AgingOptions Life Plan: Finance

“Will I have enough assets in order to not run out of money before I run out of life?” is top of mind for all of us in the final third of our lives. In answering this, preservation, positioning and passing of accumulated wealth goes beyond traditional estate planning. It calls for all affected family members to be participants in a model that integrates health, housing and elder law considerations.


The 4 steps you need to take if you inherit a brokerage account

Brokerage accounts allow an individual investor to deposit funds and place investment orders through a licensed brokerage firm. Through a brokerage account, you can buy or sell stocks, bonds, mutual funds, etc. Brokerage firms must abide by strict legal guidelines governing access to account information. The result is that sometimes heirs can’t even see account statements. It’s been enough of a problem that Financial Industry Regulatory Authority (FINRA) set up a toll-free number to help senior investors who have concerns or issues with brokerage accounts or investments. FINRA also provided tips for making the transfer process as smooth as possible. Here are some advance planning steps to take to make the transition to a beneficiary easier.

Communicate your intention to family members. Family members need to be aware of your brokerage account holdings and selected beneficiaries. Keep beneficiary information up to date and heirs should have an idea about investments in the brokerage account and why you selected those investments.

Beneficiary designations prevail over those in a Will. In a contest between a Will and a beneficiary designation, the designation always wins. If you cannot remember who you have designated, contact your brokerage firm and ask who has been recorded as a beneficiary for each account and make any changes to conform to your Will or estate plan. If you transfer your account to another firm, double-check that the beneficiary designations also transfer.

Provide a quick, easy way for heirs and beneficiaries to contact the brokerage firm. In order to distribute money from an account your brokerage firm will need your tax identification number, the account holder’s death certificate and proof or their own identity. Trade confirmations and account statement can help heirs quickly locate contact information.

Consider placing the brokerage account in a trust. Trusts eliminate the need for the heirs to go through the probate process and provide a quick doorway for trustees to get access to the accounts.

An elder law attorney can work with your brokerage firm to explain your options for transferring your brokerage account upon your death. Since this is an area governed by estate law, it’s important to remember that if you move or you have property in more than one state that your documents must be updated accordingly.

Here’s an article from the Wall Street Journal.

If you inherit a brokerage account, here are some steps you need to take.

  1. Gather documents. Documents may include trade confirmations, receipts or statements. The documents may be electronic so check the deceased’s online investing and banking sites.
  2. Create a list. You’ll need a list of investment accounts, account numbers and contact information.
  3. Contact the investment firm. For each account, contact the firm and freeze the account. This may be easy if you are an authorized account holder since they may do this with just a phone call. Otherwise, ask for the documentation you need to transfer the investments. According to Vanguard, beneficiaries of a Vanguard account may need a notarized or court-certified small-estate affidavit, a certified death certificate or proof of authority (certified letters of testamentary dated within 90 days), and supporting documentation depending upon the account type and circumstance. Contact the company to get specifics. At the very least, you’ll need the account owner’s full name and address of record and his or her last four digits of their Social Security number to even get started with the process.
  4. Fill out any required forms and mail to the investment firm. This may be extremely time consuming. Be prepared for the fact that if you are inheriting a brokerage account, transfer of that account will take time.

You may want to dispose of an inherited brokerage account without selling it. For instance, you could donate it to a charity, gift them to someone other than a spouse or transfer the account to an irrevocable trust. The point is that inheriting a brokerage account just might be the time to consider hiring a tax accountant or a lawyer.

The financial cost of having mom or dad move in

Thinking about moving Mom or Dad in with you? Often the consideration to do so hinges on Mom or Dad’s poor health or your need for a built in baby sitter for your own children. You may have already considered whether you have enough bathrooms or whether or not you can stand to be in the same home together but have you thought about it from a financial perspective? Here’s some implications you may not have considered.

