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4 Ways to Reduce or Eliminate Probate Costs When Setting Up Your Estate

Leave more for your beneficiaries and charities?

By Cornerstone Wealth Management

Probate costs will reduce estate size. Attorneys fees, court costs, other professional fees and expenses can result in shrinking an estate by up to five percent (5%). For example, with an estate valued at $1 million, settlement costs can be as much as $50,0001. That assumes a routine probate. In addition, the probate process can take over a year to settle.

Where does this money go? If the probate is routine, then these costs are for administration of the settlement process. Few estates require more than that. More complex probates may incur higher cost and potentially require more time to settle. Beneficiaries of small, five-figure estates may be allowed to claim property through affidavit. This option does not apply to larger estates.

The question for those who wish to manage these expenses becomes, how can you exclude more assets from the expense of probate? They key for many is to create a plan that exclude from probate as many assets as possible. What follows are four ideas that have worked for others.

  1. Joint accounts. Married couples may hold property as joint tenants. Jointly titled property includes a right of survivorship and is exempt from probate. At the death of the first spouse, assets then pass to the surviving spouse. State law varies on this matter. Some states allow a variation called tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship (they need consent from the other spouse to transfer their ownership interest in the property). Other states allow community property with right of survivorship; assets titled in this manner also skip the probate process.2,3 Joint accounts may still face legal challenges. For example, a potential beneficiary to assets in a jointly held bank account may claim that it is not a “true” joint account, but a “convenience account” where a second accountholder was added just for financial expediency. Or, a joint account arrangement with right of survivorship may be found inconsistent with an estate plan.4 While not a solution for all, joint accounts can be a tool that can be effective for many.
  2. POD & TOD accounts. Payable-on-death and transfer-on-death forms are used to permit easy transfer of bank and investment accounts, and in some states, motor vehicles. During the life of the original owner, the named beneficiary has no rights to claim the asset. Upon the owner’s death, the named beneficiary can claim the assets or securities by showing his or her I.D. and valid proof of the original owner’s death5.
  3. Gifting. For 2018, the IRS allows tax free gifts of up to $15,000 per person to as many different people as you like. Gifting will reduce the size of your taxable estate. Gifting over $15,000 per recipient per year may be subject to federal gift tax (which tops out at 40%) and count against your lifetime gift tax exclusion. In 2018, the lifetime individual gift tax exemption is $11.18 million, and $22.36 million for married couples.6,7
  4. Revocable living trusts. In a sense, these estate planning vehicles allow people to do much of their own probate while living. The Grantor – the person who establishes the trust – funds it while alive with up to 100% of his or her assets, designating the beneficiaries of those assets at his or her death. The trust owns assets once owned by the Grantor, yet the Grantor can invest, spend, and manage these assets as if it is their own while alive. Upon the Grantor’s death, the trust becomes irrevocable, and its assets should be able to be distributed by a successor trustee without having to be probated. The distribution is private (as opposed to the completely public process of probate), and it can save heirs court costs and time.8

Are there assets not subject to the probate fees and process? Yes, there are all kinds of non-probate assets. The common denominator of a non-probate asset is that they transfer by beneficiary designation, which allows these assets to pass either to a designated beneficiary or a joint tenant, regardless of what a will states. Examples: assets jointly owned with right of survivorship, trusts and assets held within trusts, TOD accounts, proceeds from life insurance policies, and IRA and 401(k) accounts.9

Make sure to list/update retirement account beneficiaries. When you open a retirement account (such as an IRA), you are asked to designate beneficiaries of that account. This beneficiary form stipulates where these assets will go when you die. A beneficiary form commonly takes precedence over a will.7

Your beneficiary designations need to be reviewed, and updated when appropriate. This will help prevent you from inadvertently leaving an asset to a former spouse or estranged family member.

If you are married and have a workplace retirement account, under federal law, your spouse is the default beneficiary unless he or she in writing declines. Your spouse is automatically entitled to receive 50% of the account assets should you die, even if you designate another person as the account’s primary beneficiary. In contrast, a married IRA owner may name anyone as a primary or secondary beneficiary, without spousal consent.10

If you or someone you know would like to get coaching on approaches to estate planning, we welcome your call.

