stay or a home health care aide could wreak havoc on your finances and whittle away at that nest egg you’ve worked so hard to build. Don’t burden your loved ones with this kind of emotional and financial strain. Create a long-term care plan today to save your family a lot of heartache and stress tomorrow. If you want to discuss your long-term care insurance options, meet with one of our financial advisors or insurance agents. We can evaluate your unique situation and help you customize an effective plan.

WITH CAREFUL PLANNING, RETIREMENT ASSETS CAN GO THE DISTANCE

Many Americans work at creating a retirement portfolio they hope will be sufficient to last a lifetime. There are many factors, such as health, life expectancy, and inflation rates that will determine whether your assets will outlive you. The general rule of thumb is that, if you want your portfolio to last, you should start drawing 4% or less of the principal on a yearly basis. You can increase the percentage later to compensate for inflation, but only enough to maintain your current standard of living.

A second way to maximize your assets is to calculate your retirement living expenses for a year, including food, clothing, mortgage/rent payments, health care and an amount for discretionary spending. Then take that yearly sum and multiply it by your anticipated life expectancy. You may want to add a few extra years as a safety buffer. You can then use that dollar value to fund an annuity that will provide for your basic needs over the course of your lifetime. Talk to a financial advisor to determine how to structure an annuity around your needs.

Another idea to contemplate when planning how to spend your retirement assets is determining which accounts, taxable or tax-deferred, you should withdraw from first. Most financial planners agree that you should leave your tax-deferred assets status quo for as long as possible so they can continue to grow and spend your taxable assets first. This is especially important for retired persons who are younger than 59 1/2. In the majority of these cases, prematurely withdrawing from a tax-deferred account (withdrawing before the age of 59 1/2) will result in a 10% IRS penalty in addition to taxes due on the amount withdrawn. You also lose the future tax-deferred or tax-free growth on the money that was withdrawn. Once you have exhausted all taxable assets, then draw from your traditional and non-deductible IRAs and 401(k) accounts. Draw from your Roth IRA and Roth 401(k) accounts last.

As a final consideration, you also need to determine which assets classes you should spend first. The bull and bear still have an influence on your portfolio, just as they did when you were acquiring wealth. Try not to sell stocks in a bear market; draw on your bond accounts instead. When equity markets are running high, that’s the best time to sell stocks. Withdraw the cash you need and purchase stock with any excess to realign your portfolio with your original asset allocation plan. Keep in mind that any sale of appreciated stock can trigger a taxable event, so it’s a good idea to talk with a tax advisor before you make any move.