Boomers, Beware: Don’t Spend Your Money This Way in Retirement

Whether because they feel like they’ve earned the right to splurge or because they don’t understand how problematic overspending can be for a retirement budget, there are several things Boomers really need to skip. This recent article, “8 Things Boomers Should Never Buy in Retirement,” from msn.com, explains.

Overpriced vacations. Most retirees hope to travel during their golden years. If it fits with their budget, that’s great. However, even if your nest egg boasts seven figures, a $50,000 around-the-world cruise every year will quickly empty even the biggest retirement accounts. This is an exaggeration, of course, but what is “overpriced” depends on your lifetime and your retirement funds.

Extravagant gifts. Retirees are often a little too generous with making gifts, enjoying seeing the next generation or grandchildren benefit from their largesse. However, too many gifts will empty the savings needed for a long retirement.

Unnecessary or Overly Expensive Home Renovations. There’s nothing wrong with occasionally upgrading your home if you plan to age in place. Putting in grab bars in showers, adding lighting, etc., will make your home safer and could enhance its resale value. However, is now the time to install the latest solar panel system or redo the kitchen with top-of-the-line kitchen appliances? It is probably not the best investment for your retirement budget.

Buying Discretionary Items on Credit. Most retirees live on a fixed income from Social Security and retirement or pension income. If they spend beyond those amounts, they’ll do so by going into debt. Credit card debt is very expensive and will drag down even the best-created retirement budgets.

Timeshare Vacation Homes. Traveling to another location for a few weeks or a month every year or trading with other time-share owners to go to different locations is very appealing. However, the reality is that timeshares are expensive and restrictive. They are not easily re-sold, rarely appreciate value, and have ongoing expenses. You’ll be better off taking traditional vacations.

Excessive Life Insurance. If you didn’t purchase life insurance in your 40s or 50s, by the time you reach retirement age, the cost of a new life insurance policy could prove to be prohibitively expensive. If your kids are grown, the mortgage is paid off and your retirement accounts are in good shape, this may be an expense you can skip.

Out-of-Network Medical Services. Medical expenses typically increase as we age. However, don’t spend more than you must. Most insurance plans charge more if you use a doctor or other healthcare provider who’s out of network, so it pays to find an in-network provider before undergoing any procedures.

Let Your Children Pay for Some Things. It’s natural to want to spend money on your family but be protective of your nest egg. Gifts are one thing, but paying for an adult’s cell phone bill, rent, or credit card debt will drain your resources fast.

Everyone’s financial situation is different, but remember that spending in some of these categories will likely cause more financial difficulties than you need. The best advice? Stick to a budget, and don’t live beyond your means. It’s much harder to dig yourself out of a financial hole when living on a fixed income.

Reference: msn.com (Aug. 18, 2023) “8 Things Boomers Should Never Buy in Retirement”

What is the Best Estate Plan to Keep Family from Killing Each Other?

It’s not unusual for families to fight over inheritance, leading to prolonged legal battles and damaged relationships. The Ascent’s recent article, “How to Create a Will That Keeps Your Family From Fighting,” provides some tips on how to create a will that keeps your family from fighting.

Discuss your intentions beforehand. Parents need to discuss the objectives and intentions of their estate plans with their children. This lets them set expectations. You don’t have to reveal dollar figures or investment assets. Instead, the key is ensuring the children understand the rationale behind the will.

Splitting up unique assets. Dividing up unique property can frequently result in fights. You may have sentimental items that multiple family members have expressed interest in, or maybe a piece of property has sentimental value to one family member over the others. You may want to speak to family members beforehand to see if any items are particularly important to them. It’s crucial to be clear in your wishes and make sure that everyone is on the same page. You should also use specific language in your will that outlines who gets what and under what conditions.

Preserving inheritance for blended families. This can be even more complicated for blended families. It’s important to approach the division of your assets with sensitivity and thoughtfulness to avoid potential conflicts among family members. Parents with children from previous marriages should take extra care to protect those children financially because stepchildren can be disinherited once a parent dies. Separate wills for each spouse can add protection. There’s something called a “contractual” will” where each spouse agrees that the surviving spouse doesn’t have the legal right to execute a new will that disinherits the children of the deceased spouse. This is designed to ensure that each spouse’s assets are distributed according to their wishes and prevents the surviving spouse from making changes that cut other family members out of the will.