#Probate #AvoidProbate #ProbateCosts #BeneficiaryDesignation #TOD #POD #EstatePlanning #FinancialPlanning #Gifting #Charity #Taxes #TaxStrategies

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This material was prepared by MarketingPro, Inc. and does not necessarily represent the views of the presenting party nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.1 – nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [9/12/18]
2 – info.legalzoom.com/difference-between-community-property-rights-survivorship-vs-joint-tenancy-21133.html [9/12/18]
3 – law.cornell.edu/wex/tenancy_by_the_entirety [9/12/18]
4 – clarkhill.com/alerts/a-guide-for-challenging-a-joint-account-arrangement-in-michigan [3/16/17]
5 – nolo.com/legal-encyclopedia/avoid-probate-transfer-on-death-accounts-29544.html [9/12/18]
6 – thebalance.com/how-is-the-gift-tax-calculated-3505674 [7/25/18]
7 – marketwatch.com/story/how-to-avoid-making-the-same-mistake-aretha-franklin-did-2018-09-04 [9/4/18]
8 – thebalance.com/how-does-a-revocable-living-trust-avoid-probate-3505224 [7/24/18]
9 – fidelity.com/life-events/inheritance/inheritance-basics/probate [9/12/18]
10 – connorsandsullivan.com/Articles/Beneficiary-Designations-Getting-the-Right-Assets-to-the-Right-People.shtml [9/12/18]

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Should You Leave Your IRA to a Child?

What you should know about naming a minor as an IRA beneficiary.

Can a child inherit an IRA? The answer is yes, though they cannot legally own the IRA and its invested assets. Until the child turns 18 (or 21, in some states), the inherited IRA is a custodial account, managed by an adult on behalf of the minor beneficiary.1,2

IRA owners who name minors as beneficiaries may have good intentions. Their goal may be to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary.

Those good intentions may be disregarded, however. When minor IRA beneficiaries become legal adults, they have the right to do whatever they want with those IRA assets. If they want to drain the whole IRA to buy a Porsche or fund an ill-conceived start-up, they can.2

How can you have a say in what happens to the IRA assets? You could create a trust to serve as the IRA beneficiary, as an intermediate step before your heir takes possession of those assets as a young adult.

In other words, you name a trust as the beneficiary of your IRA, and your child or grandchild as a beneficiary of the trust. When you have that trust in place, you have more control over what happens with the inherited IRA assets.2

The trust can dictate the how, what, and when of the income distribution. Perhaps you specify that your heir gets $10,000 annually from the trust beginning at age 30. Or, maybe you include language that mandates that your heir take distributions over their life expectancy. You can even stipulate what the money should be spent on and how it should be spent.2

A trust is not for everyone. The IRA needs to be large to warrant creating one, as the process of trust creation can cost several thousand dollars. No current-year tax break comes your way from implementing a trust, either.2

In lieu of setting up a trust, you could simply name an IRA custodian. In this case, the term “custodian” refers not to a giant investment company, but a person you know and have faith in who you authorize to make investing and distribution decisions for the IRA. One such person could be named as the custodian; another, as a successor custodian.2

What if you designate a minor as the beneficiary of your IRA, but fail to put a custodian in place? If there is no named custodian, or if your named custodian is unable to serve in that role, then a trip to court is in order. A parent of the child, or another party who wants guardianship over the IRA assets, will have to go to court and ask to be appointed as the IRA custodian.2

You should also recognize that the Tax Cuts & Jobs Act reshaped the “kiddie tax.” This is the federal tax on a minor’s net unearned income. Required minimum distributions (RMDs) from inherited IRAs may be subject to this tax. A minor’s net unearned income is now taxed at the same rate as trust income rather than at the parents’ marginal tax rate.3,4

