Be Aware of These Myths about Social Security

Despite everything written about filing for benefits as late as possible, more than half of seniors apply for Social Security before they reach full retirement age. It is now 66 and will rise to 67 for people born in 1960 and later. More than a third of all Americans apply as soon as they possibly can—at age 62. Only one in twenty-five applicants puts off filing to age 70, when monthly benefits max out, says the Washington Post in the article advising readers “Don’t believe these Social Security myths.”

Some people have no choice and must take their benefits early, because they’ve lost their job and have no savings. Others have better options, but they aren’t aware of them. That’s because of the many myths about Social Security. A survey found that while 77% of Americans thought they were pretty smart about Social Security, 95% couldn’t answer eight basic questions about the program.

Let’s look at these myths.

It doesn’t matter when I take Social Security. Benefits increase by about 7% every year from age 62  to your full retirement age, and then by 8% each year between full retirement age and 70. This is a planned adjustment to ensure that people who opt for a larger check for a shorter period don’t receive more than those who file earlier and receive smaller checks. It’s better to delay, both for the larger check and the benefits that the surviving spouse receives. People who live longer can run out of savings, so having a larger check in your 90s could make a huge difference.

If I don’t expect to live a long time, I should claim benefits early. Most of us underestimate our life span. A 65-year old man today can expect to live to 84, and a 65-year old woman can expect to live to 86.5. Life expectancies are even longer for those in their mid-50s. However, here’s the thing: even if one spouse doesn’t live as long, by taking Social Security earlier, their spouse will have a smaller benefit. Married couples lose one of their checks when the first spouse dies, causing a big drop in income. The survivor receives the larger of the two checks the couple was receiving. Therefore, the higher earner in a couple, whose check will be larger, should delay taking benefits, if at all possible, to benefit the surviving spouse.

I can claim benefits early and invest the money to come out ahead. No investment today offers a guaranteed return as high, as what can be obtained from delaying benefits. You’d have to take a lot of risk to get close to the 7% or 8% guaranteed by Social Security.

As soon as I stop working, I have to file for Social Security benefits. Not true. You don’t have to file for Social Security benefits until you want to. Even delaying four years, from 62 to 66, can translate into a sustainable 33% increase in your standard of living.

I better apply before Social Security runs out of money and closes down. This myth becomes more widespread every year. If Congress doesn’t act, which is unlikely, by 2035, the system will still be able to make payments, although they may be curtailed by 20%. Eighty percent of your Social Security check is not zero. It’s also more than likely that Congress will address Social Security fixes.

Reference: Washington Post (June 10, 2019) “Don’t believe these Social Security myths”

A Will, Power of Attorney and Health Care Power of Attorney: Three Documents Everyone Should Have

These three documents combined allow you to designate who you want to be responsible for your well- being, if you are unable to communicate to others on your own behalf and name who you want to receive your property. Having a will, power of attorney and health care power of attorney are the foundation of an estate plan and peace of mind, says the article “Simple steps to peace of mind” from the Traverse City Record Eagle.

If you die without a will, your state has a plan in place for you. However, you, or more correctly, your family, probably won’t like it. Your assets will be distributed according to the laws of inheritance, and people who you may not know or haven’t spoken to in years may end up inheriting your estate.

If your fate is to become incapacitated and you don’t have an estate plan, your family faces an entirely new set of challenges. Here’s what happened to one family:

A son contacted the financial advisor who had worked with the family for many years. He asked if the advisor had a power of attorney for his father. His mother had passed away two years ago, and his father had Alzheimer’s and wasn’t able to communicate or make decisions on his own behalf.

Five years ago, the financial advisor had recommended an estate planning attorney to the couple. The son called the attorney’s office and learned that his parents did make an appointment and met with the attorney about having these three documents created. However, they never moved forward with an estate plan.

The son had tried to talk with his parents over the years, but his father refused to discuss anything.

The son now had to hire that very same attorney to represent him in front of the probate court to be appointed as his father’s guardian and conservator. The son was appointed, but the court could just have easily appointed a complete stranger to these roles.

The son now has the power to help his father, but he will also have to report to the probate court every year to prove that his father’s well-being and finances are being handled properly. Having a will, power of attorney and medical power of attorney would have made this situation much easier for the family.

Guardianship is concerned with the person and his or her well-being. Conservatorship means a person has control over an individual’s financial matters and can make all decisions about property and assets.

There is a key difference between powers of attorney and conservatorship and guardianship. The person gets to name who they wish to have power of attorney. It’s someone who knows them, who they trust and they make the decision. With conservator and guardianship, it’s possible that someone you don’t know and who doesn’t know your family, holds all your legal rights.