Creating a will that keeps your family from WWIII is a valuable process. Parents should be open about their estate plans with their children to ensure that they understand their intentions. Communication is vital when it comes to estate planning.

Reference: The Ascent (Aug. 15, 2023) “How to Create a Will That Keeps Your Family From Fighting”

Why Is Daughter of Comic Book Legend Stan Lee Looking for More from Estate?

On Nov. 12, 2018, the legendary comic book creator Stan Lee died of heart and respiratory failure in his sleep at age 95. Lee had amassed a fortune estimated at between $50 and $70 million through the iconic characters he co-created, including Spider-Man, Black Panther, and the X-Men. In his final days, he’d allegedly suffered elder abuse and been financially abused by several people in his inner circle.

Microsoft’s recent article, “Here’s Who Inherited Stan Lee’s Estate After He Died,” explains that Lee’s daughter has continued pursuing various legal actions to get everything.

“I want my museum, I want to do a restaurant — Stan Lee’s Super Subs — I want to do a big Spider-Man Stan monument to put my family’s ashes somewhere,” she told AARP. However, one of those lawsuits against Pow! Entertainment regarding her father’s intellectual property was thrown out of court for being “meritless,” and Lee was sanctioned $1 million in 2020.

Stan Lee married Joan Boocock in 1947, and their daughter J.C. was born in 1950. Until she died in 2017, Joan kept a steady hand on the rudder of the family’s assets, according to AARP The Magazine. But J.C. wasn’t very good with money, according to her dad.

He and Joan created a trust to prevent her from burning through her inheritance before her parents died. The control of Stan Lee’s fortune allegedly led to J.C. shouting and physically abusing her elderly father.

In February 2018, Lee filed a notarized declaration with his attorney in which he said his daughter would often ring up credit card charges of $40,000 a month and that when the two disagreed about money, she “typically yells and screams at me and cries hysterically if I do not capitulate.” He worried that “after my death, she will become homeless and destitute” if he changed the trust stipulations.

The declaration blamed Jerardo “Jerry” Olivarez, Keya Morgan, and J.C.’s attorney, Kirk Schenck, for unduly influencing Stan Lee’s daughter to “gain control over my assets, property, and money.”

Days later, Lee repudiated the declaration, and he, or someone close to him, fired his attorney. He sued Olivarez and his former attorney right before his death, alleging both men had taken advantage of the 95-year-old for their monetary benefit.

In July 2022, Stan Lee’s estate settled the case against Olivarez out of court, and in November 2022, a judge dismissed a criminal case against Morgan after a mistrial. He’d been facing charges related to the alleged theft of about $200,000 from Lee.

Reference: Microsoft (June 15, 2023) “Here’s Who Inherited Stan Lee’s Estate After He Died”

Can I Help My Kid Buy a Home?

The Millennial generation has come of age, and Generation Z is following right behind them. Kiplinger’s recent article, “Four Ways Parents Can Help Kids Be First-Time Home Buyers,” discusses how parents can help their children buy their first homes in this landscape of high real estate prices and rising interest rates.

Lend them the money as an intrafamily loan. One strategy is to act as your children’s “bank” and lend them the money. This is known as an intrafamily loan. By serving as their lender, you skip their having to meet banks’ asset and income requirements. However, to avoid gift tax implications, parents should formalize the loan with a promissory note and charge a minimum interest rate called the applicable federal rate (AFR).
Use an intrafamily loan in another way. Another way parents could help by using this intrafamily loan strategy is to provide strategic funding when needed. A borrower on a mortgage who doesn’t put down a 20% down payment would likely need to purchase mortgage insurance, which could be expensive. So, instead of the child incurring that additional fee, the parent could issue an intrafamily note for the gap amount in the down payment. Regarding tax consequences, as the lender of an intrafamily loan, the parent would have to report income on the interest earned on the note.
Give money as a gift. Parents may want to give their children the money toward the home. If so, they can use a gifting strategy called the annual exclusion gifting. Each year, an individual may give up to the annual gift tax exclusion amount to any individual without tax consequences. That amount is currently $17,000 per year and, if left unused, can’t be carried over to the following year. The amount is available per recipient, so if you have more than one child, you could give up to $17,000 yearly to each child. If the parent is married, both spouses together could gift $34,000 per year for each child. This could be used as an outright gift or in the form of loan forgiveness.

