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What Is Fair in a Second Marriage and Estate Planning?

Post category:Beneficiaries Designated Beneficiary Disputes Estate Planning Attorney Health Saving Account (HSA)Heirs Inheritance IRA Marital Trust Pre-Nuptial Agreements Premarital Assets Qualified Retirement Plans Second Marriage

The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.

The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.

Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.

Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.

There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.

Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.

When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?

One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.

When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.

An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.

Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”

Make Your Nest Egg Last When Retiring Early

Post category:Estate Planning Lawyer Health Saving Account (HSA)Long-Term Care Insurance Retirement Planning Social Security

Investopedia’s article “Early Retirement: Strategies to Make Your Wealth Last” says there are several things to consider to be certain retiring early won’t leave you lacking in your later years.

Set a Realistic Budget. Be realistic about your budget. Calculating how much you can reasonably afford to spend each year depends on what you’ve saved, your life expectancy and your anticipated expenses. If you don’t know how much annual income you will need in retirement, you’re not ready to make a decision about retiring. If it’s been more than a year since you’ve considered this, it’s time to review your calculations.

Retiring Early and the 4% Rule. This has long been the baseline for determining your withdrawal rate. The rule says that you withdraw 4% of your savings the first year in retirement, then withdraw that same amount, adjusted for inflation, going forward. In theory, if you draw down your nest egg at that rate, it should last for 30 years. However, if you need your savings to last another 10 years or more, the 4% rule may not be realistic. You might need to consider reducing your withdrawal rate to 3.5% or 3%. If you run the numbers, and your estimated withdrawals aren’t going to be enough to cover your expenses, you’ll need to either find a way to lower your cost of living or delay your retirement date, so your income aligns with your spending.

Plan for Medical Expenses. Seniors can enroll in Medicare starting three months before they reach age 65. If you retire before that, you’re going to need health insurance until you are eligible for Medicare at 65. You can save money in a Health Savings Account (HSA) while you’re still employed to prepare for future medical expenses, if you’re planning to retire early. The withdrawals are tax-free, if they’re used for healthcare expenses. Once you turn 65, you can take out money from an HSA for any reason without a penalty. However, you’ll still pay taxes on the distribution. Another tactic is to buy long-term care insurance. This will keep you from having to spend down your assets to qualify for Medicaid, if you need nursing home care in the future.

Delay Social Security Benefits. Full retirement age is 66 or 67 if you were born in 1943 or later, but you can start taking Social Security benefits as early as 62. However, that decreases the overall amount of benefits you’ll receive. Waiting to apply, increases your benefit amount. If you’re retiring early, taking benefits at 62 might help to stretch your savings, but you’ll get more money if you can afford to delay.

Making early retirement a success requires you to review the financial aspects, and the longer your retirement outlook, the more important it is to have a plan for how you’ll spend what you’ve saved.

Reference: Investopedia (Oct. 30, 2019) “Early Retirement: Strategies to Make Your Wealth Last”

How Much Money Is Needed for Long-Term Care?

Post category:Elder Law Attorney Health Saving Account (HSA)IRA Long Term Care Insurance Retirement Planning Roth IRA

You probably know that healthcare is a big expense for retirees. If you don’t, it is important to understand that the cost of long-term care is very high. Research shows that 70% of seniors 65 and over will require some type of long-term care in their lifetime. This could be as little as a couple of visits a week from a home health aide to years in a nursing home. If you don’t plan ahead, these expenses could easily end up bankrupting you.

Motley Fool’s recent article entitled “The Shocking Cost of Long-Term Care — and How to Tackle It” says that another thing you probably know—or you should—is that you’re footing the bill for long-term care. It is not a service that is covered by Medicare. Medicare will only pay for medical-related services, like those needed to help you recover from an injury, illness, or procedure. Therefore, if you’re admitted to the hospital and then need a few weeks at a skilled nursing facility to finish your recuperation, Medicare will usually pay for this. However, if you need help getting dressed in the morning due to your advancing years, it’s not covered. You’ll have to pay for that care yourself.

Let’s look at the average annual cost nationwide of what some common services will cost you, based on 2019 data from Genworth:

Assisted living facility: $48,612
Home health aide: $52,624
Shared nursing home room: $90,155
Private nursing home room: $102,200

Remember that these are just averages, and in some parts of the country, you’ll pay much more. You can, therefore, see why it’s critical to have a plan in place for covering long-term care costs in your senior years, before that expense hits you.

