If a public official did not use a blind trust for his or her investments, the only other way to avoid conflicts of interest would be to simply not invest in anything.  They would be limited to owning bank CD’s or treasury bills, etc.  Blind trusts help these individuals avoid being accused by others of conflicts of interest, and also avoid being tempted to take advantage of information they may have.  It’s called a blind trust because the beneficiary cannot see what is held inside the trust.

A blind trust is not just for someone who is super rich or wealthy.  Anyone who is a public official, or who is in a sensitive public position could protect themselves from scrutiny by using a blind trust.  In the trust they would be able to specify the general perameters for investing such as asset allocation (the mix of stocks, bonds and cash), and the timeframe for the investment to be used.  But beyond that, the trustee will manage the particular investments, and would be paid for their services.

by Susan B. Garland
Monday, August 29, 2011

The death of a spouse is one of the most devastating events of a person’s life. To make matters worse, at a time when you feel incapable of dealing with life’s routines, you’re slammed with an avalanche of financial tasks that require immediate attention. This can be particularly stressful if the surviving spouse, usually the wife, did not play an active role in the household finances.

But despite the pressure to do so, this is precisely the wrong time to make major financial decisions. If you act precipitously, you may make costly mistakes that will be tough to unwind later. “I tell my clients that they should be in a decision-free zone for six months to a year,” says Karen Folk, a certified financial planner in Urbana, Ill.

Don’t put your house on the market. Don’t give away money to your children or charity. Don’t sell stocks or bonds. And don’t agree to move in with an adult child, says Folk. Eventually, any of these steps may make perfect sense. But take a breather in the overwhelming weeks and months after a spouse dies.

One other no-no: Don’t allow a salesperson to talk you into buying financial products, such as an annuity or life insurance. “Ambulance chasers will catch you when you are vulnerable,” warns Kathleen Rehl, a certified financial planner in Land O’Lakes, Fla. Rehl wrote “Moving Forward on Your Own: A Financial Guidebook for Widows” (Rehl Financial Advisors, $20) after the death of her husband in 2007. To drive home her point, Rehl recounts the story of a widowed client who was paid a visit by an insurance agent. The agent came to deliver the proceeds from her husband’s life insurance policy, and he persuaded her to sign over the check for a new policy that she did not need.

A case in point for not making big decisions soon after a spouse’s death is Maureen Saunders. The financial chores following the death of her husband, Hubert, from pancreatic cancer in 2006 at age 65 were crushing enough. Although Saunders, now 58, balanced the checkbook, her husband was the main financial decision-maker, especially when it came to investments. His death left her “in uncharted waters, not only emotionally and spiritually but also financially.”

Saunders had to wrangle with the life insurance company, which didn’t believe she was her husband’s beneficiary. She had a “total meltdown” in the bank when she discovered, after bouncing some checks, that the Social Security Administration had rescinded Hubert’s latest direct-deposit benefit payment. She proved that her husband died after the deadline to be eligible for that month’s payment, but it took weeks for the government to return the money. She did not realize that she would not be eligible for a survivor benefit until she turned 60. “You’re so vulnerable and raw, and there is always another form to fill out,” says Saunders, who lives in St. Petersburg, Fla.

The checklist below can help surviving spouses figure out which tasks to address early on. The tips apply to husbands and wives.

Gather the documents. If your late spouse ran the household finances, it would be great if he left behind an organized filing system as well as all the passwords you need to access computer files. But if you need to dig through the piles yourself, Rehl recommends starting a filing system using colored manila folders. Among the headings: banking, bills, credit-card statements, taxes, life insurance policies and estate documents.

You’ll need to gather Social Security numbers, birth and marriage certificates, military discharge papers, company benefits booklets, car titles, powers of attorney, and current statements for bank, brokerage and retirement accounts. Get 10 to 25 copies of your spouse’s death certificate. The funeral director can help with this. Many financial institutions require a death certificate to close an account or to change ownership of investments.

