Aaron Charles Gregg

Do Unmarried Couples Need Estate Planning?

“Experts say that creating a plan for what happens to your estate — regardless of how meager or massive your assets — is key for unmarried couples who want their commitment to each other protected in the event of death.”

A couple that has no intention of ever getting married should know that they won’t get the automatic rights and protections that legally wed spouses get, particularly when it comes to death. Therefore, unmarried couples must make a concerted effort to cover all the bases, says CNBC’s recent article entitled “Here’s what happens to your partner if you’re not married and you die.”

The number of unmarried couples who live together reached 18 million in 2016, a 29% increase from 14 million in 2007, according to the Pew Research Center. Among adults age 50 and older, the increase was 75% with roughly 4 million cohabiting in 2016, compared to 2.3 million in 2007.

These couples still face some key differences from their married counterparts. For example, there’s no filing federal taxes as a couple, and if an employer allows health insurance for a partner, the amount the company contributes is taxable to the employee, rather than being tax-free for a spouse.

End-of-life considerations also need attention. Unmarried couples can sign some legal documents that will dictate what happens, if one of them either becomes incapacitated or passes away, which is a type of estate plan.

If you die without a will or intestate, the state probate court will decide how your assets are distributed. A will by itself also won’t address everything. If you want to make sure your tax-advantaged retirement accounts — like your Roth IRA and 401(k) plans — go to your partner, make sure that individual is the designated beneficiary on those accounts. Even if your will says otherwise, whoever’s listed as the beneficiaries on those accounts will get the money. It’s the same for insurance policies and annuities.

If both partner’s names are on checking, savings or investment accounts, the account will pass directly to the surviving partner. However, for an account with only one partner’s name on it, ask the bank about the appropriate form to be completed, so the money is left directly to the surviving partner. This is what’s called a transfer-on-death or payable-on-death designation. Without this designation, the assets will end up in probate and distributed either in accordance with the will or intestacy state laws.

Regardless of how the mortgage is paid or whose name is on the loan, the person named on the deed is the owner. If the house in one partner’s name, it won’t automatically pass to the partner, as it would with a married couple (via joint tenancy with rights of survivorship). It would become part of the probate estate. To remedy this, you can retitle the home, so that both partners are listed as joint owners on the deed, “with rights of survivorship.” Each partner then equally owns the house and is entitled to assume full ownership upon the death of the other. Note that there could be other factors to consider before adding a partner’s name to an existing deed, such as expenses, tax implications and protection from potential creditors. Ask your estate planning or probate attorney before you make a change. A partner owning the house, could leave it to the surviving partner in the will. Remember, though, any asset passing via the will is subject to probate, which may lead to unforeseen issues.

In addition, a partner has no legal say in his or her partner’s medical treatment, if he or she is in a situation where they can’t make decisions for themselves. To give the partner that right, partners can grant each other a durable power of attorney over health care. This allows the partner to make important health-care decisions, if the one in the hospital is unable to do so. This is different from a living will, which states a person’s wishes if they are on life support or suffer from a terminal condition. This document helps guide the agent’s decision-making. If no one is named, medical personnel must follow the instructions in that document.

Likewise, partners may want to give each other durable power of attorney for finances. This would let them handle one another’s money, including accessing accounts as necessary, if the incapacitated partner could not do so. If the partners have dependents, name a guardian for them in the will. Otherwise, that decision will be left to the courts.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

How Can Beneficiary Designations Wreck My Estate Plan?

“Beneficiary designations are a crucial part of estate planning, yet they are often overlooked. Once you have signed your estate planning documents, you need to make sure that your beneficiary designations are consistent with the rest of your estate plan.”

It’s not uncommon for the intent of an individual’s will and trust to be overridden by beneficiary designations that weren’t chosen carefully.

Some people think that naming a beneficiary should be a simple job, and they try to do it themselves. Others don’t want to bother their attorney with what seems like a straightforward issue. A well-intentioned financial advisor could also complete the change of beneficiary form incorrectly.

Beneficiary designations are often used for life insurance and retirement benefits, but more frequently, they’re also being used for brokerage and bank accounts. People trying to avoid probate may name a “payable on death” beneficiary of an account. However, they don’t know that doing this may undermine their existing estate plan. It’s best to consult with your attorney to make certain that your named beneficiaries are consistent with your estate planning documents.

