Garland Law Offices, P.A.

Using Retirement Funds in a Financial Crisis

“U.S. has been making it easier for people to access long-term savings for emergencies, trading future financial security to stay afloat.”

For generations, the tax code has been a public policy tool, used to encourage people to save for retirement and what used to be called “old age.” However, the coronavirus pandemic has created financial emergencies for so many households that lawmakers have responded by making it easier to tap these accounts. The article “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes” from The Wall Street Journal asks if this is really a good idea.

This shift in thinking actually coincides with trends that began to emerge before the last recession. People were living and working longer. Unemployment and career changes later in life were becoming more commonplace, and fewer and fewer people devoted four decades to working for a single employer, before retiring with an employer-funded pension.

For those who have been affected by the economic downturns of the coronavirus, withdrawals up to $100,000 from retirement savings accounts are now allowed, with no early-withdrawal penalty. That includes IRAs (Individual Retirement Accounts) or employment-linked 401(k) plans. In addition, $100,000 may be borrowed from 401(k) plans.

Americans are not alone in this. Australia and Malaysia are also allowing citizens to take money from retirement accounts.

Lawmakers are hoping that putting money into pockets now may help households prevent foreclosures, evictions and bankruptcies, with less of an impact on government spending. With trillions in retirement accounts in the U.S., these accounts are where legislators frequently look when resources are threatened.

However, there’s a tradeoff. If you take out money from accounts that have lost value because of the market’s volatility, those losses are not likely to be recouped. And if money is taken out and not replaced when the world returns to work, there will be less money during retirement. Not only will you miss out on the money you took out, but on the return, it might have made through years of tax-advantaged investments.

The danger is that if retirement accounts are widely seen as accessible and necessary now, a return to saving for retirement or the possibility of putting money back into these accounts when the economy returns to normal may not happen.

IRA and 401(k) accounts began to supplant pensions in the 1970s as a way to encourage people to save for retirement, by deferring income tax on money that was saved. By the end of 2019, IRAs and 401(k) types of accounts held about $20 trillion in the US.

Boston College’s Center for Retirement Research has estimated that even before the coronavirus, early withdrawals were reducing retirement accounts by a quarter over 30 years, taking into account the lost returns on savings that were no longer in the accounts. For many people, taking retirement funds now may be their only choice, but the risk to their financial future and retirement is very real.

Reference: The Wall Street Journal (June 4, 2020) “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes”

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”

How Do I Title My Property Correctly for My Estate Plan?

“If you think Estate Planning is simply the creation of a will or trust, you are missing a large portion of information, and could potentially have assets that do not flow according to the plan you have set up in your will or trust.”

The way by which you title your real and personal property and who you name as your beneficiaries is just as important in your estate planning as your will or trust, says The Black Hills Pioneer’s recent article, “Titling of property is just as important as your Will or Trust.”

There are some kinds of property that, depending on how they are titled or who’s the named beneficiary, will flow outside your will or trust.

For instance, if you designate a beneficiary to your life insurance policy or on your retirement account, that money goes directly to the named beneficiary at your death—not in accordance with your will or trust (provided you haven’t named your estate or trust as the beneficiary).

In addition, you could designate another person as payable on death (POD) designee or transfer on death (TOD) designee on your investment account or your bank account. These types of accounts also transfer automatically to the named designee and not with any regard to your will or trust (unless you named your estate or trust as the beneficiary).

Any jointly owned real estate will typically flow to the surviving joint owner, not pursuant to your will or trust. However, the fact that two people own one piece of real estate doesn’t mean the property will flow automatically to the survivor. It depends on how the property is titled. For example, in South Dakota, language needs to be included in the deed conveying that real estate to both individuals as “joint tenants with rights of survivorship.”

You can, therefore, see how critical it is that you discuss these issues with your estate planning attorney. In addition to questions about wills and trusts, you should also be discussing the titling of your property and the beneficiaries you’ve named on your life insurance and retirement accounts, along with any POD and TOD designees you’ve named on your investment accounts or bank accounts.

If you don’t, you create problems for you family and loved ones.

Reference: Black Hills Pioneer (August 5, 2019) “Titling of property is just as important as your Will or Trust”

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”

Do Veterans Need to Pay for Help to Apply for Benefits?

“Westmoreland County’s Director of Veterans Affairs is reminding veterans that applying for benefits should never come with a fee.”

The Tribune-Review’s article, “Veterans don’t need to pay for help to apply for benefits in Pa,” explains that the issue of military veterans being charged when applying for benefits is a common problem in Pennsylvania. There are about 800,000 veterans in the Keystone State.

The article warns that there are still some who attempt to profit, by assisting veterans to sign up for their benefits.

Veterans should never have to pay to apply.

In January, an Allegheny County company was fined $10,000 after an employee fraudulently represented that he was an accredited veteran service officer. Some of the claims handled by the Allison Park firm were from Westmoreland County.