You’ll need the certificate to transfer title on real estate and to claim life insurance and veterans benefits. Make sure to pay your bills for credit cards, utilities, car loans, property tax, insurance premiums and the mortgage. You could incur late charges if you let these tasks slide. (If you are hit with such charges, ask for a waiver due to the circumstances.) Notify Medicare and other health insurance companies that you will no longer pay your spouse’s premiums. Also cancel club memberships and magazine subscriptions that you don’t need. Explain the situation and you may get a partial refund. Folk suggests that you keep a joint checking account for at least a year. “Occasionally, odd checks to the deceased spouse come in,” she says. “If you close or retitle the account, there won’t be a place to put them.”

Get some help. Charles Simon, a certified financial planner with Taconic Advisors in Poughkeepsie, N.Y., suggests creating a “financial support team.” The group could include an accountant, a lawyer, a financial planner, and a trusted friend or family member who has good financial skills. “In the first six months, you’re in a state of shock,” says Simon, a widower who counts many surviving spouses among his clients. “Your team can help you when you’re least able to attend to details.”

Before Veronica Cavalla’s husband, Peter, died in 2008 at age 68, he managed part of the couple’s investments while a broker handled the rest. Cavalla, 64, says the broker wanted to take control of more of the investments, so she began initialing documents. She didn’t know what she owned. In addition, the new widow couldn’t follow her lawyer’s instructions to retitle property or take other steps to prepare the estate for probate and estate taxes. “Part of my problem was that I was so embarrassed because I didn’t know what people were talking about,” says Cavalla, who lives in Poughkeepsie and recently retired as a registered nurse. “Unless it was a simple matter, I avoided it.”

Eventually, Cavalla’s frustrated lawyer recommended that she see Simon, a fee-only planner who helped her plow through the paperwork. “I should have hired him right away,” she says. If you need to find a fee-only planner, contact the National Association of Personal Financial Advisors (www.napfa.org; 847-483-5400).

Assess your cash flow. While you should postpone big financial decisions, you should take stock quickly of your expenses and income. Make a list of your income sources: Social Security, pension payments, dividends, interest, job earnings and IRA distributions.

Write down your fixed expenses, such as groceries, mortgage payments, utilities and insurance. “Look at your checkbook to see if there are recurring payments on your credit card,” says Simon. Check your deceased spouse’s check register, too. Make a separate list for your discretionary costs, such as gift s and travel.

Some income payments may decline. For instance, if your husband was receiving a Social Security benefit and you were getting a 50% spousal benefit, the spousal benefit will disappear. But some expenses will end as well, such as your spouse’s Medicare premiums.

If you are short on cash, start chipping away on the discretionary spending. “I used to have a 32-foot boat,” says Saunders. “Now I have two kayaks.”

Rehl says new widows should build a reserve for one to two years of expenses in a liquid account, such as a bank money-market account. “Widows worry, ‘Will I be a bag lady?’ ” Rehl says. “With a liquid account, no matter how the market is going, they will feel secure.”

Collect life insurance benefits. If you can’t find the life insurance policy and you don’t have an agent, go through checkbook registers and canceled checks to see if there were any checks written to an insurance company. For a fee, the MIB Solutions’ Policy Locator Service (www.policylocator.com) might help you find the application. Your spouse also may have had a group policy through an employer or former employer or professional or fraternal organizations.

When you file a claim, you may have choices regarding how you will receive the money. Read the fine print carefully. In some cases, an insurance company will place your funds into its own money-market funds and send you a checkbook. Turn down this option, and then place the money in a federally insured bank account or a money-market fund. If you’re instead considering guaranteed monthly payments for life, seek the advice of your lawyer or financial adviser.

Prepare the estate. Until you meet with your estate lawyer, hold off on placing your spouse’s assets in your own name, says Wynne Whitman, an estate lawyer with Schenck, Price, Smith & King, in Florham Park, N.J. If you touch assets in your spouse’s name, you’ll lose any opportunity to “disclaim” the property — that is, allowing those assets to go directly to your children or other heirs. If you forgo these assets, they will not count against your federal or state estate-tax exemption when you die.

You have nine months from the date of your spouse’s death to file a federal estate-tax return. Some states have earlier deadlines for filing returns for state estate and inheritance taxes.