This is a big change. Income tax brackets for a trust or a child under age 19 are now set much lower than the brackets for single or joint filers or heads of household. A 10% rate applies for the first $2,550 of taxable income, but a 24% rate plus $255 of tax applies at $2,551; a 35% rate plus $1,839 of tax, at $9,151; a 37% rate plus $3,011.50 of tax, at $12,501 and up.3,5

While this may be a negative for middle-class families seeking to leave an IRA to a child, it may be a positive for wealthy families: the new kiddie tax rules may reduce the child’s tax liability when compared with the old rules.4

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1   Due to the complex nature of a trust creation, you should seek the counsel of a legal professional.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.1 – investopedia.com/articles/retirement/09/minor-as-ira-beneficiary.asp [6/19/18]
2 – kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html [5/17]
3 – forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/ [5/8/18]
4 – tinyurl.com/y7bonwzx [5/31/18]
5 – forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/ [3/7/18]

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Keep Your Life Insurance When You Retire

Some good reasons to retain it.

Do you need a life insurance policy in retirement? One school of thought says no. The kids are grown, and the need to financially insulate the household against the loss of a breadwinner has passed.

If you are thinking about dropping your coverage for either or both of those reasons, you may also want to consider some reasons to retain, obtain, or convert a life insurance policy after you retire. It may be a prudent decision once you take these factors into account.

Could you make use of your policy’s cash value? If you have a whole life policy, you might want to utilize that cash in response to certain retirement needs. Long-term care, for example: you could explore converting the cash in your whole life policy into a new policy with a long-term care rider, which might even be doable without tax consequences. If you have income needs, many insurers will let you surrender a whole life policy you have held for some years and arrange an income contract with the cash value. You can pull out the cash, tax-free, as long as the amount withdrawn is less than the amount paid into the policy. Remember, though, that withdrawing (or taking a loan against) a policy’s cash value naturally reduces the policy’s death benefit.1

Do you receive a “single life” pension? Maybe a pension-like income comes your way each month or quarter, from a former employer or through a private income contract with an insurer. If you are married and there is no joint-and-survivor option on your pension, that income stream will dry up if you die before your spouse dies. If you pass away early in your retirement, this could present your spouse with a serious financial dilemma. If your spouse risks finding themselves in such a situation, think about trying to find a life insurance policy with a monthly premium equivalent to the difference in the amount of income your household would get from a joint-and-survivor pension as opposed to a single life pension.2

Will your estate be taxed? Should the value of your estate end up surpassing federal or state estate tax thresholds, then life insurance proceeds may help to pay the resulting taxes and help your heirs avoid liquidating some assets.

Are you carrying a mortgage? If you have refinanced your home or borrowed to buy a home, a life insurance payout could potentially relieve your heirs from shouldering some or all of that debt if you die with the mortgage still outstanding.2

Do you have burial insurance? The death benefit of your life insurance policy could partly or fully pay for the costs linked to your funeral or memorial service. In fact, some people buy small life insurance policies later in life in preparation for this need.2

Keeping your permanent life policy may allow you to address these issues. Alternately, you may seek to renew or upgrade your existing term coverage. Consult an insurance professional you know and trust for insight.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – forbes.com/sites/forbesfinancecouncil/2018/03/06/using-life-insurance-for-retirement-purposes/ [3/6/18]
2 – nasdaq.com/article/4-reasons-to-carry-life-insurance-in-retirement-cm946820 [4/12/18]

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Life Insurance Explained

A quick look at the different types of policies.

When it comes to life insurance, there are many choices. Whole life. Variable universal life. Term. What do these descriptions really mean?