Wealth Advisor’s “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan” lists seven issues you need to think about, when making your beneficiary designations.
Cash. If your will leaves cash to various people or charities, you need to make certain that sufficient money comes into your estate, so your executor can pay these gifts.

Estate tax liability. If assets do pass outside your estate to a named beneficiary, make certain there will be sufficient money in your estate and trust to pay your estate tax lability. If all your assets pass by beneficiary designation, your executor may not have enough money to pay the estate taxes that may be due at your death.

Protect your tax savings. If you have created trusts for estate tax purposes, make sure that sufficient assets flow into your trusts to maximize the estate tax savings. Designating individuals as beneficiaries instead of your trusts may defeat the purpose of your estate tax planning. If there aren’t enough assets in your trust, the estate tax provisions may not work. As a result, your heirs may eventually end up paying more in taxes.

Accurate records. Be sure the information you have on the change of beneficiary form is accurate. This is particularly important if the beneficiary is a trust—the trust name, trustee information and tax identification number all need to be right.

Spouses as beneficiaries. Many people name their spouse as the primary beneficiary of their life insurance policy, followed by their trust as the secondary beneficiary. However, this may defeat your estate planning, especially if you have children from a first marriage, or if you don’t want your spouse to control the assets. If your trust provides for your surviving spouse on your death, he or she will be taken care of from the trust.

No last minute changes. Some people change their beneficiary designations at the last minute, because they’re nervous about assets flowing into a trust. This could lead to increased estate tax payments and litigation from heirs who were left out.

Qualified accounts. Don’t name a trust as the beneficiary of qualified accounts, like an IRA, without consulting with your attorney. Trusts that receive such qualified money need to contain special provisions for income tax purposes.

Be sure that your beneficiary designations work with your estate planning, rather than against it.

Reference: Wealth Advisor (October 8, 2019) “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan”

How Do I Avoid Unintentionally Disinheriting a Family Member?

“Do you want to disinherit your loved ones? Then simply name the wrong person on your beneficiary forms. That sounds too simple, yes, but everyday individuals die leaving their financial assets to the wrong person.”

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.
The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.
Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.
Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.
You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).
Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.
You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

What Don’t I Know About Retirement?

“Retirement is a topic that regularly makes headlines, and not all of them are encouraging. Americans are living longer than ever before, resulting in lengthy periods of post-career life.”
Investopedia’s recent article, “6 Surprising Facts About Retirement,” writes that if you think most people are saving more in order to prepare for their long-term needs, you’d be incorrect. The article provides us with some of the more startling truths about retirement in the U.S.
1. Retirement May Be Longer Than You Think. The average American will retire at age 66 and live until about 79. However, many will see their retirement last much longer than 13 years. A 65-year-old woman has a 50% chance of making it to age 85, and a 65-year-old man has a 50% chance of reaching age 82. This is why younger people need to plan for 20 years or more of income in retirement. For current retirees, an ultra-conservative portfolio composed solely of bonds may not give them sufficient growth, especially with interest rates so low.
2. Social Security Doesn’t Do It By Itself. Many experts suggest replacing 80% of your usual income once you hit retirement. However, for many, Social Security payments alone won’t be nearly enough to hit that target. In 2019, the average monthly Social Security benefit is just $1,461. That’s just $17,532 per year.
3. We’re Waaaay Behind on Savings. Americans are quite far behind on saving for retirement. When the American workplace turned away from pension plans, workers needed to be responsible for securing their retirement funds. We’re not doing it: according to thestreet.com, in 2019 a typical couple in the 56-to-61 age bracket without any retirement accounts had just $17,000 in savings. For many, that’s not enough to live off for a year, let alone a whole retirement. However, the mean retirement savings of working households age 32 to 61 is $95,776, according to the Economic Policy Institute. 35% of workers have $100,000 or more saved for retirement.
4. Just Half of Americans Have a Retirement Plan. Today, the median annual pension amount for the fast dwindling number of Americans who have the old-fashioned defined-benefit plan is less than $10,000, according to CNBC.com. However, many of us aren’t replacing those pensions with a contribution plan, like a 401(k). Almost half of the population (43%) has no workplace savings vehicle of any kind in 2019, according to Bloomberg.
5. Many People are Staying in the Workforce. Because so many Americans are behind in their savings, it may not be surprising that many remain in the workforce well after reaching Social Security eligibility. Almost 19% of people 65 or older were working either full- or part-time, as of 2017. Consider this: about 20% of workers overall say they’ll never be able to retire!
6. Medicare Doesn’t pay for Assisted Living. Nearly 70% of individuals who reach age 65 will require long-term care at some point. What many seniors don’t know, is that Medicare doesn’t pay for most long-term care costs. It only covers 100 days of care at a skilled nursing facility, and only if it was preceded by a hospital stay of three days or more.
Begin your analysis, by looking at the amount of money you’ll need for retirement, based on your current spending and the standard of living you want. Then look at your savings balances and how much you’re saving regularly.
Roughly 55% of Americans build their nest eggs with a regular savings account. However, that might not be good enough, because of the low interest rates. Savers should consider other investment vehicles.
Be sure that you’re maxing out contributions to your 401(k) or 403(b) if you have one, or at least, saving enough to get the company match. If you don’t have a plan through your work, or you’re lucky enough to max out your plan each year, you can supplement your savings with an IRA. For 2019, you can contribute up to $6,000 a year to an IRA, or $7,000 if you’re age 50 or older.
Reference: Investopedia (September 27, 2019) “6 Surprising Facts About Retirement”