Whitman suggests that you save all receipts related to the estate, especially if the estate’s value is close to or exceeds the estate-tax exemption. “The funeral is a legitimate expense and so is a post-funeral gathering,” says Whitman. “You will need every single deduction.”

Assuming you had named your spouse to make financial and health-care decisions on your behalf in the event you became incapacitated, you will need to designate a new agent for your financial power of attorney, health-care power of attorney and health-care directive.

Check with the employer. If your spouse was employed at the time of his death, call the benefits administrator to ask about benefits due to you. Besides life insurance, these can include unpaid salary and bonuses, accrued vacation and sick pay, left over funds in a medical flexible spending account, and stock options.

You’ll also need to check on pension benefits. Assuming your spouse was retired and you were both receiving monthly pension benefits in the form of a joint and survivor annuity, notify the plan administrator immediately, says Rebecca Davis, a lawyer with the Pension Rights Center, in Washington, D.C. Depending on the type of annuity you chose, you could be due 50%, 75% or 100% of what both of you were receiving before your spouse died. “If you have a 50% option and the plan keeps paying the 100% benefit, it could expect you to send back the overpayment,” says Davis.

If your spouse had a 401(k), it makes the most sense to roll the account into an IRA — assuming you get the go — ahead from your estate lawyer. If your spouse still had accounts from former employers, consolidate them into one IRA. The custodial firm that holds your IRA can help with the paperwork.

The 401(k)-to-IRA rollover can be dicey. Ask the 401(k) administrator to make a direct transfer to the IRA. If the plan instead sends you a check, get it into the IRA within 60 days. If you miss the 60-day cutoff, the IRS will consider the money to be a withdrawal and you will pay tax on the entire amount.

If you were receiving health coverage under your spouse’s employer plan, you may be able to continue on the group plan for 36 months through COBRA coverage. (An employer with fewer than 20 employees is not required to provide COBRA coverage.) Ask the plan administrator if the company will continue picking up the employer’s premium subsidy.

Roll over an IRA. If you are the only beneficiary of your spouse’s IRA, you can roll the retirement plan into your own IRA tax-free. (There are other steps you must take if you are one of several beneficiaries.) Before doing so, make sure your spouse, if he was 70 1/2 or older, took his required minimum distribution before he died. If he didn’t, you must take his RMD by December 31 in the year he died or pay a penalty.

In the following years, after you’ve rolled the plan into your own IRA, you can skip distributions until you’re 70 1/2, allowing the account to grow tax-free. Once you turn 70 1/2, your required distributions will be based on your life expectancy.

It may be wise to forgo a rollover if you’re younger than 59 1/2 and need to tap the account. By leaving the account in your spouse’s name and remaining as a “beneficiary,” you will not pay a 10% penalty on any withdrawals. After you turn 59 1/2, you can roll the account into your own. If your spouse left you a Roth IRA, you can claim the Roth IRA as your own, in which case distributions are never required during your lifetime.

Claim a Social Security benefit. A widow or widower is entitled to a survivor benefit that is equal to 100% of the deceased spouse’s benefit, as long as the survivor waits until full retirement age to collect. You can collect a survivor benefit as early as 60, but your benefit will be permanently reduced a bit for each month you claim before your full retirement age. (It’s reduced by 28.5% if you claim at 60.)

If you were collecting a spousal benefit, you can “step up” to a survivor benefit. At that point, the spousal benefit will disappear. If you are younger than full retirement age and decide to wait to claim the full survivor benefit, you will stop receiving the spousal benefit. If your husband dies before claiming a benefit, you will be eligible for a survivor benefit equal to the benefit he was entitled to at the time of his death.

What have you been putting off for a while?  Maybe you need to renovate part of your house, fix your car, or plan that party you’ve been wanting to host.  Maybe you still need to pull together your paperwork for filing taxes, get your estate planning documents updated, review your investments, or get an overall financial plan together.

Whatever it is that you need to do, today is a great day to start working on it.  Big things can be accomplished by taking many small steps, one at a time.  You don’t have to get it all done today, but why not start?  Take the first steps today and begin to MARCH FORTH!

Jim Rohn – “The major reason for setting a goal is for what it makes of you to accomplish it.  What it makes of you will always be the far greater value than what you get.”