All life insurance policies have two things in common. They guarantee to pay a death benefit to a designated beneficiary after a policyholder dies (although, the guarantee may be waived if the death is a suicide occurring within two years of the policy purchase). All require recurring payments (premiums) to keep the policy in force. Beyond those basics, the differences begin.1

Some life insurance coverage is permanent, some not. Permanent life insurance is designed to cover you for your entire life (not just a portion or “term” of it), and it can become an important element in your retirement planning. Whole life insurance is its most common form.2

Whole life policies accumulate cash value. How does that happen? An insurer directs some of your premium payments into a reserve account and puts those dollars into investments (typically conservative ones). The return on the investments influences the growth of the cash value, which builds up according to a formula the insurer sets.3

A whole life policy’s cash value grows with taxes deferred. After a while, you gain the ability to borrow against that cash value. You can even cancel the policy and receive a surrender value. Premiums on whole life policies, though, are usually higher than premiums on term life policies, and they may rise with time. Also, beneficiaries only receive a death benefit (not the policy’s cash value) when a whole life policyholder dies.2,4

Universal life insurance is whole life insurance with a key difference. Universal life policies also build cash value with taxes deferred, but there is the chance to eventually pay the monthly premiums out of the policy’s investment portion.5

Month by month, some of your premium on a universal life policy gets credited to the cash reserve of the policy. Sooner or later, you may elect to pay premiums out of the cash reserve – so, the policy essentially begins to “pay for itself.” If all goes well, a universal life policy may have a lower net cost than a whole life policy. If the investments chosen by the insurer severely underperform, that can mean a dilemma: the cash reserve of your policy may dwindle and be insufficient to keep paying the premiums. That could mean cancellation of the policy.5

What about variable life (and variable universal life) policies? Variable life policies are basically whole life or universal life policies with a riskier investment component. In VL and VUL policies, you may direct percentages of the cash reserve into investment sub-accounts managed by the insurer. Assets allocated to the sub-accounts may be put into equity investments of your choice as well as fixed-income investments. If you choose equity investments, you (and the insurer) assume greater risk in exchange for the possibility of greater reward. The performance of the subaccounts cannot be guaranteed. As an effect of this risk exposure, a VUL policy usually has a higher annual cost than a comparable UL policy.6

The performance of the stock market may heavily affect the performance of the subaccounts and the policy premiums. A bull market may mean better growth for the policy’s cash value and lower premiums. A bear market may mean reduced cash value and higher monthly payments to keep the policy going. In the worst-case scenario, the cash value plummets, the insurer hikes the premiums in order to provide the guaranteed death benefit, the premiums become too expensive to pay, and the policy lapses.6

Term life insurance is life insurance that you “rent” rather than own. It provides coverage for a set period (usually 10-30 years). Should you die within that period, your beneficiary will get a death benefit. Typically, the premium payments and death benefit on a term policy are fixed from the start, and the premiums are much lower than those of permanent life policies. When the term of coverage ends, you may be offered the option to renew the coverage for another term or to convert the policy to a form of permanent life insurance.2,7

Term life is cheap, but the tradeoff comes when the term is up. Just as you cannot build up home equity by renting, you cannot build up cash value by “renting” life insurance. When the term of coverage is over, you usually walk away with nothing for the premiums you have paid.7

Which coverage is right for you? Many factors may come into play when deciding which type of life insurance will suit your needs. The best thing to do is to speak with a qualified insurance professional who can help you examine these factors, so you can determine which type of coverage may be appropriate.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thebalance.com/does-a-life-insurance-policy-cover-suicide-2645609 [6/5/18]
2 – fool.com/retirement/2017/07/20/term-vs-whole-life-insurance-which-is-best-for-y-2.aspx [7/20/17]
3 – investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp [4/30/18]
4 – insure.com/life-insurance/cash-value.html [12/12/17]
5 – thebalance.com/what-you-need-to-know-about-universal-life-insurance-2645831 [5/8/18]
6 – insuranceandestates.com/top-10-pros-cons-variable-universal-life-insurance/ [9/1/17]
7 – consumerreports.org/life-insurance/how-to-choose-the-right-amount-of-life-insurance/ [3/30/18]

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Do You Know Who Your Beneficiaries Are?

Why you should periodically review beneficiary designations.

Your beneficiary choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions. In fact, you might want to review them annually.

Beneficiary designations commonly override bequests made in a will or living trust. Many people do not realize this. When assets have designated beneficiaries, they can usually avoid probate and transfer directly to that person.1,2

You may have chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets?

