Category Archives: Estate planning

Transfer on Death

Who inherits when you die?

Most married people own their home, their bank account or their investments jointly as a couple. The most common designation on an investment account is “joint tenants with right of survivorship” (abbreviated as JT/WROS). What this means is that each has full power over the account. Either can deposit, withdraw or make changes in the account. And when one of them dies, the other automatically becomes the full owner of the account.

There are some accounts that cannot be owned as a couple. An example is an IRA, or a retirement account like a 401k. When the owner of this kind of accounts dies, the assets go to the persons named as “beneficiaries.” Therefore it’s important to review beneficiary designations on retirement accounts when life changes take place like death or divorce.

But what about accounts that are in the name of just one person without a named beneficiary? This is very often the case of people who were never married, are divorced, or widowed. Under those circumstances, when the owner dies the assets in these accounts are distributed under the terms of a will. This requires a process known as “probate.”

Probate is the legal process whereby a will is “proved” in a court and accepted as a valid public document that is the true last testament of the deceased.

There are two ways of avoiding probate. The first is place your assets in a trust and designate who will receive the assets on death. This requires an estate planning attorney.

The second way is to add a Transfer on Death (TOD) designation to the account. A TOD designation names the person (or people) who will inherit the account. Since the assets go to the named beneficiaries directly, probate is not required. The other advantage is that it does not require a lawyer so there is no cost.

Review your investment accounts, your IRA and retirement accounts and your estate planning documents on a regular basis. It can prevent a lot of problems later.

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The Great Wealth Transfer: Husband to Wife

Let’s face it, women outlive men. We’ve heard this before, but this presents a unique challenge for planners.

In the traditional family the husband is often responsible for investments. Many financial planners never talk to the wife until the husband dies. That’s when we find out how much or how little the wife knows about the family finances.

While the financial services industry focuses on the transfer of wealth from parents to children, the greatest wealth transfer is from husband to wife.

Approximately 76 million baby boomers are steamrolling toward retirement, and among them 58 percent of women of retirement age are going to need financial guidance. This is especially true of the do-it-yourself investor. In too many of these cases, the wife is just unaware of the husband’s investment strategy. She may not even know the value of the family investments or even where they are located.

Sometimes the situation is complicated by children still living at home, and by ageing parents who depend of the surviving spouse for care and support.

These are just some of the reasons we published a set of books: Before I Go, and the Before I Go Workbook.

Copies of these books are available at Amazon.com or you can contact us.

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Before I Go

 

We were asked to speak to a group of retirees at a retirement home recently.  We took as our subject our book: Before I Go.

We wrote it based on the experience we had over three decades helping people deal with the aftermath of a death in the family.  Most often is was the death of a spouse.

When the deceased was the one who managed the family assets and paid the bills, we found that all too often the surviving spouse was at a loss.  Suddenly she was alone, and often had little or no guidance about the financial affairs for which she was now responsible.

Before I Go is a guide and a workbook for couples; a list of things that the other should know in anticipation that one of them will be left alone.

For a copy of the book and workbook, go HERE.  Sharing it with your spouse will be a labor or love.

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Being There

Anyone who has been in a long-term committed relationship understands what “being there” means.

One of the benefits of a stable relationship is that you have someone you can rely in when you need help.  Couples support each other.  Even as traditional roles have evolved, most families still have a division of labor when it comes to certain chores and tasks.  The fact is that some people are good at one thing and not so good at others.  What’s great about compatible couples is that they complement each other and, as a result, they are stronger, smarter and wiser together.

This is why the loss of a companion is such a traumatic experience.

All of a sudden, the person you have relied on is no longer there.  There is a big void in your life.  You may find yourself wondering what you are going to do.

While we don’t promote ourselves as the substitute spouse, in a financial sense we quite often find ourselves in that role.

When a spouse or long-time companion dies, our surviving clients often call on us to provide financial guidance.  Having dealt with hundreds of these transitions, we know the ins and outs of the estate settlement process.  We know the common pitfalls and things that can go wrong and are there to provide advice and guidance to help lift the burden and take care of things correctly and efficiently.

We relieve people from having to do it themselves.

We’ve written a set of books on this issue to help people plan ahead before their time comes, called BEFORE I GO.  The book and workbook are a wonderful compliment to traditional estate planning documents and help to fill in the missing information that those documents tend to leave out.

