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Four
Essentials of Estate, Financial and Retirement Planning
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The keys to an effective
estate, financial and retirement plan may be summarized by four
topics: (1) Trust Planning – to keep
your assets in your control and in the control of your family in the
event of your mental disability and death, and to reduce the
unnecessary delays and expenses associated with Wills and probate;
(2) Long-Term Care Planning – to help you pay for home health care
when it is needed most, and to protect your
assets from Medicaid and from nursing homes; (3) Sound Financial
Planning – to help you create a diversified portfolio which
maximizes your income and minimizes your investment losses; and (4) IRA
and 401(k) Planning – to help you maximize your deferral
opportunities while minimizing your exposure to current taxation.
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Trust Planning
Proper Trust Planning allows you to plan for yourself and your
loved ones without giving up control of your affairs or your assets. Your estate
plan should allow you to plan for the possibility of your own
mental and/or physical disability. It should also give you the
freedom and the power to give what you own, to whom you want,
when you want, the way you want, all at the lowest
possible cost to you and your loved ones. Essentially,
this is the definition of a proper estate plan.
A Trust Plan involving a Revocable Living Trust allows you to do
exactly that. Most of you have already heard from friends, on
television, or even from other attorneys, that a Revocable Living
Trust protects you from probate. What you may not have heard
is that a properly designed and funded Revocable Living Trust may
also protect you in the event of your or your loved one's mental
disability.
Studies show that half of all people
today are expected to have a period of disability during their
lifetimes. The Board on Health Care Services, the Division of
Health Care Services, the Institute of Medicine, and the Committee
on National Statistics, report that "the Social Security Disability
Insurance program and the Supplemental Security Income program have
experienced an unexpected, rapid growth....In the past, people
entering the programs were more likely to be over 50 years of age....In recent years, new
beneficiaries are more likely to be younger and have mental
impairments. They are likely to remain on the rolls longer."
Board on Health Care Services (HCS), Division of Health Care
Services, Institute of Medicine, Committee on National Statistics,
The Dynamics of Disability: Measuring and Monitoring
Disability for Social Security Programs (2002) (National
Academies Press, 2002).
A properly designed and funded Revocable Living Trust
is made during your lifetime, and is effective as soon
as it is signed by you and your trustees. You can change or revoke
it anytime while you are alive and competent. The
Revocable Living Trust is
designed to hold all of your property, and during your life you have
full and complete control over the management of your property. If you become
disabled, then the trustees you appoint in the Revocable Living Trust will
manage your property according to your rules which are spelled out
in the Revocable Living Trust agreement, without the need for court
interference or a guardianship
of your estate. When you die, the trustees will distribute your
assets (including non-probate assets) as you planned, even
forming trusts after your death to provide for your children or
grandchildren. In addition, a properly designed Revocable Living
Trust will take advantage of all favorable estate tax benefits and
creditor protections, while avoiding any dangerous estate tax
problems. And, a Revocable Living Trust is valid in every
state, and may hold real estate which you may own in other states –
avoiding the need for probate proceedings in states where you
own real property.
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Long-Term Care Planning
There are three general options for protecting your assets if you
require Medicaid or if you require nursing home care:
Long-term care insurance, asset transfers to adult children, and
setting up a qualified Medicaid Trust.
Long-term care insurance
is typically preferred because it is the only option that helps keep
you out of the nursing home – by paying for home health care in
advance. Why should you be forced into a nursing home simply
because you ran out of money to pay for home health care aides?
Also, long-term care insurance allows a married couple to pay for
the treatment of the disabled spouse, without imposing the heavy
burden of caregiving on the non-disabled spouse in his or her later
years. Let the home health care aides take care of both of
you.
The second option for
protecting your assets if you require Medicaid or if you require
nursing home care is to transfer your assets to adult children.
The issues that you must keep in mind, however, are: (1)
assets transferred to adult children then become exposed to the
children's creditors, liabilities, divorces, etc.; and (2) some
children spend the money, refuse to give it back to their parents
when needed, or unfortunately, die before the parent and pass those
assets on to their spouses or children. For these reasons,
outright transfers to adult children may not be the best option.
One exception to this,
however, is when nursing home care is foreseeable and you cannot get
the proper long-term care insurance. However, you must work
closely with a qualified attorney since these transfers may result
in Medicaid ineligibility periods.
The third option for
protecting your assets if you require Medicaid or if you require
nursing home care is to set up a qualified Medicaid Trust.
Under the Medicaid Trust, you are entitled to all of the income, but
none of the principal (or, the assets that were originally
transferred into the Medicaid Trust). These trusts are ideal
for the family home, as well as those assets which you are only
receiving the income from anyway. Your lifestyle is not
generally affected, since you still receive all of the income which
you were already receiving.
The Medicaid Trust works best when it
is combined with a home care only insurance policy. This way home
care is paid for by the home care only insurance policy, and your
assets are protected if nursing home care is required.
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Sound Financial
Planning
Each of us have different financial needs at different times in our
lives. Maybe you are beginning a marriage, or buying a home,
or paying for college. Different stages in life call for
different investment strategies. And retirement is no
exception.
As some people get older
they may want to consider diversifying from variable assets – like
stocks, bonds and mutual funds – into fixed, guaranteed investments
that cannot go down. Another idea is to compare the benefits you
would receive from converting your mutual funds into variable
annuities. The following article illustrates the differences
between mutual funds and variable annuities.
Comparing
Mutual Funds to Variable Annuities.
While we are not financial planners, we believe in the concept of
the Team Approach to Estate Planning. The Team Approach to
Estate Planning involves each of your key advisors: your financial
advisor, your insurance broker, your accountant, and your attorney,
with you in control at all times. Together, we shall identify
the issues relating to your needs and counsel you as to your best
options. We have learned that the Team Approach to Estate Planning
represents the very best of the financial, accounting and legal
professions collaborating all for your benefit.
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IRA and 401(k) Planning
The Federal government
has changed the rules for qualified retirement plan withdrawals and
distributions. Gone are the days (at least for now) of
electing the different methods for determining required minimum
distributions. The new rules have, for the most part streamlined
the calculation of the annual required minimum distribution rules.
Generally, the new rules are good for everyone, since the new
calculations result in more deferral and less current income taxes
to pay. This means that you will have more money later when,
and if, you need it, and if you don't need it, more to leave to your
heirs.
The real changes come, however,
in the choices available to your heirs when they receive your IRA
upon your death (KEOGH and 401(k) plans have their own rules).
Your heirs are now allowed to "stretch out" your IRA over their life
expectancy. Tax commentators have called the "stretch out" one
of the biggest tax breaks in the tax laws. But, guess who is
not aware of these new rules – that's
right, the general practice lawyer who wrote your will years ago.
Unfortunately, your family may never learn this piece of valuable
IRA tax planning.
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Conclusion
The Four Essentials of
Estate, Financial and Retirement Planning gives you an effective estate and
financial plan to meet the challenges of life, while still
maintaining your accustomed life-style, and always following your
desired wishes when it comes to your estate plan. After all,
the definition of your estate plan is to give what you have,
to whom
you want, when you want, and (most important) the way
you want, all at the lowest possible cost to you and your
family.
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CALL US at
800-501-3220 or
Email
Us to
learn more about the Four Essentials of Estate, Financial and Retirement Planning, and how you can prepare a
proper estate plan. |
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