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. If you’re not certain you understand all the possible ramifications of your selections, you may want to reach out to a qualified financial professional for guidance.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thebalance.com/why-beneficiary-designations-override-your-will-2388824 [8/28/17]
2 – wealthmanagement.com/estate-planning/designating-beneficiary-not-easy-it-looks [4/23/18]

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Long-Term-Care Insurance Isn’t Dead. It’s Now an Estate-Planning Tool

Last year, after finishing with college tuition for their three children, Jessica Galligan Goldsmith and her husband, James, treated themselves to something she had long wanted: long-term-care insurance.

It hasn’t been cheap. The couple, both lawyers in their mid-50s, will shell out more than $320,000 between them over a decade. For that, they will be able to tap into benefits topping $1 million apiece by the time they are in their 80s, the age when many Americans suffer from dementia or other illnesses that require full-time care.

Plus, the policies pay out death benefits if long-term care isn’t ultimately needed, and most provide 10% to 20% of the original death benefit even if the long-term-care proceeds are fully tapped.

Such policies that combine long-term-care coverage with a potential life-insurance benefit are called “hybrids,” and they are reshaping the long-term-care niche of the U.S. insurance industry just as it had appeared headed for obsolescence, financial advisers say. The Goldsmiths were among 260,000 purchasers last year nationwide of these hybrids, according to industry-funded research firm LIMRA, far outpacing the 66,000 traditional long-term-care policies sold in 2017.

When long-term-care insurance took off in the 1990s, insurers aimed for the broad middle class of America. The pitch was that policies would save ordinary families from entirely draining their savings, leaning on children or enrolling in the federal-state Medicaid program for the poor. (Medicare pays for nursing-home stays only in limited circumstances.)

Now, many insurers are finding their best sales opportunity with wealthy Americans. Many of these people may be able to afford costly care later in their lives, but they are buying the contracts to protect large estates, advisers say. ​​

Ms. Goldsmith wanted long-term-care coverage partly because her legal specialty is trusts and estates and she has seen families whose seven-figure investment portfolios were devastated by years of care for spouses.

“What felt like a good nest egg” can be hit by “astronomical expenses,” says Ms. Goldsmith, of Westchester County outside New York City. Their policies are from a unit of Nationwide Mutual Insurance Co.

According to federal-government projections, about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of long-term care. Twelve percent will need two to five years, and 14% will need more than five years. At $15 an hour, around-the-clock aides run $131,400 a year, while private rooms in nursing homes top $100,000 in many places.

Hybrids can cost even more than traditional standalone products because they typically include extra features. There is wide variation across the hybrid category and the type the Goldsmiths bought (known as “asset-based long-term-care”) includes a particularly valuable feature: a guarantee that premium rates won’t increase.

Traditional long-term care policies fell from favor in the mid-2000s after many insurers obtained approval from state regulators for steep rate increases—some totaling more than 100%—due to serious pricing errors. In May, Massachusetts Mutual Life Insurance Co. began applying for average increases of about 77% that would apply to about 54,000 of its 72,000 LTC policyholders. Until this move, MassMutual hadn’t previously asked longtime policyholders to kick in more to better cover expected payouts.

Affluent buyers also can afford to pay for their hybrid policies within 10 years, as many insurers require. However at least one big carrier, Lincoln National Corp. , has begun allowing people in their 40s and early 50s to spread payments over more years, provided they fully pay by age 65.

Besides the death benefit—which is as much as $432,000 on a combined basis for the Goldsmiths—hybrids also include a “return of premium” feature. This allows buyers to recoup much of their money if they want out of the transaction, albeit without interest.

“We call these ‘live, die, change your mind’ policies,” says Natalie Karp, the Goldsmiths’ agent and co-founder of Karp Loshak LTC Insurance Solutions, a brokerage in Roslyn, N.Y.