For a copy of these guides, you can contact us or you can buy them on Amazon.com.  Click HERE for a link.

Let us know if you have any questions or if you or anyone you’re close to needs an experienced and helpful hand working through one of these situations.

 

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New Years Resolutions for 2017

As another year winds to a close, we wanted to present you with some New Years resolutions designed to improve your financial health in the coming year.

  • Update your estate plan. Has there been a change in your family over the last year?  A marriage, a new baby, a death in the family?  If so, you need to update your estate plan, your insurance policies and your beneficiary designations.
  • Update your internet passwords. Are you using the internet to pay bills, shop, or access your investment accounts?  You will want to update your passwords and make them harder to guess.
  • Review your investments. Have you reviewed your portfolio recently?  Is it still aligned with your needs and goals?  If not, make some changes.
  • Get a personal “Risk Number.” Do you know how much risk you can take?  Most people don’t really know.  Resolve to get your personal “Risk Number“this year.  If you don’t know yours, click here to figure it out.
  • Get your portfolio’s “Risk Number.” Do you know how risky your investments are?  Most people don’t know how much risk they are taking.  Get your portfolio’s “Risk Number” and compare it to yours.  If it’s not the same, you need to consult your financial advisor.
  • Update your financial plan. If you don’t know where you’re going you probably won’t get there.  What’s your financial plan?  If you answered: “I don’t have one” resolve to get one this year.
  • Set your financial goals. Do you know how much you need to save to retire?  Here are some guidelines:

A 30-year-old can open a retirement account and make regular monthly contributions.  By investing properly and aiming for a modest 6% per year rate of return:

  • Saving just $200/month, by age 67 his account will have grown to nearly $350,000.
  • By saving $500 per month the account will be worth over $850,000.
  • Saving $1,000 per month will make our 30-year-old a millionaire by age 59.

 

If you have problems with any of these resolutions, you should definitely consider working with a financial advisor; someone who will be like a health coach for your personal finances.  Resolve to find one this year.

Think of the Advisor as your Sherpa, as it were, whose job it is to guide you amid the extreme altitudes and treacherous passes in investing’s hazardous terrain. That is to say, an Advisor is not someone you hire to beat the market for you, but rather someone who can help you achieve your personal financial objectives as “a facilitator, mentor, and market strategist” for those who, on their own, struggle to achieve their goals.

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Retirement statistics

  • 65 – The age at which the average American expects to retire, up from 63 in 2002.
  • 26 – Percentage of baby boomers who expect to retire at age 70 or later.
  • $265,000 – the estimated amount a couple, both age 65, should expect to spend on health care.
  • 22 – Percentage of couples who factor health care costs into retirement.
  • 30 – Percentage of adults born in the 1940s and 1950s who have traditional pension plans.
  • 11 – Percentage of adults born in the 1980s who are expected to have a traditional pension plan.
  • 60 – Percentage of medical expenses that Medicare by itself covers.

If some of these statistics don’t scare you read them again.

For others, we may be able to help.

And read the first three chapters of Before I Go.

 

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Retirement Lessons from Gene Wilder

Gene Wilder

Gene Wilder

Unlike many movie stars, Gene Wilder did retirement right.

Gene Wilder’s glory years came too late for the Golden Age of Hollywood and too early for the modern era of $50 million superstars, but he did well enough to walk away after a couple of decades.

In an industry where performers in their 80s and 90s outlive their savings and need to keep working into the grave to pay the bills, that’s an achievement.

While the details of his estate have not been made public, there are a number if things we do know.

Gene Wilder died somewhere between filthy rich and flat broke, spending down his cash while remaining comfortable to the end, which came last week from Alzheimer’s complications…

Wilder retired at 58 to do what he enjoyed, writing his memoirs while living in a relatively modest home in Connecticut with his wife.  While he was active in ovarian cancer charities, it’s unclear how much he gave to them other than lending his celebrity to the charities he favored.

After all, the spouse is the only estate planning goal retirees really need to consider. Everything else — from philanthropy to dynastic heirs — comes second.

The lessons here are simple, yet unusual in the entertainment business – whether we’re talking about movies or sports.  Too often highly paid entertainers adopt a lifestyle that absorbs all of their income.  That means that if their careers end after a few years they need to begin a new career.  The alternative is to end up broke.

Wilder put enough aside while he was working to allow him to live in the style he enjoyed for 25 years after retiring and leave his wife in comfort after he passed away.  It’s a lesson for all of us who are not movie stars.  Know what we want, save so that we can afford it, and retire when we’re ready to walk away and leave it all behind.