Have a great “get it done” day!

Many people wonder if a hand-written will is valid.

The subject of the hand-written will comes up a lot in discussions with financial planning clients and others.  Probably because it’s one of the basic things we financial planners always ask about…”do you have a will?”  And it’s also one of the most common things missing from a person’s critical documents.  The majority of Americans don’t have one today.

I’ve written about the importance of a will and other basic estate planning documents before. Click here to read a previous post on this topic. 

So this came up again today with a client who has a friend who has never written a will.  The friend is in her 80′s and feels overwhelmed about the thought of going to an attorney to draft a legal document.  I can certainly understand why a lot of people don’t want to do something that is related to them dying.  It’s basically admitting to yourself and others that you’re going to die one day, which not many people enjoy thinking about.  (The same feeling you get when buying life insurance.)

My client asked me if her friend could just write something down on a piece of paper, and would that be valid.  I knew that all states recognize a will that is hand-written, as long as it’s witnessed, or notorized.  But what if it’s not witnessed or notorized?  I found out that this type of will is known as a HOLOGRAPHIC will.  No, that doesn’t mean it’s projected into the air so you can walk through it.

Black’s Law dictionary defines a HOLOGRAPHIC will as:  “a Will written entirely by the testator in his or her own handwriting and is not witnessed.”

Are hand-written or holographic wills recognized in your state?

Each state has it’s own rules about the type’s of wills it will recognize.  I found the list below on www.lawchek.com .  I am not an attorney, and I don’t give legal advice, and I strongly suggest that you check with your home state to verify their statutes.  But here’s what I found:

ALABAMA
A Holographic Will is not recognized as a valid Will since the state law requires that every Will be witnessed by at least two witnesses.

ALASKA
Alaska recognizes a Holographic Will as a valid Will, whether witnessed or not, if the signature and material provisions of the Will are in the testator’s handwriting.  (Code Section 13.11.160)

ARIZONA
A Holographic Will is recognized as a valid Will, whether or not it is witnessed, if the material parts of the Will are in the handwriting of the testator and it is signed by the testator. (Section 14-2503)

ARKANSAS
A Holographic Will is recognized as a valid Will where the entire Will and signature are in the handwriting of the testator. It must be established by 3 disinterested witnesses that the handwriting and signature are, in fact, that of the testator. (Section 28-25-104)

CALIFORNIA
A Holographic Will is recognized as a valid Will, whether or not witnessed, as long as the signature and material portions of the Will are in the testator’s own handwriting. A Holographic Will may be held to be invalid if it does not state the date of the execution and the date cannot be proven. A Holographic Will is also considered invalid if the testator lacked the required mental capacity to execute a Will. (Probate Code Section 6111)

COLORADO
A Holographic Will is recognized as valid, whether or not witnessed, if the signature and the material parts of the Will are in the handwriting of the testator.  (Section 15-11-502) A document that appears to have been intended to be a Will is also considered valid if it can be established by clear and convincing evidence that the decedent intended the document to be a Will. (Section 15-11-503)

CONNECTICUT
Connecticut does not recognize a Holographic Will executed in its state.  However, a Holographic Will that was properly executed in a state which allows such Wills is valid.

DELAWARE
A Holographic Will is not recognized as a valid Will by this state because it does not meet the requirements the state has set forth for executing a Will. (Section 12-202)

FLORIDA
Florida does not recognize a Holographic Will as a valid Will. (Section 732.502)

GEORGIA
A Holographic Will is not recognized as a valid Will in the state of Georgia.

HAWAII
Holographic Wills are not recognized as valid Wills in this state. If a holographic Will was properly executed in a state recognizing their validity, then such a Will may be admitted to probate in Hawaii. (Section 560:3-409)

IDAHO
Idaho does recognize a Holographic Will, whether witnessed or not, as long as the signature and material provisions are in the handwriting of the testator. (Section 15-2-503)

ILLINOIS
A Holographic Will is not recognized as a valid Will in this state.

INDIANA
Indiana does not have any state statutes which provide for Holographic Wills.

IOWA
Iowa does not recognize a Holographic Will because they are not executed in accordance with the laws on executing Wills.