A far better alternative is simply to meet with an estate planning attorney and have him create these three documents and whatever planning tools your situation calls for. Start by giving some thought to who you would want to be in charge of your life and your money, if you should become unable to manage your life by yourself. Then consider who you would want to have your various assets when you die. Take your notes with you to a meeting with an estate planning attorney, who will know what documents you need. Make sure to complete the process: signing all the completed documents, funding any trusts, retitling any accounts and finally, making sure your family knows where your documents are. This is a road to peace of mind, for you and your family.

Reference: Traverse City Record Eagle (June 23, 2019) “Simple steps to peace of mind”

Estate Planning for Digital Assets

Every password-protected account that you own is a digital asset. They should not disappear into a void when you pass. They need to be protected, just as much, and maybe even more, than tangible assets. They can be stolen by cyber-criminals, who can loot bank accounts, retirement funds and more. You can direct that they be transferred, preserved or destroyed, says the Valdosta Daily Times in the article “Preparing an estate strategy for digital assets.”

Digital assets include information on phones and computers, content uploaded to social media sites like Facebook, Instagram and others, creative/intellectual content in digital property and records from online communications, including emails and texts.

Do these accounts really have any value? Yes—according to security software provider McAfee, the average American’s digital assets are worth about $55,000.

Estate strategies for digital assets require an awareness of new and changing laws about digital assets. Almost every state has now passed some version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which has defined a path for the future of digital accounts, when the owner passes. RUFADAA has set a hierarchical structure for the transfer of digital assets.

First, if the service provider has a means of permitting the transfer of the asset to a designated party of the original asset owner’s choice, that takes priority. Gmail and Facebook have a means of creating a directive to state the owner’s wishes.

If no such directives are on the website, then the instructions denoted in traditional estate documents must be followed, assuming that those documents are prepared properly.

If none of that is in place, then the service provider’s Terms of Service Agreement (TOSA) takes priority.  If the providers TOSA says that the account is a nontransferable lifetime lease, its ownership may not be transferred to another person. However, as a result of RUFADAA, the owner has the right to appoint a fiduciary to access, manage or close out an online account. The power may be exercised, if you are dead or if you are incapacitated.

However—you must name this fiduciary and grant the legal power to an individual through your will, power of attorney or trust agreement. Otherwise, no such authority can be given.

What else should you do? Leave a digital road map for your executor: accounts, passwords and username. Note that if the platforms use facial recognition or other biometric markers, they may not be able to gain access to the accounts. Check with social media and merchant websites to see what policies are for transferring or maintaining digital assets, when the owner dies. You should also look at reward points and credits to see how they can be transferred, and find out how pending transactions, like automatic orders, can be handled.

Consider your executor. Are they comfortable with the digital world, or a technophobe? If they may not be able to manage the digital assets, consider naming another person to handle this task. Your estate planning attorney will be able to include them in your estate planning documents.

Reference: Valdosta Daily Times (May 26, 2019) “Preparing an estate strategy for digital assets”

More Reasons Why Everyone Should Have a Will

Most people aren’t going to have a large number of strangers show up after they die who pretend to be relatives, says the article “Here’s why you don’t want to die without leaving a will” from Arizona Central. However, there are many other reasons to have a will. In Arizona, an estate creditor can step in and become your personal representative after death, if you haven’t designated someone to administer your estate and your family members don’t step up to be involved.

Are you still not convinced? Without a will, you have no say in who inherits your money and possessions, which will be distributed according to the laws of your state.

Here are some tips to help get your estate plan started:

Work with an estate planning attorney. Using an attorney provides accountability, ensures that your wishes are reflected in the estate plan and makes sure that your will is deemed valid by the court. All too often, online documents are found to be deficient, declared invalid and the family is left with the laws of the state.

Name an executor. Your will should include the name of an executor, who will be responsible for handling your financial affairs after you die. She will manage your assets, identify what bills need to be paid, file state and federal tax returns and keep records of anything done on behalf of your estate.

Keep your will in a safe location. Make sure your executor has a copy and knows where it is. Tell your family where it is.

Don’t forget a residuary clause. If you forget to include any assets, a residuary clause will name someone who will receive them.

Don’t forget other important documents. That means a power of attorney and an advance directive. The advance directive spells out what kind of medical treatment you would want, if you are unable to communicate. Power of attorney gives a person you name the authority to act on your behalf.