Buying insurance and annuities

Two kinds of insurance products are often sold as investments, and should not be:

  • Life insurance
  • Annuities

There may be a place for both of them in your financial plan.  But they are often bought for the wrong reason because they are often misrepresented by the agent or misunderstood by the buyer.

Insurance products are complex and difficult for a layman to understand.  Let’s first review the basic purpose of these products.

Life insurance – its primary purpose is to replace the income that is lost to a family because of the premature death of the primary earner.  A young family with one or more children should have a life insurance policy on the earners in the family.  Ideally the insurance is will allow the survivors to continue to live in their accustomed style and pay for children’s education.

This usually means that younger families need more insurance.  However, there will be a trade-off between what a young family needs and what they can afford.  To obtain the largest death benefit, I suggest using a “term” policy.   “Whole Life” policies which have some cash value generally do not provide nearly as much death benefit and are less than ideal as investment vehicles.  Whole life policies are often sold using illustrations showing the accumulation of cash value over time.  What most people don’t realize is that illustrations are based on assumptions that the insurance company is not committed to.  This is the point at which an advisor who’s not in the business of selling insurance can prevent people from making mistakes.

Life insurance can also be used for other purposes.  One popular reason was to pay for estate taxes.  However, changes in the estate tax exclusion amount have made this much less attractive except to the very wealthy.

Annuities – useful for providing an income stream that you cannot outlive.  Like life insurance, it comes in a dizzying array of options that the average layman has trouble understanding. It is also one of the most commonly misrepresented insurance products.

Some of the most heavily promoted annuities are sold as investments that allow you to get stock-market rates of return without risk.  That’s one of those “too good to be true” offers that some people simply can’t resist.  The problem is that few people either read, or understand the “small print.”  Insurance companies are really not in the business of giving you all the upside of the stock market and none of the downside.  If they did, they would quickly go out of business.

These products are popular with salespeople because they pay high commissions.  Unfortunately they also come with very high early redemption fees that often last from 7 years to as much as 16 years.

If you have been thinking about buying a life insurance policy or an annuity you should first get some unbiased advice on what to look for.  Most insurance agents are honest, but like most sales people they would like you to buy their product.  It would be wise to get advice from someone who is an expert, but who is not getting paid to sell you a product.  There are a number of financial advisors who will provide guidance.  At Korving & Company we are Certified Financial Planners™ (CFP®) and licensed insurance agents, but we do not sell insurance products.   Since we don’t get paid to sell insurance we can evaluate your situation, advise you, and if life insurance or an annuity is what you need we can refer you to a reputable agent who can get you what you need.

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Keeping the Family Together With a Private Foundation

A private foundation has many advantages for the high net worth (HNW) individual. Along with the tax benefits, the foundation also provides a way of keeping families together.

Private foundations sound like they are only appropriate for the ultra-rich; but that’s not the case.  There are over 90,000 private foundations in the U.S. and 98% are under $50 million.  In fact you can start a private foundation with as little as $250,000 according to Foundation Source.

Of course the immediate advantage of a private foundation is the tax benefit you get from funding it.  It sets you apart in the world of philanthropy and allows you to leave a legacy that can outlive you.  It also provides protection from unsolicited requests for donations; you can always tell people that it’s a wonderful cause but you’ll have to check with your board.

But one of the major benefits of a family foundation is that it can act in many ways like a family business.  It can create the glue to keeps a dispersed family together working toward a common purpose.  It creates a way of instilling family values and transmitting those to a younger generation.

A large proportion of family foundations have two or more generations on the board.  Most are set up as family affairs with membership limited to immediate members of the family.

Contact us for more information.

 

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Passing $10 million to your heirs tax free

The new estate tax law includes a provision called “portability.”  It’s officially known as the “Deceased Spouse Unused Exclusion Amount.”

Portability allows married couples to capture two estate tax exemptions without having to rely on the A/B Trust plan discussed in previous essays.

An attorney should be consulted shortly after the death of a spouse to make sure that the deceased spouse’s exemption does not expire.

It’s convenient, and does not require separate accounts for A and B trusts.

It simplifies the tax life of the surviving spouse.

And it preserves the step-up in cost basis when the second spouse dies.

For more information, contact your estate planning attorney.

We welcome your inquiries.

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