About a dozen insurers still offer traditional long-term-care policies that typically lack those features. They charge more and provide shorter benefit periods than they did in the past. But Tim Cope, a financial adviser in South Burlington, Vt., for insurance brokerage NFP, says the good news is that “policies continue to pay for much-needed care, and changes in their policy design, pricing and underwriting are an effort to minimize premium increases on recently issued and new policies.”

Many advisers favor standalone and hybrid offerings of three of the nation’s largest and financially strongest insurers: MassMutual, New York Life Insurance Co. and Northwestern Mutual Life Insurance Co.

Ms. Goldsmith says she was attracted to the Nationwide hybrid because it doesn’t require submission of receipts to obtain the long-term-care proceeds. Benefits are payable in cash when a physician certifies a severe cognitive impairment or inability to perform basic activities, such as bathing, eating and dressing. Payments are capped at specified monthly amounts. For the Goldsmiths, the monthly benefit starts at $9,000 per spouse and grows with an inflation adjustment to more than $15,000 in their 80s.

“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Ms. Goldsmith says.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.
All illustrations are hypothetical and are not representative of any specific investment.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.
If you need more information or would like personal advice you should consult an insurance professional.

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The A, B, C, & D of Medicare

Breaking down the basics & what each part covers.

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.

Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters.1

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $167.50 daily coinsurance payment may be required of you.2

If you stop receiving SNF care for more than 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.2

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $134 this year, but some people who receive Social Security benefits are paying lower Part B premiums (on average, $130). The current yearly deductible is $183. (Some people automatically receive Part B coverage, but others must sign up for it.)3

Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage as well as vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums.4

To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 – December 7), seniors can choose to switch out of Original Medicare to a Part C plan or vice versa; although any such move is much wiser with a Medigap policy already in place.5

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. Some Medigap policies can even help you pay for medical care outside the United States. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage; in fact, they have been sold without drug coverage since 2006.6

Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.7

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.8

Part C & Part D plans are assigned ratings. Medicare annually rates these plans (one star being worst; five stars being best) according to member satisfaction, provider network(s), and quality of coverage. As you search for a plan at medicare.gov, you also have a chance to check out the rankings.9

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – mymedicarematters.org/coverage/parts-a-b/whats-covered/ [5/8/18]
2 – medicare.gov/coverage/skilled-nursing-facility-care.html [5/8/18]
3 – medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html [5/8/18]
4 – medicareinteractive.org/get-answers/medicare-health-coverage-options/medicare-advantage-plan-overview/medicare-advantage-basics [5/8/18]
5 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html [5/8/18]
6 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/8/18]
7 – ehealthinsurance.com/medicare/part-d-cost [5/8/18]
8 – medicare.gov/part-d/coverage/part-d-coverage.html [5/8/18]
9 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html [5/8/18]

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You Can Limit Financial Costs if You Predecease Your Spouse, if Not the Emotional Ones

The transfer of assets when a spouse dies can be fairly simple—if you learn from my mistakes.

I pride myself on keeping meticulous financial records. But since my wife died on Jan. 1, I discovered I had made some real rookie mistakes that led to hours of extra work and substantial fees. The transfer of assets between spouses can be fairly simple—if you learn from my mistakes.

Dr. Lisa Jane Krenzel and I shared everything throughout our marriage. Like many couples, we split responsibilities. I paid the bills and made investments. She took care of our health insurance, plus the house. We maintained individual checking and savings accounts, as well as separate retirement accounts from various jobs throughout our careers. What went wrong?

  • Issue One:When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise.

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

  • Issue Two: The highly charged question of funeral and burial. Last summer, when I was told Lisa would not survive this illness, I tried to raise the issue of burial with her. She refused to have the conversation, but I quietly went ahead and purchased a plot of graves in the cemetery in Wisconsin where my parents, grandparents and great-grandparents are buried. This was something I actually did right.

We had to employ two funeral homes—one in New York and one in Wisconsin—and her body had to make the journey out there. All told, I spent $46,359 to cover funeral expenses, graves, transportation, a headstone and a basic casket.