Parents may also opt to forgive some of the note’s principal over time by utilizing the balance of the annual exclusion gift yearly or, for a larger amount, the lifetime gift exemption. But unlike the annual exclusion, the lifetime gift exemption is cumulative from year to year and applies to all recipients. The federal lifetime gift exemption is now $12.92 million per person or $25.84 million for a married couple. Still, it’s scheduled to decrease to $5 million (or $10 million for a married coupled), indexed for inflation, starting in 2026.

Co-sign a loan. Another way a parent can help is to act as a guarantor or co-signer on a loan. So, a parent can help a child who may not have established credit and, in some cases, may also help secure better terms on the loan. But if the child fails to make timely payments, the parent could be contractually obligated under the loan terms.

Reference: Kiplinger (June 27, 2023) “Four Ways Parents Can Help Kids Be First-Time Home Buyers”

How to Pay for Hearing Aids

Untreated hearing loss has been linked to a higher level of depression, cognitive decline, dementia, falls, visits to the emergency room, and hospital stays. Despite this, says an article from ncoa Adviser, “Financial Assistance for Hearing Aids: A Complete Guide for Older Adults,” fewer than 15% of adults who need hearing aids use them, and the average person takes nearly nine years to go about getting a pair after being told they have hearing loss.

Part of the reason for the delay is financial. Resources for getting hearing aids vary from state to state, and even county to county, which can be confusing. Here’s how to get started.

First, check with your health insurance company to see what’s covered and ask about additional services. You’re not just buying an appliance. Hearing aids require activation and fitting, and other unexpected out-of-pocket costs may occur. Sometimes the easiest way to verify insurance is to have a hearing aid clinic check into it.

Except in five states—Arkansas, Connecticut, Illinois, New Hampshire, and Rhode Island—insurance providers are not required to cover hearing aids as part of health care for adults. Medicare Parts A and B don’t cover the cost of hearing aids or fitting exams. Still, Medicare Part B covers hearing and balance exams ordered by a doctor and an annual audiology appointment to evaluate hearing loss. Whether or not Medicare Advantage, aka Medicare Part C, provides coverage depends upon the plan.

Medicaid coverage varies by state and plan. Many people with Medicare and Medicaid can sign up with select insurance companies and get coverage at no additional cost, but the coverage varies. Also, the quality of the hearing aids may differ.

Active duty military service members and family members diagnosed with hearing loss meeting the coverage criteria may be eligible to receive hearing aids through a TRICARE-approved provider. For veterans, the VA has hearing aid benefits. They should reach out to their local office or representative. The VA website has information on how to apply for VA hearing health care and find the nearest provider.

Federal employees of the American Federation of Government Employees (AFGE) have access to discounted hearing aids, including a free hearing exam, discounted hearing aids, and aftercare support.

Those with mild to moderate hearing loss can now consider over-the-counter hearing aids. Note that the cost of the device you are buying is a third of the price. The rest of the costs are services, so be sure what services are bundled into the offerings. Instead of relying on online reviews, research trusted sources. You’ll want to clearly understand the return policy, warranty coverage for damage and loss, and customer service.

Reference: ncoa Adviser (July 2, 2023) “Financial Assistance for Hearing Aids: A Complete Guide for Older Adults”

How Much Money to Give Away with Upcoming Tax Changes?

With inflation, the current federal estate tax exemption amount, which you can have when you die without paying federal estate tax, increased to $12.92 million for individuals for 2023. That’s up from $12.06 million in 2022. It will jump to $25.84 million for couples in 2025, up from $24.12 million in 2024. However, those rates sunset at the end of 2025. Without action from Congress, the exemptions will revert to the levels in place before the 2018 Tax Cuts and Jobs Act increased them. That’s about half the amount the exemption has grown to by then due to inflation, says Microsoft’s recent article entitled, “If I have $10 million, how much should I give away while I’m alive?”