What if my family fights a lot? Your best bet will be to name a private fiduciary to act as your personal representative. That way, no one can be accused of playing favorites, and a family history of sibling rivalry won’t undermine your wishes.

Make an appointment with a local estate planning attorney, who knows the laws of your state and can work with you to create an estate plan designed for your specific family situation. Both you and your family will enjoy the peace of mind of knowing that you are prepared for the future.

Reference: Arizona Central (June 21, 2019) “Here’s why you don’t want to die without leaving a will”

Social Security Is Just One Slice of Retirement, Not the Whole Pie

Social Security was never designed as a public retirement plan. It doesn’t provide total income replacement for retirement. Those who expect it to do more than fill in the gaps, are often surprised by this, says Fox Business in the news segment “3 Social Security Realities You Need to Face.” Here are three solid facts that everyone needs to know about what Social Security can and cannot do for retirement income.

Social Security will not cover your cost of living in retirement. Many people actually neglect saving for retirement, thinking they can simply rely on Social Security for expenses when they retire. Social Security replaces less than half of the average earner’s pre-retirement income. Most seniors need about 80% of their pre-retirement income to enjoy a comfortable lifestyle.

Don’t believe it? The average Social Security check is $1,461 a month. That’s $17,532 a year. Could you live on that? Even by cutting back on all discretionary spending, that’s not likely to be anywhere near enough for most middle-class Americans. Even a small amount of money set aside during working years will add up over time. What is the best time to start saving, no matter how old you are? Now.

A Social Security reduction is entirely possible. If Social Security doesn’t have enough payroll taxes to draw from, it’s possible that everyone on Social Security will face across-the-board reduction in benefits in the coming years. There are trust funds available to bridge the gap, but those funds are expected to run dry in 2035. Unless and until Congress acts, there might be as much as a 20% reduction in benefits for everyone.

Therefore, if Social Security replaces about 40% of your pre-retirement income and there’s a 20% reduction, you’ll need even more in your nest egg to pay for your retirement.

Claiming benefits earlier than expected happens often. Social Security benefits are based on the 35 highest earning years, but the amount is calculated based on when benefits are first taken. File for benefits at full retirement age (FRA), and you’ll get the full monthly benefit based on your earnings history. If you file for benefits earlier, benefits are reduced for every month they are claimed before FRA.

Some people are impatient to get their benefits and file early, because they want to. However, many end up filing earlier because they have no choice, knowing that they are getting less every month.

Seniors often stop working in their early 60s, and not always by choice. They may have health issues, be laid off or work in a field that is no longer viable. A new job or a part time job may not pay as much as their previous job.

There’s nothing wrong with factoring in Social Security benefits as part of your retirement cash flow. However, it shouldn’t be the only source of income. Setting aside $200 a month over a 30-year period will give you a $227,000 nest egg, if investments generate a 7% annual return. The ideal is to have a long savings period and to save consistently.

Visit our website for more information.

Reference: Fox Business (June 12, 2019) “3 Social Security Realities You Need to Face.”

Is My Irrevocable Trust Revocable?

Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that, for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes, if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust, is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified, according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust, and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting, because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

Can I Create POA without Giving Up Control?

Seniors sometimes hesitate to sign off on a power of attorney that allows someone to act on their behalf, because they fear loss of control and exploitation. It’s not unreasonable, but it does create problems, says Daily Local News in the article “How to stay in control when appointing a power of attorney.”

On one hand, without having a signed power of attorney, which is relatively simple to obtain from an estate planning attorney, the family may be faced with going to court to file for guardianship.

Guardianship is expensive, time consuming, can limit the individual’s freedom and may even result in an appointment of someone the person does not want to be their guardian. There are some instances where guardianship is necessary.

On the other hand, the seniors who believe that a power of attorney is a powerful document that requires careful consideration, are right to give it the thoughtfulness this document deserves.

Here’s how to maintain some measure of control, while having a power of attorney:

Be certain about the agent you name. This is not a role for someone you recently met who feels like an old friend. It must be someone you would easily trust with your entire life savings, without a second thought. You need to be 100% sure that the person would act responsibly, in your best interests, following through in paying bills, consulting with experts when necessary, keeping records and being scrupulously honest and putting your interest first in everything they do.

Don’t name someone just because they are your oldest child and someone’s feelings would be hurt. If a person has money problems themselves, that person is not a good candidate for this role.

Have a backup. Or two. If your primary “attorney in fact” is unable or unwilling to act on your behalf, have a second person, or even a third, ready to act.