I noticed something interesting in this process. All of my fellow baby boomer friends I have since asked have so far refused to deal with the issue. They wince when I even raise the question. Hear me: You don’t want to have to make this decision at the time someone close to you dies. You simply are not thinking straight.

  • Issue Three: Our health insurance plan covered the long hospital stays and doctors’ visits. However, shortly after Lisa died, I still received bills, even though our deductibles and copays had long since been covered. I paid them immediately, which was a mistake. I was incorrectly billed and I have been fighting the hospitals and insurance company since January to get a refund, even though everyone agrees the bills were incorrect. Before you pay any medical bills, make a simple call and determine their legitimacy. Mistakes are constant: The systems are so complicated, even people in these offices don’t always understand the intricacies.
  • Issue Four:Lisa had two life-insurance policies—one through her work and the other we purchased privately. The former was handled quickly and efficiently by her job and a check arrived almost immediately. Although the insurance company sent me a check for her private policy soon after her death, it took three months of constant calls and emails to determine a refund of the premium I had already paid for three months past her death. I kept getting wrong information from the company, because the people I dealt with didn’t understand it themselves.
  • Issue Five: Over the course of Lisa’s working life—from her first job at a fast-food restaurant to medicine—she paid more than $100,000 to Social Security. Since she died at 60, and our 19-year-old daughter is one year past the age of receiving a monthly benefit, all this money has simply disappeared into the lockbox in Washington. Nothing you can do about this one.

Finally, there is the major psychological trauma of grief. I think most people believe death will never intrude on their lives and when it does, we will be so old and decrepit that it won’t much matter. Trust me on this—even when it’s been expected for a while, it still shocks deeply. There is absolutely no way you can prepare yourself for the shattering heartbreak of loss. When it did come to me, I found the support of friends, family and faith to be invaluable. Amazingly, that cost nothing.

Mr. Kozak is the author of “LeMay: The Life and Wars of General Curtis LeMay” (Regnery, 2009). Appeared in the April 28, 2018, print edition.

Rich Arzaga, CFP® & David Winkler
Cornerstone Wealth Management, Inc.
info@cornerstonewmi.com

2400 Camino Ramon, Suite 175
San Ramon, CA 94583
925-824-2880

CA Insurance Lic# 0D92796 & Lic# 0G10586. Rich Arzaga and David Winkler are registered representative with, and Securities and Advisory services offered through, LPL Financial, a registered investment advisor, Member FINRA/SIPC. Financial planning is offered through Cornerstone Wealth Management, Inc. a registered investment advisor and a separate entity from LPL Financial. The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual.

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Where Retirees Underestimate Spending

Where Retirees Underestimate Spending         

Underestimating how much you’ll spend can be costly, so it’s key to know the common pitfalls

 

Navigating retirement can be difficult for lots of reasons. One of the biggest is that it forces people to make plans based on spending assumptions that won’t become a reality for decades.

Guessing wrong can be the difference between a comfortable retirement and one that is a struggle.

“It’s a lot more difficult to recover in retirement,” says Adam Van Wie, a financial planner in Jacksonville Beach, Fla. “You can try to find another job, but that’s not an option for everyone.”

We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.

Helping family. You may be willing to slash your own expenses in retirement if times get tough. What will you do if your children, or grandchildren, get in a bind? Saying no is much harder.

  • In Defense of thsy Retirement

But saying yes can imperil your own retirement. A number of parents who guaranteed their children’s school loans have seen their own finances ruined when the child defaulted on the loan.

Mark McCarron, a financial planner in Charlottesville, Va., is working with a retired couple who paid for the wedding of one daughter, and expect to pay shortly for the wedding of their other daughter as well.

They have the cash, says Mr. McCarron. The rub is that they just hadn’t planned on paying for weddings when they retired, and it reduces the funds they can draw upon for other purposes.

Big-ticket periodic items. Would-be retirees often meticulously estimate day-to-day expenses, but forget to factor in more periodic, and mostly predictable, expenses like a new car or a new roof. And those big-ticket items inevitably blow holes in their budgets.