Few families have faced federal estate taxes in the last few years, as the IRS has seen about 1200 taxable-estate returns in 2020. However, more families would have to look at the effect of estate taxes if the exemption went back down to $6.5 million per individual. A total of 17 states and the District of Columbia also have their own estate tax and inheritance thresholds. While a number like $6.5 million sounds big, it’s really now just a healthy 401(k) and a nice house in a big city

If you have something like $10 million, and you decide that giving away $3.5 M is the best tax scenario for your estate, you probably aren’t going to write a check. You’ll be looking into trusts and other advanced estate planning techniques that require the help of an experienced estate planning attorney. Those take time, and there’s no way to push them to a December 31, 2025 deadline.

One reason you’d want to give money away while you’re alive is to lower the size of your estate when you die, which would minimize taxes. If you have assets above the exemption limit set by the IRS, the federal tax will likely be 40% on the amount over that limit. There are a number of ways to give away a significant amount of money to lower the value of your estate. People hesitate because most of those options are irrevocable, so you can’t change your mind later.

An issue is using up your exemption by giving away money. If you have $10 million and pass away after the exemption goes down, you’d owe federal estate tax on the $3.5 million difference. If you had given away that $3.5 million before the end of 2025, you’d have a $3 million exemption remaining, and you could have made a wise tax move — at least as long as you stayed under the new threshold. If you gave away more than $6.5 million between 2018 and 2025 — up to the limit during that time — the IRS says you won’t be penalized.

However, if the exemption stays the same after 2026, at nearly $13 million, if you gave away $3.5 million, you’d have essentially $9.5 million left in lifetime exemption. However, be careful not to use up your entire exemption. If you give everything away while living, you won’t have any exemption left. The annual gift-giving limit without losing any of your lifetime exemptions is $17,000 per recipient in 2023.

Reference: Microsoft (Aug. 7, 2023) “If I have $10 million, how much should I give away while I’m alive?”

How to Plan Ahead in Case a Loved One Has Dementia

Have the conversation about dementia, says The Tribune-Democrat’s recent article entitled, “Dealing with dementia | Planning ahead: ‘Have the conversation.’” Next, get the legal documents and define the future care. Note that the documents’ provisions are ineffective, until the person cannot make their own decisions.

Having the documents in place can help prevent the person from being placed in guardianship by the court. If they have no advance healthcare directives, the family or caregivers must apply to the court for guardianship if incapacity can be proven. When granted, the court appoints a decision-maker, taking away the individual’s ability to make decisions – either in whole or in part. This court oversight continues throughout the individual’s life.

Advanced directives, like a living will, health care power of attorney and financial power of attorney, allow those facing dementia to make their own decisions while they still have the capacity. Family members and potential caregivers should encourage their loved ones to act and get these important documents in place.

An advanced health care directive can include both a living will, which makes known what end-of-life care the individual wants, and a health care power of attorney, which assigns an agent to carry out the individual’s wishes when making health care decisions. The document states goals and values on which to base the decisions. It doesn’t take away the individual’s rights to make those decisions and can cover a broad range of medical decisions, or it can be narrow and limit the types of decisions.

The documents can be revoked anytime but don’t expire until the individual dies. The agents also don’t become personally responsible for the individuals’ debts. Careful consideration should be used in choosing the agent, which can be a family member or other trusted person. The agent should be capable and have a good relationship with the person.

A financial power of attorney is similar. It names an agent and doesn’t take away the individual’s decision-making ability. It ends with death and can be revised anytime. It can include handling money, checks, deposits, property sales and pursuing legal action. However, changing beneficiaries of insurance or making gifts requires specific instructions.

The agent selected should be a person who understands the individual’s feelings and point-of-view and is trusted to respect the individual’s wishes. They should be adept at handling their finances, as financial management becomes very important regarding where you will stay.