KANSAS
Kansas does not recognize a Holographic Will as a valid Will.

KENTUCKY
Kentucky does recognize a Holographic Will as a valid Will. (Section 394.040)

LOUISIANA
Louisiana does recognize a Holographic Will if it is written by the testator and dated and signed by the testator. No other formalities are required. (Section 1588)

MAINE
Maine does recognize a Holographic Will, whether witnessed or not, as long as the signature and material provisions are in the handwriting of the testator. (Section 2-503)

MARYLAND
The Holographic Will recognized as a valid Will must be made by a person serving in the U.S. Armed Forces and made outside of the United States. However, this Will is considered void one year after discharge from the Armed Forces. (Section 4-103)

MASSACHUSETTS
Massachusetts does not recognize a Holographic Will as a valid Will.

MICHIGAN
Michigan will recognize a Holographic Will as valid if it is dated and the testator signed at the end of the Will. Material provisions of the Will must be in the testator’s handwriting. (Section 700.123)

MINNESOTA
Minnesota does not recognize a Holographic Will.

MISSISSIPPI
Mississippi does recognize a Holographic Will as a valid Will. No witnesses are required. (Section 91-5-1)

MISSOURI
Missouri state law makes no reference to Holographic Wills.

MONTANA
Montana does recognize a Holographic Will as a valid Will, whether or not witnessed, if the signature and material provisions are in the handwriting of the testator.

NEBRASKA
Nebraska does recognize a Holographic Will as a valid Will, however, it must have some indication of the date, either written or by some external evidence. If the holographic Will is the only writing found, it will be considered valid. (Section 30-2328)

NEVADA
Nevada does recognize a Holographic Will as a valid Will if the document is entirely written, dated and signed in the testator’s handwriting. There is no particular form required other than it be entirely written in the hand of the testator. It can be made either within or outside of Nevada and there is no requirement that it be witnessed. (Section 133.030,090,190)

NEW HAMPSHIRE
New Hampshire does not recognize a Holographic Will as a valid Will.

NEW JERSEY
New Jersey recognizes a Holographic Will as a valid Will, whether or not it is witnessed, if the signature and material provisions are in the handwriting of the testator.  (Title 3B Chapter 3 Section 3)

NEW MEXICO
New Mexico does not recognize a Holographic Will as a valid Will.

NEW YORK
A Holographic Will is considered a valid Will only in the limited circumstance where it is made by certain members of the U.S. armed forces while serving in a conflict or by another person who serves with or accompanies the member of the armed forces.  Such a Will must be entirely in the handwriting of the testator to be valid. Such a Will becomes invalid after 1 year after he or she ceases serving with the armed forces. (NY Law EPTA Section 3-2.2)

NORTH CAROLINA
North Carolina does recognize a Holographic Will as a valid Will as long as it is written entirely in the handwriting of the testator. Some immaterial printed matter will not invalidate the Will. This Will must be signed by the testator in his or her own handwriting and no witnesses are necessary. The Will must also have been found after the testator’s death, among the valuables, in a safe deposit box, or with a person, where it appears it was intended to be kept for safe keeping. (Section 31-3.4) Testimony is required to admit the Will into probate to prove the above requirements.

NORTH DAKOTA
A Will which does not comply with the formal Will execution provisions will be considered a valid Will, whether or not witnessed, if the signature and material provisions are in the handwriting of the testator. (Uniform probate code section 2-503)

OHIO
Ohio does not recognize a Holographic Will as a valid Will. A Will must be executed and witnessed in conformity with Section 2107.03.

OKLAHOMA
Oklahoma does recognize a Holographic Will as a valid Will. (Section 84-54)

OREGON
Oregon does not recognize a Holographic Will as a valid Will.

PENNSYLVANIA
Pennsylvania does recognize a Holographic Will as a valid Will.

RHODE ISLAND
Rhode Island does not recognize a Holographic Will as a valid Will.