Dana Anspach, a financial planner in Scottsdale, Ariz., recommends that clients set aside 3% of the value of their house each year for maintenance—as well as plan on setting aside money for the periodic new car.

One caveat: Beware of taking big chunks of money out of a 401(k) or other tax-deferred accounts, Ms. Anspach says. Such withdrawals are treated as taxable income and can push retirees into a higher tax bracket. A better approach is to withdraw the money gradually over a two- or three-year period for an expected expense.

Belinda Ellison of Greenville, S.C., who recently retired as a lawyer, sets aside money for unforeseen landscaping expenses. So she was ready when she had to spend $10,000 recently to remove a huge tree on her property. Ms. Ellison owns a 100-year-old home, and has another fund set up for renovation expenses.

It’s not so with everybody she knows. “I have friends who have trouble when they need a new set of tires,” Ms. Ellison says.

Entertainment. Many retirees are surprised at how much their entertainment costs rise when they stop working, says Neil A. Brown, a financial adviser in West Columbia, S.C. Instead of working five or six days a week and playing one, it can be the opposite. “You’ve got five or six days to play,” Mr. Brown says.

Americans age 65 to 74 spent an average $5,832 on entertainment in 2015, according to a study from the Employment Benefit Research Institute, based in Washington, D.C. Entertainment spending declines with age; people 85 and over in the study spent $2,232 on average.

Health care. Even Medicare recipients are frequently shocked by the cost of health care, says Joan Cox, a financial planner in Covington, La. Ms. Cox says a married couple in their late 60s can expect to spend close to $13,000 a year in medical expenses. That assumes $8,000 in Medicare premiums and supplemental insurance premiums, $1,200 for drug coverage, and $3,700 in out-of-pocket expenses.

 

“I’ll do their financial plan, and it looks like they have plenty of assets” for retirement, she says. “Then I’ll put in health-care costs, and all of sudden their plan doesn’t work.”

Drugs costs, in particular, surprise retirees, says David Armes, a financial planner in Long Beach, Calif., who specializes in helping clients evaluate Medicare options. “Many of these cost drivers cannot be accurately predicted when you’re in your 60s,” he says. “There’s no way for 65-year-olds to know, for instance, whether they will need to take expensive brand-name drugs when they reach their 80s.”

For affluent retirees, there can be another surprise with Medicare. Couples whose modified adjusted gross income exceeds $170,000 a year must pay higher premiums. To lessen those expenses, a couple might try shifting income to one year so that they will avoid higher Medicare premiums in other years, says Mr. Armes.

Long-term care. The need for long-term care is perhaps the most costly unexpected expense in retirement.

 

About 15% of retirees will spend more than $250,000 on such care, according to a research report to be released this spring by Vanguard Group The problem is it is impossible to know who will be part of that 15%. Some 50% of retirees won’t spend anything at all, and 25% will spend less than $100,000, the Vanguard report says.

“It’s hard to plan for,” says Colleen Jaconetti, a senior investment analyst with Vanguard.

For years, financial planners urged people to buy long-term care insurance. But that market has shrunk dramatically in recent years after insurers underestimated costs and were forced to jack up premiums or withdraw from new sales. Some insurers now offer hybrid policies that combine life insurance and long-term-care insurance. These policies allow consumers to tap their death benefits early to pay for costs such as help with feeding, bathing and other personal needs.

Living a long life. One of the biggest mistakes people make in estimating retirement expenses is underestimating how long they will live.

The average 65-year-old in the U.S., for example, is likely to live an additional 19.4 years, according to data from the National Center for Health Statistics.

Obviously, the longer the life, the more the spending. It can be a good problem to have—but one that surprises too many people.

“Everybody worries about dying young,” says Prof. David Littell of the American College of Financial Services. “People should be more worried about living too long.”

Mr. Templin is a writer in New Jersey. He can be reached at reports@wsj.com.

Appeared in the April 23, 2018, print edition.

 

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone wealth Management, Inc. or LPL Financial. LPL Tracking# 1-723395