Reference: The Tribune-Democrat (July 29, 2023) “Dealing with dementia | Planning ahead: ‘Have the conversation’”

How to Pass on Family Heirlooms with Fewer Estate Battles

Family feuds are more likely over Aunt Josephine’s jewelry than the family home. Putting sticky notes on personal items before you die or expecting heirs to figure things out after you’ve passed often leads to ugly and expensive disputes, says a recent article from The Wall Street Journal, “Pass On Your Heirlooms, Not Family Drama.”

Boomers handling parents’ estates and assessing their personal property are having more conversations around inheritance and heirlooms. However, there are better ways to plan and distribute property to avoid family fights over cars, jewelry, furniture and household items.

The person you name to handle your estate, the executor, typically distributes personal property. Therefore, pick that person with care and clarify how much power they will have. An example of this comes from a police officer in Illinois who has been settling his father’s estate for nearly two years. His father owned more than twelve vehicles, a water-well drill rig and two semitrailers of car parts and guns dating back to the Civil War. He also listed 19 heirs, including stepchildren and friends. He told his son he knew he could handle everyone and the stress of people who “aren’t going to be happy.”

If you want a particular item to go to a specific person, make it clear in your will or trust. Describe the item in great detail and include the name of the person who should get it. A sticky note is easily removed, and just telling someone verbally that you want them to have something isn’t legally binding.

Without clear directions, one family with five siblings used a deck of cards and played high card wins for items more than one sibling wanted. Only some families have the temperament for this method.

In one estate, two sisters wanted the same ring. However, there were no directions from their late parents. An estate settlement officer at their bank had a creative solution: a duplicate ring was made, mixed up with materials from the original ring, and each daughter got one ring.

Ask your estate planning attorney how to address personal heirlooms best. In some states, you can draft a memo listing what you want to give and to whom. It is legally binding, if the memo is incorporated into a will or trust. If not, the personal representative can consider your wishes. Make sure to sign and date any documents you create.

Get heirlooms appraised to decide how to divide items equitably, which to sell and what to donate. If heirs don’t want personal property, they can donate it and use the appraisal to substantiate a tax deduction. Appraisals will also be needed for estate tax and capital gains tax purposes.

Reference: The Wall Street Journal (July 30, 2023) “Pass On Your Heirlooms, Not Family Drama”

When Is a Child Not A Descendant?

Not using specific names and terms open to definition could significantly impact who might inherit from your estate or trust. There are situations where some people may choose to deliberately restrict or expand the definition of the group, which might be included in these definitions, explains the article “Who Is Your Descendant: Intentional Limitations Or Broadening Of Definitions In Your Will Or Trust” from Forbes. For some people, creating a new role of a special trust protector who holds a limited or special power of appointment to determine who should be included or removed from the definition of “issue” or descendant is worth considering.

What might arise if the wish only considers children descendants if they belong to a particular faith? Is this type of legal restriction permitted? Clauses limiting heirs to members of a particular faith or a sect within the faith may raise questions about the constitutionality of the clause. Potential heirs excluded under such provisions have argued that a religious restriction on marriage violates constitutional safeguards under the Fourteenth Amendment protecting the right to marry.

Courts have held clauses determining if potential beneficiaries qualify for distributions based on religious criteria enforceable, if the potential beneficiaries have no vested interest in the assets. Another court upheld the provisions of a will conditioning bequests to their sons as long as they married women of a particular faith.

These decisions are narrowly tailored to the specific fact patterns of the cases, since individuals are generally allowed to disinherit an heir with the exception of a spousal elective share or a community property interest. The courts have reasoned that the restriction is not on the heir to marry but on the right of the testator to bequeath property as they wish.

An alternative approach is to create a single trust for all heirs mandating the funds in the trust be used for the cost of religious education, attending religious summer camps, taking relevant religious studies, religious institutional membership, etc. The trust could use the assets to encourage religious observance. However, it may only partially address the question. What about the remainder of the assets—should it be used for all heirs regardless of religious affiliations?

An estate plan compliant with Islamic law may involve a different determination of who is a descendant. The Sharia laws of inheritance are similar to the intestacy statute. One-third of the estate may be distributed as the decedent wishes. However, the remainder must be distributed as mandated under Islamic law. The residuary inheritance shares after the first third are restricted to Muslim heirs. Additional laws prescribe specified shares of the estate to be distributed to certain heirs, depending upon which heirs are living at the moment of the decedent’s death.

