Estate Planning

While there are many factors to consider when choosing the place where you will retire, the ones that will impact your wallet may be the most important. Why? Because having a low crime rate and beautiful weather will be irrelevant if high costs deplete your retirement nest egg faster than anticipated.
 
Recently Investopedia.com compared cost-of-living and tax-rate data from Bankrate.com’s list of “Best and Worst States to Retire” and Kiplinger’s list of “10 Worst States for Retirement” to come up with their list of “The Most Expensive States to Retire In.” We’ve added Genworth’s “2015 Cost of Care Survey” to the mix to come up with our five most expensive states for retirees when comparing cost of living, tax rate, and long-term care expenses (as listed in alphabetical order):
 

• Connecticut ranks #3 in tax rate and cost of living and #2 in long-term care expenses. Along with a state estate tax, Connecticut is also one of only two states that collect a state gift tax (New York is the other).
• New Jersey ranks #2 in tax rate, #6 in cost of living, and #4 in long-term care expenses. Along with a state estate tax, New Jersey is also one of six states that collect a state inheritance tax.
• New York ranks #1 in tax rate, #4 in cost of living, and #5 in long-term care expenses. Along with a state estate tax, New York is also one of two states that collect a state gift tax (Connecticut is the other).
• Rhode Island ranks #8 in tax rate, #9 in cost of living, and #10 in long-term care expenses. Rhode Island also collects a state estate tax.
• Vermont ranks #9 in tax rate, #10 in cost of living, and barely fell out of the top 10 by coming in at #11 in long-term care expenses. Vermont also collects a state estate tax.

Final Thoughts on Where to Retire
Each year the statistics on tax rates, cost of living, crime rates, health care expenses, and weather are sliced and diced to come up with various lists for those approaching retirement to consider. But in the end the choice of where to retire is personal. While the financial data may point you away from or to a particular location, staying close to your support system of kids, grandkids, other family members, and friends may be priceless.

Like any other complex subject, estate planning has its share of myths and misconceptions. Understanding the top three estate planning myths will help you to create and maintain a plan that will work the way you expect it to work when it’s needed.
 
Estate Planning Myth #1 – You Don’t Need an Estate Plan Because Your Spouse Will Inherit Everything
A common belief is that if you’re married and you don’t have a will or a trust, your spouse will still inherit everything. Unfortunately this is not always the case. Who will inherit your estate even if you’re married depends on many different factors, including how your property is titled, who you have named on your beneficiary designations, and the laws of the state where you live and any other state where you own property. The only way to insure that your spouse will inherit everything is to sit down with an experienced estate planning attorney who will help you create an estate plan that will meet all of your goals.
 
Estate Planning Myth #2 – You Don’t Need an Estate Plan Because Your Family Knows Your Final Wishes
You’ve shared your final wishes with your family and you’re confident that they’ll “do the right thing” after you die. Unfortunately, without having these wishes written down in a valid will or a valid trust, your family may not be able to fulfill your intentions for several reasons. First, how your property is titled will determine who inherits it, not who you’ve told your family you want to inherit it. In addition, if you fail to complete or update the beneficiary designations for assets such as bank accounts and life insurance policies, your family won’t have any authority to tell the bank or insurance company who should inherit the proceeds. Finally, without an estate plan, the laws of the state where you live and any other state where you own property will dictate who inherits your probate estate, not your family. The only way to insure that your property will go to your intended heirs is to sit down with an experienced estate planning attorney who will help you create an estate plan that will meet all of your goals.
 
Estate Planning Myth #3 – Once You’ve Created Your Estate Plan, It’s Done
Suppose that you’ve taken the time to sit down with an experienced estate planning attorney and create an estate plan that meets all of your goals. You may think that now you can sit back and relax because your estate plan is done. While this attitude may seem reasonable, unfortunately as the years go by your life and the laws governing wills, estates, probate, trusts, and death taxes will continue to change, which means that eventually your estate plan will become out of date. The only way to insure that your plan will work the way you intend it to work is to pull it out of the drawer every few years and have it looked over by your estate planning attorney.
 
Final Thoughts About Estate Planning Myths
These are only three of the top estate planning myths. Unfortunately there are many more. The only way to separate the myths from the reality and get a plan that will work for you and for your family is to retain the services of an experienced estate planning attorney.