SOUTH CAROLINA
South Carolina does not recognize a Holographic Will as a valid Will. However, certain exceptions are made for Holographic Wills which are validly executed in a state which allows such Wills, or when an out-of-state probate proceeding is involved.  (Section 62-2-303, 408, 502, 505)

SOUTH DAKOTA
South Dakota does recognize a Holographic Will as a valid Will, whether it is made within or out of the state and whether or not it is witnessed, if the signature and material portions are in the testator’s handwriting. Intent that the document is the testator’s Will can be established by extrinsic evidence. (Section 29A-2-502)

TENNESSEE
Tennessee recognizes a Holographic Will as a valid Will. The Will is valid if it is in the testator’s handwriting, whether witnessed or not, but the testator’s handwriting must be proven by two witnesses. (Section 32-1-105)

TEXAS
Texas recognizes a Holographic Will as a valid Will. The Will must be entirely written by the testator, but is not required to be witnessed. It may be proven in one of two ways: The testator may attach an affidavit stating that this written instrument is his or her last Will and that he or she was competent to make the Will and that the Will has not been revoked. (Probate Code Section 60) If the testator does not self-prove the Will, then at the time of death it must be proved by the testimony of two witnesses as to the handwriting of the testator. (Probate Code Section 84)

UTAH
Utah recognizes a Holographic Will as a valid Will, whether or not it is witnessed, as long as the signature and material provisions of the Will are in the handwriting of the testator. (Section 75-2-503)

VERMONT
Vermont does not recognize a Holographic Will as a valid Will since it does not meet the execution requirements set forth by state law. (Section 14-5)

VIRGINIA
Virginia recognizes a Holographic Will as a valid Will as long as the Will is written entirely in the handwriting of the testator. It is not necessary that it be acknowledged or witnessed. At time of death, the proof of handwriting must be established by at least two disinterested witnesses. (Section 64.1-49)

WASHINGTON
Washington does not recognize a Holographic Will as a valid Will since it is not executed according to the formalities set forth by state law. However, the state may recognize a Holographic Will that was executed in states where it was deemed legally executed at the time. (Section 11.12.020)

WEST VIRGINIA
West Virginia does recognize a Holographic Will as a valid Will. The Will must be entirely in the writing of the testator and be signed by the testator. The Will must evidence an intent that the document is to act as a Will, and the signature must be intended as a signature to a Will. No acknowledgment or witnesses are necessary.  (Ch. 41, Art. 1, Section 3)

WISCONSIN
Wisconsin does not recognize a Holographic Will because it is not executed according to state law. However, a Holographic Will executed in a state where it was considered valid at the time will be recognized. (Section 853.05)

WYOMING
Wyoming does recognize a Holographic Will as a valid Will and there is no requirement that it be witnessed. (Section 2-6-113)

If a state does recognize a holographic will, they will probably require that at least two people can verify that the handwriting is that of the deceased person.

Will

A will is probably the most important document that you’ll ever sign.  Among other things, it determines who gets your possessions when you die, things like your cars, house and personal property.  If you don’t have one, the probate court will decide who gets your things, and also who will take care of your children.  There may be someone in your family who you would prefer to take care of your children, and there may be someone else who you really DON’T want to have your kids.  These are decisions not to be left to a judge.  A will does NOT determine who gets your IRA’s, annuities, or life insurance death benefits.  Those types of accounts have beneficiaries named on them, and are NOT directed by a will.  In fact, you need to make sure your beneficiary designations are correct.  Even if your will is more current than your beneficiary designations, the beneficiaries named on IRAs and life insurance is who will get that money.

Living Will

A living will is a document in which you state your wishes regarding medical treatment, especially treatment that sustains or prolongs life by extraordinary means (life support).  This document is used when the signer becomes mentally incompetent or unable to communicate (such as a coma).  If you don’t have this document, the doctors are going to keep you alive as long as possible.  It will then turn into a court battle if your family feels that it is better to take you off of life support.  If you are married, your spouse may feel differently than your parents do about it, so then you have a family feud/court battle going (remember the Terri Shaivo case?).  Having this document written up in advance will save everyone a lot of guessing and heartache.

Power of Attorney (POA)

This is a document that is also very important to have.  It gives someone else permission to make financial and legal transactions in your behalf.  So obviously, your POA needs to be someone that you trust very much.  It can either be a Durable POA, which means that person can sign things for you at any time, or a Springing POA, which means that it only comes into effect if you become incapacitated.

