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Why You Should Have an Advance Directive

An advance directive is a legal document that states a person’s preferences for medical treatment and medical decision-making, reports Valley News in an informative article titled “Advance Directives Provide Clear Guidance for Care.”

There are two components that make up an advance directive: a durable power of attorney and a treatment preferences section.

The durable power of attorney for health care allows you to appoint someone to make medical decisions, if you lack the capacity to make those decisions for yourself.

The treatment preference, which is sometimes referred to as a living will, lets you specify what kind of treatment you would want in a difficult circumstance. Treatment and care preferences usually focus on what you would want at the end of life or if you were in a permanently unconscious state. There are other preferences that can be expressed, including pain control, blood transfusions, mental health care and spiritual care. Another preference: who should—and should not—be involved in discussions about treatment.

Most people want to express their wishes to avoid aggressive measures being taken to extend their lives, when the end result will be suffering and a delay of their passing. Others chose to avoid the financial burdens that may or may not result in any kind of change in their health or the quality of their life.

Some have these documents prepared to make it clear that they want to spend their final months, weeks or days at home with loved ones with care only to relieve pain or care, so they can be conscious and able to speak with those around them.

Advance directives are a blessing to loved ones since they do not have to make hard choices in a crisis situation. They know what their aging parent or spouses wishes.

It’s important to choose the person you want to be responsible for your care well in advance. Make sure it’s someone you trust, who knows you well and will be able to make hard decisions in a highly emotional time. They’ll also have to be able to communicate with your doctors and family members.

These documents are bound by the laws of your state, so speak with an estate planning attorney who practices law in your state of residence. They’ll be able to prepare these documents on your behalf, along with a will and other estate planning documents.

Reference: Valley News (Sep. 1, 2018) “Advance Directives Provide Clear Guidance for Care”

Baby Boomers Will Leave Trillions of Dollars to Their Heirs

During the next 25 years, Americans will transfer an estimated $68 trillion to their heirs and charities. Seventy percent of that amount, almost $48 trillion, will pass from baby boomers and most of that ($32 trillion) will go to members of Generation X. Although Americans who are currently between the ages of 50 and 70 will distribute some of their assets during their lifetimes, the remainder will get transferred through their estates after they die.

Because baby boomers will leave trillions of dollars to their heirs, they and their beneficiaries should learn about the financial consequences of this magnitude of wealth transfer. Prudent planning can prevent massive losses from unnecessary taxes and other negative financial outcomes. Every dollar that you legally avoid paying to the government, is a dollar you can one day give to charity or your loved ones.

Tax Traps

You might want to help your adult children or your grandchildren now, rather than having to wait until you die. Unfortunately, giving large amounts of money to them while you are alive, can trigger gift taxes. Depending on the amount of the gift, you might find that a large chunk of your money went to the government, instead of to your loved ones.

How you leave your assets can also impact the tax consequences. For example, if you have a traditional individual retirement account (IRA) and you leave its proceeds to a beneficiary who is not your spouse, there can be a significant tax bill. In addition, some financial accounts have burdensome transfer fees, so you should check into this issue before deciding what to do with your assets.

One way to minimize taxes is to set up a trust. The laws are different in every state, and the applicable federal laws can change at any time. Be sure to you talk with your elder law attorney to set up your estate in a manner that takes tax consequences into consideration. This article does not give tax advice. You should talk with your tax advisor.

Talk with Your Beneficiaries

Open communication is essential, when formulating a wealth transfer plan for your family. Some of your children might already have financial security and would prefer that you give the assets you would leave them to their children instead.

Surprises are seldom a good idea. When a sizeable inheritance drops into a person’s lap without warning, the recipient often lacks the money management skills to handle the assets. This fact is why many lottery winners go broke within a year or two of winning millions. Talking with your heirs can give them time to mentally prepare and educate themselves on investments and other financial issues.

When you talk with your beneficiaries, you can suggest a team of professionals who can advise them on how to safeguard the assets they will receive. If not handled properly, for example, your loved ones could lose a substantial portion of the inheritance in a divorce.

Your local elder law attorney can advise you on how the regulations are different in your state from the general law of this article.

References:

AARP. “Boomers Will Pass Along Trillions, Mostly to Gen Xers.” (accessed December 29, 2018) https://www.aarp.org/money/budgeting-saving/info-2018/generational-wealth-transfer.html

How Do I Include Retirement Accounts in Estate Planning?

You probably made beneficiary designations for your retirement accounts, when you opened them. Remember: who you designated can affect your overall estate planning objectives. Because of this, when including your retirement assets in your estate, ask yourself if anything has changed in your life since then that would affect their status as your beneficiaries, as well as how they’d receive the retirement assets.

Investopedia’s recent article, “Include Your Retirement Accounts in Your Estate,” gives us some things to consider in the New Year.

Beneficiary Designations. Review your beneficiary designations after major life changes. If you fail to make these designations, the funds will most likely go into your estate—a horrible outcome from a tax and planning perspective. If your estate is named a beneficiary, your heirs must wait until probate is finished to access your retirement accounts. It is usually better to name an individual or a trust as your beneficiary.

Protecting Retirement Funds With a Trust. Another option is to include a trust in your estate planning, instead of giving your retirement funds directly to named individuals. This allows you more control over the distribution, while protecting your heirs from additional paperwork and taxes. Trust distributions keep a beneficiary from accessing and spending their inheritance all at once. It’s also a good idea if your beneficiaries include minor children who shouldn’t have direct access to the money until they are adults. Be sure to consult with an estate planning attorney, because there are tax and other complexities associated with designating a trust as beneficiary.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you are required to start taking distributions. For 401(k) accounts, you are required to start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, these rules apply to them instead. A spousal beneficiary can roll over your retirement funds tax-free into their retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Tax treatment and distribution options vary, depending on who is receiving your retirement assets.

Tax Considerations. The biggest worry you need to address when designating retirement accounts as part of your estate plan, is how they’ll be taxed. Consider how to withdraw from these accounts while you’re alive and how to minimize tax consequences after you’ve passed.

Work with an estate planning attorney who has a strong understanding of retirement accounts and the tax and legal requirements of estate planning. That way you can be certain your retirement assets are distributed to the proper beneficiaries with the least tax liability.

Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”