Think for a few moments about what would happen if you suddenly became incapacitated or died. Would your spouse or family know what to do? Would they know where to find important records, assets and insurance documents? Would they be able to access (or even know about) online accounts or files on your computer? Would they know whom to ask if they need help? Putting the effort in now to establish a formal document inventory can alleviate unnecessary anxiety and turmoil in the future.
 
The Key Takeaways

• If you should suddenly become incapacitated or die, your family would need to know where to find the information they would need.
• Let your key relationships know where to find your document inventory.
• Do not assume your process will be readily understood by others; have a trial run to make sure they can find and understand your records.
• Keep your inventory current with an annual review.

What Information Would They Need?
There is a large volume of documents and information that your family would need during a calamitous event such as incapacitation (even temporary) or death. This basic list will help you start thinking of the critical information you would want your family to have.

• legal documents (will, living trust, health care documents);
• list of medications you are taking;
• list of your advisors (attorney, CPA, banker, insurance agent, financial advisor, physicians);
• insurance policies (health and life);
• year-end bank and investment account statements;
• storage facility location, access method, and inventory;
• list of other assets, including location, account numbers, date purchased and purchase price;
• safe deposit box location, list of contents and location of key;
• list of people to whom you owe money (mortgage, credit cards, etc.);
• list of people who owe you money;
• death or disability benefits from organizations;
• past tax returns.

Also, many of your records are probably on a computer or stored online. If you scan documents or receive financial statements electronically, someone else may not even know they exist. If you use a computer accounting program such as Quicken, QuickBooks or Mint, those records would be on your computer. Family photos may be stored digitally or online. Much of this information is password protected.
 
What You Need to Know: Your document inventory requires a methodical listing of both hard copy and digital forms. While the effort will be more challenging at the start, the maintenance of the inventory is much simpler. Be mindful that your digital footprint will likely grow much faster in the future than it has in the past.
 
Actions to Consider

• Give current copies of your health care documents to your physicians and designated agent(s).
• Keep your original documents in one safe place, like a fireproof safe or safe deposit box. Make copies for the notebook described next.
• Buy one or two three-ring binders to organize your personal and financial information. You can enter it by hand or create spreadsheets on your computer, but having it all in one or two binders will make it easy for your family to find and use. (If you leave it on your computer, they may never find it.) Include locations, contact information, account numbers and amounts.
• Include a list of online accounts and how to access them (including passwords).
• Clean up your computer desktop and put important files in an easy-to-find desktop folder.
• Have a trial run. Ask your spouse or other family member (or your successor trustee or executor) to pretend that he or she needs to access needed information.
• At least once a year, review and update your notebook, computer desktop files and passwords for online accounts.

Estate planning attorneys are often asked where original estate planning documents – wills, trusts, powers of attorney, and healthcare directives – should be stored for safekeeping. While there is no right or wrong answer to this question, consider the following:

• Should you store your original estate planning documents in your safe deposit box? Many people may believe that the best place to store their original estate planning documents is in their safe deposit box at the local bank. This may make sense if you have given your spouse or a trusted child, other family member, or friend access to your box. However, since a safe deposit box is a rental arrangement (you are leasing the box from the bank), if you are the only one who signed the lease and you become incapacitated or die, no one else will be able to open your box. Usually the only way for someone else to gain access to your box if you become incapacitated or die is to obtain a court order, which wastes time and money. If you are not comfortable giving someone else immediate access to your box, many banks will allow you to add your revocable living trust as an additional lessee, which will give your successor trustee access to your box if for any reason you can no longer serve as trustee of your trust.
• Should you store your original estate planning documents in your home safe? Home safes are popular these days, but in order for yours to be a good place to store your original estate planning documents, it should be fire-proof, and water-proof. In addition, make sure someone you trust has the combination to your safe or will easily gain access to the combination if you become incapacitated or die.
• Should you ask your estate planning attorney to store your original estate planning documents? Traditionally, many estate planning attorneys offered to hold their clients’ original estate planning documents for safekeeping. Today most don’t want to take on the liability. In addition, as the years go by, it may become difficult for family members to track down your attorney, who could change firms or pass away.
• Should you ask your corporate trustee to store your original estate planning documents? If you have named a bank or trust company as your executor or successor trustee, this may be the best place to store your original estate planning documents. This is because banks and trust companies have specific procedures in place to insure that your original estate planning documents are stored in a safe and secure area. If you choose this option, make sure one or more of your family members know where your original documents are located.