These are a few of the most important legal documents that are important for everyone to have.  For these simple documents you can use a website like www.legalzoom.com or even an off-the-shelf software like Quicken Willmaker Plus 2010  for under $50.  However you get them done, the most important thing is just GETTING THEM DONE!

Beginning January 1, 2013,  a new Medicare surtax of 3.8% will be assessed if you have income over a “threshold amount”.  The new surtax will be assessed on the lesser of:

1. “Net Investment Income” OR
2. Any “Modified Adjusted Gross Income” over the “threshold amount”

Investment Income

OK, so what the heck does that mean?  First, investment income comes from a lot of sources.  Here’s what’s included in “investment income” for purposes of the 3.8% surtax:

• Interest
• Dividends
• Capital Gains
• Annuities
• Rents
• Royalties
• Passive activity income

“Investment income” does not include:

• Active trade and/or business income
• Distributions from IRAs or other qualified retirement plans
• Any income taken into account for self-employment tax purposes

Threshold Amount

The “threshold amount” is as follows:

1. Married taxpayers filing jointly – $250,000
2. Married taxpayers filing separately – $125,000
3. All other individual taxpayers – $200,000
4. Trusts and estates – $11,200

So if your MAGI is over the “threshold amount”, you will pay the 3.8% surtax on the lesser of all your investment income or on your income that in excess of the “threshold amount”.

Here’s what your new tax rates will most likely look like for Married Taxpayers Filing Jointly:

I know, clear as mud.  If this still does not make sense, and you think that you are pretty sure that your income is going to be close to or over the “threshold amounts” mentioned above, then you probably need to talk to a good Certified Financial Planner certificant, and also a good CPA.

There are a number of strategies you can use in your presonal financial planning to reduce or eliminate this excess surtax if you are someone who will be exposed to it.  If you are one of these people, you need to contact us as soon as possible to start planning ahead.  As I like to say, these are “high class” problems to have.

The biggest fear that we all face with regard to long-term care insurance is, if you end up not needing it (which you hope that you won’t) then all your insurance premiums have gone down the drain.  So when you buy long-term care insurance, you’re betting that something bad is going to happen to you, but at the same time hoping that it doesn’t.  But that’s the reality of buying any kind of insurance.  It’s protection against a risk that could potentially damage your financial well-being.

A New Way To Protect Yourself

A few years ago, insurance companies started developing a new type of protection against the risks of long-term care that eliminate the biggest fear people have about buying insurance for it.  That is, the fear that if you end up not needing long-term care, you’ve wasted your money.  This new type of protection is called “Asset-based” long-term care benefits.  The concept is very simple, and yet very different from paying traditional long-term care insurance premiums.

Asset Based Long-Term Care Benefits

This type of protection combines a deferred fixed annuity with build in long-term care benefits.  A deferred fixed rate annuity is a financial planning tool that can help you save more money for retirement.  It earns a fixed rate of interest and grows tax-deferred until you start taking income payments from it.  And, in addition to helping you save more money, it can provide you with up to three times the annuity value in long-term care benefits if you need them.  This will help preserve your other hard-earned assets while it pays for up to 6 years of long-term care.  It will also protect your spouse and children from the emotional, physical, and financial toll of caregiving.  And with it, you have a choice of care options which include in-home care, assisted living, adult day care, homemaker services, personal care, respite care, hospice care, and nursing home care.

What If You Don’t Need The Care?

If you end up not needing any of this type of care (which is a very good thing), your money is not gone or wasted.  In fact, this is the best part of this type of long-term care protection.  If you don’t need the care, you’ve still:

1.  Earned a guaranteed rate of interest on your savings

2.  Taken advantage of tax-deferred growth (this will be more important as tax rates go up)

3.  Had access to your principal through partial withdrawals or lifetime income options

4.  Had a death benefit for your beneficiaries that is equal to the annuity value at the time of death

5.  Avoided probate on these funds

The chances of a 65 year old person needing some type of long-term care during retirement is very high, above 50%.  And the cost of this care is very costly.  The average nursing home in our country today costs about $5000 – $6000 per month, depending on where you live.  This can eat up a retirement nest egg in no time at all.  But still, many people hesitate to pay the premiums each month for traditional long-term care insurance.  You can see that the benefits of asset-based long-term care are many.  You have the protection if you need it, and if you don’t need it, you get all your money back.  I think everyone should consider puting part of their “safe money” into one of these types of vehicles.