What Types of Senior Care is Available for Veterans?

“If you served the United States of America as a member of the armed services, you may be entitled to certain benefits that could make some aspects of getting older a little easier.”
The U.S. Department of Veterans Affairs offers some funding programs that can help offset the cost of some types of senior care.
U.S. News & World Report’s recent article, “Veteran Benefits for Assisted Living,” explains that many senior living companies try to help many veterans maximize their benefits, which in some cases can significantly reduce the cost of senior living.
Note that the VA won’t pay for a veteran’s rent in an assisted living facility. However, VA benefits may pay for some of the extra services required, like nursing assistance, help with bathing and toileting, and possibly meals.
There are a variety of benefits that may help, based on a vet’s specific service history and eligibility. The most commonly used benefits are the Aid & Attendance Pension. Another common benefit is the Survivor’s Pension for spouses of a deceased veteran with wartime service.
The VA’s Aid & Attendance and Housebound program is part of the pension benefits paid to veterans and survivors. The VA says these benefits are paid, in addition to monthly pension. A vet must satisfy one of the potential conditions, including:
• Requiring the aid of another person to perform personal functions, like bathing, dressing, eating, toileting, or staying safe from hazards;
• Being disabled and bedridden, above what would be thought of as recovery from a course of treatment, such as surgery;
• Being a patient in a nursing home due to physical or mental incapacity; and
• Having very poor eyesight (5/200 corrected visual acuity or less in both eyes) or a field of vision limited to five degrees or less.
Vets may qualify for these benefits, which are added to the standard monthly pension, when he or she is “substantially confined to your immediate premises because of permanent disability,” the VA says. Eligibility for the program is based on a case by case basis and involves a review by the VA.
It’s important to begin the application process early, rather than waiting for a crisis to occur. Ask an experienced estate planning or elder law attorney to help you and to discuss your options.
Reference: U.S. News & World Report (August 12, 2019) “Veteran Benefits for Assisted Living”

Should I Take a Lump Sum Pension Pay-Out?