Ask your estate planning attorney to create documents that work for you. There are forms you can use, but they may not be appropriate for your situation. Your best bet is to have an attorney prepare a power of attorney document that meets your needs. For instance, you may not want to give someone unlimited power, or you may want to give them power to do everything but gift assets. You might want to give them the ability to cash in insurance policies for your medical expenses, but not to change the beneficiaries on your insurance policies.

If you want two agents to act together, you need to know whether your bank, brokerage house, financial institution or financial advisor will accept two. Will they be able to work together?

Separate financial power of attorney and health care power of attorney. One person does not need to handle all your tasks. One of your children may be great in crisis situations, while another is good at finances. Divide up the tasks, so that each can participate in decision making, in different areas.

Who needs to know about your power of attorney? It’s best if all your children know if one of them has been named attorney in fact and others have not. They will find out eventually, and it may be better, even if there is some grumbling, for them to know in advance of a crisis.

Fire at will. You retain the right to fire your agent(s), by serving them with a revocation or by appointing another attorney in fact. If the family is not getting along and things have turned ugly, speak with your estate planning attorney to ensure that the proper protections are in place.

Lastly, protect yourself by keeping access to debit cards, credit cards, usernames, passwords and online access to bank and investments carefully secure. If you run into a problem, don’t hide from it—get the help you need, either from a family member, trusted friend, or your estate planning attorney.

Reference: Daily Local News (June 11, 2019) “How to stay in control when appointing a power of attorney”

Why You Need a Last Will and Testament

A will and testament is the document that allows you to describe how you want your belongings and assets to be distributed after you die. It’s different than a “living will,” explains The Daily Sentinel, in the article “It’s important to have a Last Will and Testament.” A living will is a document used to detail how someone wants their end of life matters conducted.

In Colorado and some other states, the Living Will is referred to as an Advance Directive, which helps to avoid some confusion between what it accomplishes and the tasks of the will.

The will is also the document used to name the person who will be the personal representative, often referred to as the “executor”, to carry out the directions in the will.

When there’s no will, there is much more work to settle an estate. The distribution plan is determined by the laws of the state. It is not likely to be what the person had in mind, but by then, it is too late.

Every parent needs a will, because it is used to name a guardian for minor children or a child with special needs. This is not a decision that can be left to the law. There is no automatic solution based on state law, like there is for assets and belongings.

If there is a disagreement about who should care for the dependents, or how the assets should be used to care for the dependents, the only solution is to go to court and have the court decide what is in the children’s best interests. The time, expense and stress on the family is easily avoided, simply by having a properly prepared will.

There are occasionally questions about whether a general or special power of attorney can be used to name a person to handle affairs when someone dies. This is not true. The authority given to a person in a power of attorney automatically and legally terminates, when the person who gave that authority to another person has died.

Several years ago, a widow was preparing to create a will, but never did. She had no surviving parents or siblings, but she did have a son. She probably thought that the law would give him all her assets automatically.

Unfortunately, after the woman died, it was learned that the “son” was an informally adopted son who had never been legally adopted. According to the laws of the state, he had no legal right to her estate. She could have had a will prepared and he would have inherited everything. However, because she had no will, distant relatives who she did not even know, were the recipients of her estate.

This example may be a little extreme, but it is not uncommon. Many unexpected things occur when there is no estate plan, or an estate plan is prepared by an inexperienced person using a form they found online or at the local library.

Reference: The Daily Sentinel (June 1, 2019) “It’s important to have a Last Will and Testament”

Top Four Facts to Know about Estate Planning

Estate planning can save your family the stress of court cases and family feuds before the process of settling your estate begins. A plan that you create will provide tremendous peace of mind to those who are left behind. The sorrow of losing a loved one is more than enough for a family to experience, says NewsGram, in the article 4 Things You Must Know About Estate Planning.” You had better to have a plan to ensure that your estate is executed with as little acrimony as possible.

Estate planning focuses on planning for how an individual’s assets will be preserved, managed and distributed after their death. It also addresses how the person’s financial life, including their property, is to be managed, in the event they become incapacitated because of an accident or an illness. This is done with the help of an experienced estate planning attorney.

The core of estate planning while you are living, is to protect your assets, protect your estate from having to pay unnecessary taxes and protects you and your wishes, if you are incapacitated or pass away. Here are four key things everyone should keep in mind while preparing their estate plan.

Age should not be a factor. Anyone who is of legal age and owns anything has an estate. An estate refers to anything of value that you own. It does not mean a $10 million mansion. A home, a car, bank accounts, retirement accounts and personal possessions make up an estate, regardless of their size or value. Once you have assets, you need an estate plan. We don’t know when we are going to die, but we can be sure that if you have no estate plan, the state will determine who receives your assets. You may want to make those decisions for yourself. That’s what an estate plan does.