You have a few choices for addressing the major expense of long-term care. One is that you can add to your retirement savings as much as possible. IRA contribution limits max out at $6,000 a year for workers under 50, and $7,000 a year for those 50 and over. With a 401(k), you get even more flexibility to fund your savings. Workers under 50 can deposit up to $19,500 annually, and if you’re 50 and over, you can go up to $26,000. The more money you add to your savings while you’re working, the more funds you’ll have available in case you need to pay for long-term care when you retire.

Another option is to contribute to a health savings account, or HSA, and carry unused funds into retirement. You can then take withdrawals to pay for long-term care. Annual HSA contributions max out at $3,550 a year for those who save on their own behalf, or $7,100 for those saving on behalf of a family. Workers 55 and older get an additional $1,000 per year to contribute. HSA funds never expire, so these accounts are a very effective way to save for future healthcare costs, like long-term care, in a tax-efficient manner.

Finally, you can buy a long-term care insurance policy which will pay for a big part of your costs when you have large bills, when adding to your income by working isn’t an option. Optimally, you should apply for long-term care insurance in your 50s, but many seniors get approved in their 60s. You can use funds from your HSA to pay for them.

Long-term care is an expense many seniors will have to address. If you want to avoid a situation where you’re forced into severe financial times because of it, save now to give you, and the people who care about you the most, less to worry about in the future.

Reference: Motley Fool (Jan. 29, 2020) “The Shocking Cost of Long-Term Care — and How to Tackle It”

Do I Need Long-Term Care and Why?

Post category:Annuity Charitable Remainder Trusts Elder Law Attorney Health Saving Account (HSA)Long Term Care Insurance Long-Term Care Planning medicaid Medicare Medicare Advantage Reverse Mortgage

A recent article by Forbes entitled “Does Medicare Pay For Long-term Care? Don’t Make A Big Mistake!” explains that there are several settings that provide long-term care. These include adult day-care centers, nursing facilities, assisted living facilities and residential care communities.

Many people think Medicare pays for long-term care because there are some services that Medicare Part A hospital insurance will cover, such as inpatient care in a skilled nursing facility (SNF) and home health care—common settings for long-term care. Medicare pays for care that is skilled, care that requires the skills of a registered nurse, physical therapist, occupational therapist, or speech-language pathologist. If the average non-medical person can provide the care without additional training, the care is not skilled. Medicare won’t pay for it.

A traditional long-term care insurance policy will pay or reimburse for some or all long-term care costs. Many have limits on how long or how much they will pay. The coverage is based on the person’s health, financial status, age at application and other factors. Let’s look at some other strategies for long-term planning:

Annuities. An annuity is a contract with an insurance company in which a person buys an annuity that the insurance company pays back over a defined period of time. There are now combination or hybrid products, which are life insurance with a long-term care rider. These combine life insurance with long-term care insurance.

Health Savings Account (HSA). These funds can help cover many long-term care expenses. Qualified long-term care services include maintenance and personal care services that a chronically-ill individual needs.

Reverse Mortgages. This is a type of home equity loan that lets a senior mortgage holder borrow cash against the value of a home without selling it.

Charitable Remainder Trust. This trust lets a person’s assets pay for long-term care services, while also contributing to a charity and decreasing the tax burden. Payments from the trust can go to pay for long-term care services and, after death, the rest of the funds in the trust are given to the charity.

Medicare Advantage Plans. Some changes now let Medicare Advantage plans cover supplemental healthcare benefits for “daily maintenance.” This may include ADL assistance, transportation to medical appointments, meals after hospitalization and even food for a service dog. Not every Medicare Advantage plan has these benefits, and remember that it’s the Medicare Advantage plan, and not Medicare, that pays for these services.

Medicaid. One of the benefits of Medicaid is long-term care. You will not qualify for Medicaid, a shared federal-state program is for people with limited financial assets, unless you meet the financial eligibility requirements. Medicaid attorneys can advise clients about “spending down” to meet the eligibility requirements.

If you think that Medicare will pay for long-term care or that this care involves long-term care insurance or living in a nursing home, you’re in for a surprise. Talk to an elder law attorney about creating a long-term care plan—a personal strategy for handling decisions in the future.

Reference: Forbes (Jan. 14, 2020) “Does Medicare Pay For Long-term Care? Don’t Make A Big Mistake!”

What Is Fair in a Second Marriage and Estate Planning?

How Much Money Is Needed for Long-Term Care?

Do I Need Long-Term Care and Why?

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