Suppose you or a family member is lesbian, gay, bisexual, transgender, or queer (LGBTQ). The law may not address the unique considerations regarding who may be considered a descendent. Special steps may be needed to carry out your wishes as to who your descendants are. What if you view a particular child as your own, but share no genetic material with a child? Children may be adopted or born through surrogacy, so neither parent nor only one parent is biologically related to the child. While some states may recognize an equitable parent doctrine, this may be limited and not suffice to protect the testator.

There are many new complexities for determining who is a descendant, and these issues are complicated and evolving. Changing family structures and religious beliefs based on different values all impact estate planning. A special trust protector may make decisions when uncertainty arises from provisions in a will designed to carry out the wishes. This is a relatively new role and not permitted in some states, so speak with your estate planning attorney to protect your wishes and heirs.

Reference: Forbes (Aug. 4, 2023) “Who Is Your Descendant: Intentional Limitations Or Broadening Of Definitions In Your Will Or Trust”

Transferring Property to Heirs? Skip Top Five Mistakes

It is not difficult to ensure the smooth transfer of ownership of your property to a spouse, children, or other heirs, as long as you have an estate plan created by an experienced estate planning attorney and know what pitfalls to avoid. Most importantly, says the article “I’m a Financial Planner: Here Are 5 Mistakes You Must Avoid When Transferring Property to Heirs” from GoBankingRates, if you die without a will, your state’s intestate succession or next-of-kin laws will determine who inherits your house if yours was the only name on the deed.

Next-of-kin succession varies by state, but for the most part, the priority order is first the surviving spouse, biological and adopted children, parents, and siblings, followed by grandparents, aunts, uncles, nieces, nephews, cousins and extended family members.

You’ll want to know how your state treats intestate property to avoid unwanted surprises for your family. For instance, in some states, full siblings are prioritized over half-siblings, while in other states, they are treated equally.

The biggest mistake is dying without a will and an updated deed. In some states, the property will need to go through probate if the surviving heir is not in co-ownership of the house, regardless of what’s stated in the will.

The solution is simple. Add an adult child or the person you intend to be your executor to the property’s deed via a warranty or quit claim deed. This prevents the family home from going through probate and seamlessly transfers to the individual you want to handle your estate after you’ve passed. In particular, this should be done once one spouse in a joint-owning couple dies.

There are four general types of property ownership. The legal system treats them all differently. They are property with the right of survivorship, property held in a trust, property subject to a will and property for which the spouse does not have a will.

If two spouses purchase and jointly own a property, the right of survivorship dictates that the surviving spouse automatically receives the decedent’s half and becomes the sole owner. This is the simplest and easiest outcome, since it avoids probate and the need to alter the deed. However, it’s not always the case.

A surviving spouse might need to change their deed if a partner dies and the deed didn’t automatically transfer property after death. If only one spouse was on the deed, they may have to go through probate (if there was a will) to transfer the home into the surviving spouse’s name. The spouse may need to file a survivorship affidavit and a copy of the death certificate to ensure that the title is properly in their name.

Should you transfer property while you’re still living? It may solve some problems but create others. If a primary residence is transferred to an adult child and they sell it not as their primary residence, it could lead to a large capital gains tax bill. However, if the child inherits the property after your death, the heir will enjoy a stepped-up tax basis and avoids capital gains taxation.

Before taking any steps to arrange for the transfer of the home after passing, talk with the person or people to make sure they want it and the responsibilities associated with owning a home. This is especially true if there’s more than one heir with different opinions.

If children don’t get along or are in different financial positions, leaving one property for all of them to manage together could lead to family fights. Talk with them before putting your wishes into your estate plan to avoid unnecessary resentment and, in the worst case, litigation.

Reference: GoBankingRates (July 26, 2023) “I’m a Financial Planner: Here Are 5 Mistakes You Must Avoid When Transferring Property to Heirs”

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Boomers, Beware: Don’t Spend Your Money This Way in Retirement

What is the Best Estate Plan to Keep Family from Killing Each Other?