“Lump sum payments give you more control over your money, allowing you the flexibility of spending it or investing it when and how you see fit.”
What should you do: take the traditional, lifetime monthly payments or a lump sum distribution? You might be tempted to go with the lump sum. However, before you make this big decision about your future, be certain that you understand what the options might mean to you and your family, says Investopedia in the article “Lump Sum vs. Regular Pension Payments: What's the Difference?”
A lump sum distribution is a one-time payment from your pension administrator. Taking a lump sum payment gives you access to a large sum of money that you can spend or invest as you want. You have flexibility.
Once you and your spouse die, the pension payments might stop. However, with a lump sum, you could name a beneficiary to receive money after you and your spouse are gone, if any money is remaining.
The income from pensions is taxable, but if you roll over that lump sum into your IRA, you’ll have much more control over when you take out the funds and pay the income tax on them. You’ll have to take required minimum distributions from your IRA at age 70½.
A regular pension payment is a set monthly payment retirees get until death. Some pensions continue with the surviving spouse at that point, but some don’t.
A lump sum requires careful asset management, and with a lump sum, there’s no guarantee that your money will last a lifetime. You also need to think about health insurance because in some situations, company-sponsored coverage ends if an employee takes the lump sum payout. Therefore, you may need to include the extra cost of health insurance in your calculations.
A downside of pensions is that an employer could go bankrupt and find itself unable to pay retirees. Benefits are safeguarded by the Pension Benefit Guaranty Corporation (PBGC). This is a government entity that collects insurance premiums from employers sponsoring insured pension plans. The PBGC only covers defined-benefit plans (stated payments) and doesn’t cover defined-contribution plans (like 401(k) plans). It earns money from investments and receives funds from the pension plans it takes over. The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly.
Think about why your company would even want you to cash you out of your pension plan. Employers may use it as an incentive for older, higher-cost workers to retire early. They may make the offer because eliminating pension payments gives them accounting gains that increases corporate income.
If you take the lump sum, your company won’t have to pay the administrative expenses and insurance premiums on your plan.
Take a look at how the company determines the amount of lump sum payouts. From an actuarial standpoint, the typical recipient would receive approximately the same amount of money whether he chose a pension or a lump sum. The pension administrator calculates the average lifespan of retirees and adjusts the payment schedule accordingly. Therefore, if you have a longer-than-average life, you will end up ahead, if you take the lifetime payments. However, if not, the opposite is true.
Reference: Investopedia (April 14, 2019) “Lump Sum vs. Regular Pension Payments: What's the Difference?”

How Do I Know If Can I Retire Early?

“If you're considering retiring early, you'll forego not only the headaches of working but also the additional money earned that could have made your retirement even more comfortable. Make sure that you're truly ready before you leave.”

Investopedia’s recent article, “6 Signs You Are Ready to Retire Early” gives you six things to consider, when thinking that you may be able to retire early, instead of continuing to work.

1. Debts Paid Off. If the mortgage is paid off, and you don't have any loans, big credit card balances, or other debt, you won't have to worry about writing out big checks for bills in retirement. Therefore, your savings and retirement income will be available for you to enjoy life after work and free to use, in the event of an emergency.
2. Savings. If your investments meet or exceed the amount you were hoping to save, it’s another good sign you could take early retirement. However, if you didn't line up your retirement savings plan for early retirement, you’ll have to recalculate the length of your savings with these additional years. Depending on your age, you may not yet be eligible for Social Security or Medicare. As a result, your savings will need to cover expenses, until you reach the eligible age.
3. Early Withdrawal Penalties Avoided. If your 59th birthday was six months ago or longer, you're eligible to take penalty-free withdrawals from any of your 401(k) plans. This typically applies to other qualified retirement plans but check with the IRS to be sure yours is included.

If you’re a wannabe early retiree with a 401(k), if you continue working for your employer until the year that you turn 55 (or after), the IRS lets you withdraw from only that employer's 401(k) without penalty when you retire or leave, provided you leave it at that company and don't roll it into an IRA. However, if an employee retires before age 55 [except as noted above], the early retirement provision is forfeited, and the 10% penalty will be incurred for withdrawals before age 59½. You can also set up a series of substantially equal withdrawals over at least five years, or until you turn 59½, whichever is longer. However, similar to withdrawals from a 457 plan, you'll still have to pay the taxes on your withdrawals.

4. Healthcare Costs. Early retirees must have a plan in place to cover health costs during the years after retiring and before becoming eligible for Medicare at age 65. If you have coverage through your spouse's plan—or if you can continue to get coverage through your former employer—it’s another signal that early retirement could be an option. COBRA may also extend your healthcare coverage for a period after leaving your job. However, without your former employer's contributions to your insurance coverage, your bills with COBRA may be higher than other options. You can also buy private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses, regardless of what age you are. Note that if you leave your job, you won't be able to keep making contributions to the HSA.
5. The Ability to Live on Your Budget. Retirees on fixed incomes, like those with pensions and/or retirement plan withdrawals, typically have lower monthly incomes than they did when they were working. Practice sticking to a retirement income budget for at least several months and test your reduced retirement budget to get a feel for how hard living on a fixed income can be.
6. You’ve Prepared a New Plan. Leaving work early to spend long days staring at the walls or your spouse will lead to a miserable early retirement. It can also lead to increased spending, if expensive travelling, shopping and dining out become your main activities. Create a defined travel, hobby, or part-time employment plan. You can even create a daily routine. These can help you ease into early retirement.