If you would like more information on this, and other types of asset-based long-term care protection, please contact us today.

Challenges

Many parents of disabled children are not sure of the best way to plan for their family’s needs.  Two of the biggest challenges these family’s face is first, how much money will be needed to care for their child; and second, who will take care of the child when the parents are gone.  Family members often feel that the best thing they can do is to open an account in the disabled childs name and put as much in it as possible.  While it is wise to save as much as you can for this person, having it in their name can cause problems when you later try to apply for Social Security, Medicaid, and all kinds of other social programs that are available to them.

Most people with disabilities cannot get their own health insurance.  If they are able to buy it, it’s very expensive and will come with pre-existing conditions exclusions.  The maximum coverage amounts are also often too low.  Because of this, many of these people end up having to apply for Medicaid.  With Medicaid they lose the ability to see any provider that they want to, and they often can’t go to the specialists that they really need to see.

Solutions

If you have a special-needs family member, the first thing you should do is to sit down with a financial advisor who is familiar with this type of planning.  This type of personal financial planning involves a mix of social work, life coaching, and finances.  It will also involve working with a special-needs attorney to draft the proper documents that will protect your loved one and your resources.  A good attorney like this will be able to give a lot of direction on things you can do to protect your family.

While going to get a burger and shake may not seem like a big deal, the stakes get much higher as children grow older and parents start making financial gifts, or giving financial assistance to them.

In personal financial planning, reducing a person’s estate is often a concern.  Many people who are in a position to do so, will make financial gifts to their children for estate planning purposes.  This is usually done when someone is trying to reduce their taxable estate, or just to let their kids enjoy some of their inheritance early.  Additionally, parents will often give financial assistance to children when there is a need.  While there is nothing wrong with giving money to your children, you need to be very careful in how you do this so that nobody screams, “That’s not fair!”

Equal gifts, but not equal needs

Every family that has adult children knows what it’s like to have at least one child who has a greater financial need than the others.  Parents are often naturally inclined to want to help this child out a little more than the others.  This is where it can get a little sticky.  If a parent gives money to one child and not to the others, they take a chance of driving a wedge into the family.  While you may think you are doing that child a favor, (and you are) your other children may not feel the same way about it when they find out.  I have seen several situations like this where siblings who were better off financially felt left out, cheated, and maybe even less loved, because their parents didn’t give gifts equally.  I’ve seen this drive a wedge between siblings, and between parents and children.

Leaving more to one child

I’ve also seen situations where parents left more of their estate to one child when they passed away.  Again, this was a case where the parent felt that this particular child had a greater financial need and would benefit more from the larger inheritance.  While this may have been true, the child who inherited less was left to feel left out and somehow less loved.  Even though this is done with good intentions, it can really tear a family apart.  The more well-off child resented the sibling that was left with a bigger inheritance, and at this point the two have not spoken to each other in about 10 years.

Is there a better way?

Only you can decide the best way to handle these situations.  But I have seen some different things that people have done to try and make .  In one situation, a child was having some financial difficulties and the parent wanted to help them out.  They made an agreement that any money the parent gave them now would be deducted from their final inheritance when the parent passed away.  I thought that this was a fair way to help the child out now, but still be fair to the other children in the family.  I have seen other families require the child to pay back the money over time, but with little or no interest.  This method helps the child out now and allows them pay the money back when they get back on their feet.

There are a lot of ways to deal with these situations that allow you to help out a child in need.  While it’s easy to think, “My other kids don’t need this money”, you may not be doing them a favor in the long run.  You may in fact be setting them up for family contention down the road if you don’t give equally to all of your children.  Even if they don’t need the money as badly, if another child gets more, there could easily be feelings of resentment and bitterness towards the other child, and towards you.  No one wants to be remembered that way.