Veterans should ask for assistance only from an accredited veteran service officer, an attorney accredited by the VA, or an accredited claims agent. These agents provide veterans and their dependents free assistance to identify, determine eligibility for and apply for a wide range of benefits on the local, state and federal levels. That benefits include the following:

• Burial allowances;
• Grave markers and headstones properly requested and placed;
• The Disabled Veterans Real Estate Tax Exemption Program;
• Veterans Emergency Assistance;
• Pensions for blind and paralyzed veterans;
• The Education Gratuity Program;
• Service connected disability and non-service connected disability pensions;
• Federal health care benefits; and
• Survivor benefits.

You may be eligible for VA benefits, if you’re a uniformed servicemember, veteran, or spouse, child, or parent of a deceased or disabled servicemember or veteran.

A summary of benefits can be found at the Veterans Affairs website: https://benefits.va.gov/BENEFITS/benefits-summary/SummaryofVABenefitsFlyer.pdf.

Reference: (The Tarentum, PA) Tribune-Review (May 17, 2019) “Veterans don’t need to pay for help to apply for benefits in Pa”

Do Veterans Need to Pay for Help to Apply for Benefits?

“Westmoreland County’s Director of Veterans Affairs is reminding veterans that applying for benefits should never come with a fee.”

The Tribune-Review’s article, “Veterans don’t need to pay for help to apply for benefits in Pa,” explains that the issue of military veterans being charged when applying for benefits is a common problem in Pennsylvania. There are about 800,000 veterans in the Keystone State.

The article warns that there are still some who attempt to profit, by assisting veterans to sign up for their benefits.

Veterans should never have to pay to apply.

In January, an Allegheny County company was fined $10,000 after an employee fraudulently represented that he was an accredited veteran service officer. Some of the claims handled by the Allison Park firm were from Westmoreland County.

Veterans should ask for assistance only from an accredited veteran service officer, an attorney accredited by the VA, or an accredited claims agent. These agents provide veterans and their dependents free assistance to identify, determine eligibility for and apply for a wide range of benefits on the local, state and federal levels. That benefits include the following:

• Burial allowances;
• Grave markers and headstones properly requested and placed;
• The Disabled Veterans Real Estate Tax Exemption Program;
• Veterans Emergency Assistance;
• Pensions for blind and paralyzed veterans;
• The Education Gratuity Program;
• Service connected disability and non-service connected disability pensions;
• Federal health care benefits; and
• Survivor benefits.

You may be eligible for VA benefits, if you’re a uniformed servicemember, veteran, or spouse, child, or parent of a deceased or disabled servicemember or veteran.

A summary of benefits can be found at the Veterans Affairs website: https://benefits.va.gov/BENEFITS/benefits-summary/SummaryofVABenefitsFlyer.pdf.

Reference: (The Tarentum, PA) Tribune-Review (May 17, 2019) “Veterans don’t need to pay for help to apply for benefits in Pa”

What is a Transfer on Death (TOD) Account?

“Transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts and payable-on-death accounts) allow spouses to pass small estates in a simple, convenient way.”

Most married couples share a bank account from which either spouse can write checks and add or withdraw funds without approval from the other. When one spouse dies, the other owns the account. The dead spouse’s will can’t change that.

This account is wholly owned by both spouses while they’re both alive. As a result, a creditor of one spouse could make a claim against the entire account, without any approval or say from the other spouse. Either spouse could also withdraw all the money in the account and not tell the other. This basic joint account offers a right of survivorship, but joint account holders can designate who gets the funds, after the second person dies.

Kiplinger’s recent article, “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning,” explains that the answer is transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts, and payable-on-death accounts).

In some states, this type of account can allow a TOD beneficiary to receive an auto, house, or even investment accounts. However, retirement accounts, like IRAs, Roth IRAs, and employer plans, aren’t eligible. They’re controlled by federal laws that have specific rules for designated beneficiaries.

After a decedent’s death, taking control of the account is a simple process. What is typically required, is to provide the death certificate and a picture ID to the account custodian. Because TOD accounts are still part of the decedent’s estate (although not the probate estate that the will establishes), they may be subject to income, estate, and/or inheritance tax. TOD accounts are also not out of reach for the decedent’s creditors or other relatives.

Account custodians (such as financial institutions) are often cautious, because they may face liability if they pay to the wrong person or don’t offer an opportunity for the government, creditors, or the probate court to claim account funds. Some states allow the beneficiary to take over that responsibility, by signing an affidavit. The bank will then release the funds, and the liability shifts to the beneficiary.

If you’re a TOD account owner, you should update your account beneficiaries and make certain that you coordinate your last will and testament and TOD agreements, according to your intentions. If you fail to do so, you could unintentionally add more beneficiaries to your will and not update your TOD account. This would accidentally disinherit those beneficiaries from full shares in the estate, creating probate issues.

TOD joint account owners should also consider that the surviving co-owner has full authority to change the account beneficiaries. This means that individuals whom the decedent owner may have intended to benefit from the TOD account (and who were purposefully left out of the Last Will) could be excluded.