Reference: Investopedia (May 16, 2019) “6 Signs You Are Ready to Retire Early”

What are Some of the Hidden Risks in Retirement?

“Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel, due to many inherent post-retirement risks.”

Knowing the risks that may be found in retirement and the ways in which they can harm financial security is critical to making important modifications in a retirement plan. Sometimes without those changes, the effect of unfavorable and unpredictable events can be far worse.

The Bay City (TX) Tribune’s recent article, “5 hidden risks in Retirement” says that once you have a retirement plan in place, it’s not etched in stone. Circumstances change, and you may add or lose family members, your retirement objectives may shift, the economy may create new considerations and financial innovations may present new opportunities.

Be sure that your retirement plans (and beneficiaries) are current. Review these at least once a year.

Retirees and those making retirement plans should know about these five risks:

• Running out of money before you die, is a primary concern of most retirees. This is even a greater concern, as the average life expectancy has increased.
• Be certain that both you and your spouse are protected from the unexpected, such as the financial impact of the loss of one spouse. The surviving spouse will only get the higher of your two Social Security checks. Life insurance and estate planning are important to protect survivors.
• A longer life expectancy could result in high costs in a long-term care facility. Look into long-term care insurance.
• Know that a 50% gain doesn’t let a portfolio recover from a 50% loss. It takes a 100% gain to restore a 50% loss. Common stocks have substantially out-performed other investments over time and are usually recommended for retirees, as part of a balanced asset allocation strategy.
• Finally, plan on prices for food, goods, and services to increase during retirement, which reduces your buying power incrementally because you’re living on a fixed income. You must factor that in.

Knowing what the potential post-retirement risks are and considering them in the retirement planning stage, will help you be sure that they are mitigated and managed properly.

Reference: The Bay City (TX) Tribune (July 19, 2019) “5 hidden risks in Retirement”

Should I Get Attorney to Write My Will?

“Estate planning can be tricky, which is why many people turn to attorneys to get the job done right.”

Drafting a will is an essential part of estate planning. Even though it’s vitally important, a recent survey from AARP revealed that two out of five Americans over the age of 45 don’t have one.

The Reflector’s recent article, “Things people should know about creating wills,” says that writing your wishes down on paper helps avoid unnecessary work and stress when you die. Signing a will allows heirs to act with the decedent’s wishes in mind and also will make certain that assets and possessions go to the right people.

Estate planning can be complicated. That is the reason why many people turn to estate planning attorneys to make sure this important task is done correctly and legally. Here are some of the estate planning topics to discuss with your lawyer:

List of Your Assets. Create a list of your assets and determine the ones covered by the will and those that will have to be passed through joint tenancy on a deed or a living trust. For instance, life insurance policies or retirement plan proceeds will be distributed by the beneficiaries you named in each account. Remember that your will can list other assets, like memorabilia, antiques, cars and jewelry.

Naming a Guardian. Parents with minor children should definitely designate the person or persons whom they want to become guardians, if they were to die unexpectantly. They can also use their will to name a person who will be in charge of the finances for the children.

Remembering Your Pets. It’s common for pet owners to use their will to detail guardianship for their pets and to leave money or property to defray the cost of their care. However, remember that pets don’t have the legal capacity to own property, so don’t leave money directly to pets in a will. A pet trust is legal in most states and is the best way to leave money and name a caretaker for your pets.

Stating Your Funeral Instructions. Settling probate won’t occur until after the funeral. As a result, any funeral wishes in a will frequently aren’t read until after the fact.

Designate an Executor. This is a trusted individual who will execute the terms of the will. He or she should be willing to serve and be capable of executing the will.

Those who die without a valid will become intestate. This will result in their estate being settled, based on the laws of where that person lived. A court-appointed administrator will have the authority to transfer the assets and property. This administrator is bound by the state’s intestacy laws and may make decisions that go against the decedent’s wishes. To avoid this, work with an experienced estate planning attorney to draft a will and other estate planning documents.

Reference: The Reflector (July 15, 2019) “Things people should know about creating wills”