You need an estate planning attorney. Estate planning crosses into several different legal practice areas. Asset management, tax planning, real estate, guardianship and other areas need to be addressed by a legal professional who understands how these elements all work together. An estate planning attorney has a professional responsibility to help you document your wishes for incapacity and death.

However, they do more than that. The estate planning attorney will help you fine-tune your wishes, gain clarity on what you want to happen during life and death and translate that into the legal language that ensures that your wishes are achieved.

Planning helps avoid or minimize probate. Depending on where you live, probate can be a simple process or one that takes a long time. The estate planning attorney will help you plan to pass your assets to your spouse or the next generation to avoid going through the court process known as probate. This is a process of authenticating your will, verifying that the assets in the will are correctly named, paying off any outstanding tax balances and approving the distribution of the assets. With a good estate plan, you can make this a simple process.

An estate plan works to minimize family squabbles. Disagreements over estates, including personal possessions as well as money, routinely tears families apart. You don’t have to be wealthy or even a celebrity to have a family that is fractured over a misunderstanding or someone feeling like they were not treated fairly. This is another area where an experienced estate planning attorney can help bring you through the process of distributing assets, with a deep dive into how your decisions may be received by various family members.

To get started, contact an experienced estate planning attorney in your community. If you have an estate plan but haven’t reviewed it in more than four years, it’s time for an update. A number of laws have changed on the federal level that may require some changes to your estate plan. If you have had any major life events, you also need a review.

Reference: NewsGram (June 5, 2019) 4 Things You Must Know About Estate Planning.”

What Does ‘Getting Your Affairs in Order’ Really Mean?

That “something” that happens that no one wants to come out and say is that you are either incapacitated by a serious illness or injury or the ultimate ‘something,’ which is death. There are steps you can take that will help your family and loved ones, so they have the information they need and can help you, says Catching Health’s article “Getting your affairs in order.”

Start with the concept of incapacity, which is an important part of estate planning. Who would you want to speak on your behalf? Would that person be the same one you would want to make important financial decisions, pay bills and handle your personal affairs? Does your family know what your wishes are, or do you know what your parent’s wishes are?

Financial Power of Attorney. Someone needs to be able to pay your bills and handle financial matters. That person is named in a Financial Power of Attorney, and they become your agent. Without an agent, your family will have to go to court and get a conservatorship. This takes time and money. It also brings in court involvement into your life and adds another layer of stress and expense.

It’s important to name someone who you trust implicitly and whose financial savvy you trust. Talk with the person you have in mind first and make sure they are comfortable taking on this responsibility. There may be other family members who will not agree with your decisions, or your agent’s decisions. They’ll have to be able to stick to the course in the face of disagreements.

Medical Power of Attorney. The Medical Power of Attorney is used when end-of-life care decisions must be made. This is usually when someone is in a persistent vegetative state, has a terminal illness or is in an irreversible coma. Be cautious: sometimes people want to appoint all their children to make health care decisions. When there are disputes, the doctor ends up having to make the decision. The doctor does not want to be a mediator. One person needs to be the spokesperson for you.

Health Care Directive or Living Will. The name of these documents and what they serve to accomplish does vary from state to state, so speak with an estate planning attorney in your state to determine exactly what it is that you need.

Health Care Proxy. This is the health care agent who makes medical decisions on your behalf, when you can no longer do so. In Maine, that’s a health care advance directive. The document should be given to the named person for easy access. It should also be given to doctors and medical providers.

DNR, or Do Not Resuscitate Order. This is a document that says that if your heart has stopped working or if you stop breathing, not to bring you back to life. When an ambulance arrives and the EMT asked for this document, it’s because they need to know what your wishes are. Some folks put them on the fridge or in a folder where an aide or family member can find them easily. If you are in cardiac arrest and the DNR is with a family member who is driving from another state to get to you, the EMT is bound by law to revive you. You need to have that on hand, if that is your wish.

How Much Should You Tell Your Kids? While it’s really up to you as to how much you want to share with your kids, the more they know, the more they can help in an emergency. Some seniors bring their kids with them to the estate planning attorney’s office, but some prefer to keep everything under wraps. At the very least, the children need to know where the important documents are, and have contact information for the estate planning attorney, the accountant and the financial advisor. Many people create a binder with all of their important documents, so there are no delays caused in healthcare decisions.

Reference: Catching Health (May 28, 2019) “Getting your affairs in order.”