Regardless of where you decide to store your original estate planning documents, make sure your family members, a trusted friend or advisor, or your estate planning attorney know where to find them.

One of the first things you should do as a newly appointed executor of a deceased person’s probate estate or successor trustee of a deceased trustmaker’s trust is ask the post office to forward the deceased person’s mail to your address. Unfortunately, along with important pieces of mail – statements, bills, and refunds – many not-so-important pieces – catalogs, solicitations, and plain old junk mail – will end up in your mailbox.
 
On the other hand, you may have purchased a home from a deceased person’s estate or trust and have received some of their mail at your new address.
 
What can you do to stop the post office from delivering mail addressed to a deceased person? Follow these four steps:

1. If you are the executor of an estate that has been through probate court and the estate is officially closed, hand-deliver or send a copy of the probate order closing the estate and dismissing you as the executor to the deceased person’s local post office, and request that all mail service be stopped immediately. If you don’t take this step and find that some mail continues to trickle through two or more years after the death, this is because the U.S. post office only honors forwarding orders for one year. The only way to completely stop delivery is to request that all mail service be discontinued.
2. To stop mail received as the result of commercial marketing lists (in other words, junk mail), log on to the Deceased Do Not Contact Registration page (https://www.ims-dm.com/cgi/ddnc.php) of the DMAchoice.org website and enter the deceased person’s information. According to the website, “DMAchoice™ is an online tool developed by the Direct Marketing Association to help you manage your mail. This site is part of a larger program designed to respond to consumers’ concerns over the amount of mail they receive, and it is the evolution of the DMA’s Mail Preference Service created in 1971.” After registering the deceased person on the website, the organization claims that the amount of mail received as the result of commercial marketing lists should decrease within three months.
3. For magazines and other subscriptions and mail that is technically not “junk” mail (for example, solicitations from charities to which the deceased person made donations while they were living), contact the organization directly to inform them of the death. Note that most publishers will issue a refund for any unused subscription.
4. If you shared the mailing address with the deceased person or if you are the new owner of the deceased person’s home, write “Deceased, Return to Sender” on any mail addressed to the deceased person and leave it in your mailbox for pick up.

Remember it is a federal offense to open and read someone else’s mail, so if you’re not a legal representative of the deceased person, don’t open their mail!

Three Traps to Avoid

1. Taking Money Too Early. It can be tempting to start taking your benefits as soon as you become eligible at age 62. But the longer you can wait, the higher your monthly benefit will be—and the more you will receive over your lifetime. Also, cost of living adjustments (COLA) are calculated on the amount of your monthly benefit, so if you take benefits at age 62, your COLA adjustments will be calculated on a lower amount.
2. Working Income. If you elect to take benefits early and you keep working, the amount of your benefit can be reduced. This reduction will continue until the year you reach full retirement age (66). In 2014, Social Security reduces benefits by $1 for every $2 of earned income above $15,480. For example, say you start benefits at 62 and you have earned income of $30,000. You are $14,520 over the annual limit, so you will receive $7,260 less in benefits (50% of the difference). However, the benefit reductions are not lost; they are deferred and credited to your benefits record when you reach full retirement age.
3. Spousal Benefits. Your decision when to start taking your benefit affects your spouse too. After you die, your spouse is eligible to receive your monthly benefit if his/her own benefit is less than yours. If you elect to receive your benefit earlier rather than later, your spouse’s benefit will also be lower. If you wait until you reach full retirement age (66), you can claim your Social Security benefits but delay taking them. This lets your spouse draw spousal benefits immediately, while you continue working and increasing the value of your future benefits.

Actions to Consider

• If you are concerned about the future of Social Security, you could take your benefits at 62 and invest them. By the time you need to start taking the money, you may be able to make up any loss you incur by taking them early. But, of course, this is dependent on your portfolio allocation and market performance.
• If you keep working beyond age 62, your Social Security benefit will increase each year up to age 70.
• While you are eligible for Social Security at age 62, you are not eligible for Medicare until age 65. If you stop working, you will have to pay for private insurance with your own money.
• If you wait until your full retirement age (66), another spousal benefit option is available. If you both want to retire at the same time and your spouse will receive a lower benefit, you can claim spousal benefits now from your spouse, let your benefits continue to grow and then switch to your (higher) benefit later.