If the decedent’s will doesn’t rely on TOD account planning, and the account lacks a beneficiary, state law will govern the distribution of the estate, including that TOD account. In many states, intestacy laws provide for spouses and distant relatives and exclude any other unrelated parties. This means that the TOD account owner’s desire to give the account funds to specific beneficiaries or their descendants would be thwarted.

Ask an experienced estate planning attorney, if a TOD account is suitable to your needs and make sure that it coordinates with your overall estate plan.

Reference: Kiplinger (March 18, 2019) “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning”

How are Baby Boomers Doing with Their Retirement Planning?

“April is National Financial Literacy Month, but this week is National Retirement Planning Week, which means it's time for yet another round of depressing statistics about how unprepared we all are for retirement.”

The baby boomers—those born between 1946 and 1964, ages 55 to 73—have about half (47%) of their group already in retirement.

CNBC’s recent article, “Baby boomers face retirement crisis—little savings, high health costs and unrealistic expectations,” says that the Insured Retirement Institute’s annual report, Boomer Expectations for Retirement, highlights the fundamental issues of too little savings, underestimating healthcare costs and unrealistic expectations of how much retirement income they’ll actually need.

Too little savings. The three "legs" of the retirement "stool" are Social Security, private pensions and personal savings. These aren’t in great shape, as the average Social Security check is $14,000 a year, and just 23% of boomers ages 56-61 expect to receive income from a private company pension plan, with only 38% of older boomers expecting a pension. Most boomers haven’t saved nearly enough in their personal savings, with 45% of boomers having absolutely nothing saved for retirement.

Underestimating health care costs. Retirees frequently underestimate health expenses, especially long-term care costs. Many people don't understand the system: half of the survey respondents say they haven’t calculated the cost of long-term care insurance, because they say they’ll rely on Medicare. However, Medicare has no coverage for long-term care. Just eight percent of boomers say they have purchased a long-term care policy.

Underestimating retirement income. The average amount spent by Americans 65-74 is $55,000 annually. However, most baby boomers don't believe they’ll need near that amount. To that point, about 60% say they will need less than that on which to live. Their backup plan is to downsize, go back to work, or ask their children for help.

Of those who aren’t confident they did an adequate job preparing for retirement, the top two things they wish they’d done differently were to have saved more (63%) and to have started saving earlier (58%).

Reference: CNBC (April 9, 2019) “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations”

What Estate Planning Mistakes Should I Avoid After a Divorce?

“According to a report from UBS Global Wealth Management, 56% of married women leave control of major financial planning and investing decisions to their spouses.”

Divorce can be a very difficult time and a big change for most people. However, women, in particular, often realize that they’re impacted most by the financial aspects of divorce. As a result, it’s no shock that many women find themselves financially overwhelmed when divorcing.

Forbes’s recent article, “The Top Estate Planning Mistakes Divorcing Women Make,” notes that even though you may be dealing with a lot of emotion at the start of a divorce, it's important to focus on certain issues, like your inevitably changing financial situation. This is especially important, if you have children. You may be busy taking care of many aspects of your immediate financial needs, but this is also the time to consider your future as well. It's never too early to address this often-overlooked task and learn how to protect yourself (and your children), while avoiding these estate planning mistakes that divorcing women commonly commit.

Reviewing Your Will. When you divorce, your will should be reevaluated and updated. If your spouse was named as a beneficiary on any accounts, you may want to make changes to those.

Reviewing the Children's Guardianship. If you don’t name a guardian, there's no knowing who gets custody of your children if you were to die. If you and your spouse already created a guardianship plan before you divorced, and you now have custody, review this plan. That’s because the appointed guardian may be one of your former spouse's family members. This may be someone with whom you’re no longer comfortable.

Failing to Plan for All Assets. You may be entitled to some of your former spouse's deferred savings plans, like a 401(k), IRA or other eligible savings plan. After you've claimed your share, be sure to designate beneficiaries (such as your children) for these plans.

Failing To Incorporate Trusts Into Your Estate Plan. A trust can help to protect your assets (and have them distributed according to your wishes) in certain circumstances. Creating a trust can ensure that your money still goes to whom you want after you pass. Trusts can also be used to defer asset distributions, until your minor children are legal adults.

No Planning Whatsoever. The biggest estate planning mistake a person can make is not having a plan at all. When someone dies without a will or estate plan, their assets go through probate. Your children, grieving your loss, will have to spend a great deal of time and money on this process. State law will determine who inherits assets, when there is no will or estate plan in place. The final decision may also end up being against your wishes. Estate planning may be the last thing on your mind right after a divorce, but it's important to make it a priority.

Not Using an Estate Planning Attorney. Many women new to the estate-planning process make the mistake of going at it alone. It’s critical to get the help of an experienced estate planning attorney. Without the help of a professional, you may overlook important aspects of the estate-planning process.

Reference: Forbes (November 8, 2018) “The Top Estate Planning Mistakes Divorcing Women Make”