Moving costs. Moving is expensive. Not only does it cost money, it inevitably costs time and requires diplomacy. Unless your mom or dad is a champion minimalist, she or he will come with baggage—probably decades of baggage. That baggage will own a part of their heart. Moving someone in with you requires making an honest assessment of how much space will be available in the new location and what can or cannot make the transition, deciding how it gets pared down (do you hire someone for the project or do you provide that service), what happens to the things that get pared out, who sets up the new space and who does the actual work of moving.

Living expenses. Inevitably, moving another person or a couple of people into your space costs money in terms of higher utility payments; higher food costs etc. unless you have a mother-in-law house and keep those expenses separate. If your parent is moving in because he or she needs support, will your parent be contributing to his or her care? Deciding who pays for what should happen before the big move. It may help to write up an agreement.

Insurance. Your parent may not be covered on your homeowners insurance and if you are having them drive in your personal vehicle, they may not be covered on your car insurance either. Talk to your insurance agent. If you are moving a parent across state lines, there may be health insurance implications in terms of both coverage and costs. Insurance and the multigenerational household

Home improvements. While we are moving toward a time when housing will all have universal design we aren’t there yet. If you are moving someone in to your home, what modifications will you need to make it accessible and safe for him or her to live with you. Consider hiring a geriatric care manager to give you a realistic idea of how much needs to change to allow your loved one to remain happy and healthy in your home. If you’ll need to provide care for your parent consider getting a Personal Care Agreement signed if they will be paying for any of your services.

Emotionally. If the point of the move is to have a parent close by in order to provide care, having him or her in your house eliminates a primary refuge from your caregiving duties. If you have siblings, get your siblings on board for providing respite care. If siblings are not a possibility, consider the cost of getting some help in order to give yourself a break.

Here’s the original article. Before making such a life altering decision, run the decision past an elder law attorney or a financial planner. There may be tax implications as well as Medicaid ramifications and you should be aware of them before they become something you cannot undo.

Additional article:

Should you move a parent in with you?

Financial advisors warn of possible debt crisis at the Bank of Mom and Dad

A Wall Street Journal article recently reported that withdrawals from 401(k) plans exceeded new contributions in 2013 (the survey is a biennial survey with reports conveyed on odd years) after decades of expansion. That trend is expected to continue as Baby Boomers reach retirement age and begin drawing down their retirement savings. Of concern isn’t that the Boomers are drawing money down for the purpose that they put money in but that they are doing so to support their children. About a third of Baby Boomers support children or other family members. An Employee Benefit Research Institute study released in June found that the amount of money being transferred was large enough to be considered a major spending item in a household budget. This follows a trend that began in 1998. Not surprisingly, the money flow doesn’t usually go the other way around. According to the study, only 4 to 5 percent of older households receive money from their families whereas 38 to 45 percent transfer money to younger family members.

The average cash transfer for two year period when looking at all groups was around $15,000 for those who gave money either as a gift, a loan or support. The tongue-in cheek remark in a Barron’s article about the phenomena was that the silver lining for the parents was that they wouldn’t have to worry about estate taxes. What wasn’t said was that such contributions are likely to affect the retirement security of the parents. What is of concern is that existing surveys analyzing the financial security of older adults do not look at transfers between generations as a budget item. It’s not readily apparent whether such transfers will affect older adults because the surveys also show that the likelihood of transferring goes up with household income and often disappears at much lower income levels.

Finally, assuming that the Bank of Mom and Dad remains fiscally sound until the death of both founders, there’s still the risk that gifts now will reduce the inheritance for children and create a larger opportunity for family fights should one child appear to have benefitted more from his or her line of credit.

Is your financial advisor scuttling your investment gains

A 2012 study by Cerulli Associates found that 60 percent of investors either did not know how their advisors got paid or thought that the service they offered was free. In fact, there are at least six ways a financial advisor will charge you fees. They are:

As a percentage of your account’s value. One of the most common ways that investment professionals charge clients is as a percentage of their account’s value. As your account grows, he or she makes more money and conversely as it shrinks, he or she makes less money. Fee percentages typically shrink as the account grows but overall they can range from a low of .25 percent to as much as 2.0 percent.

As a commission. This is one of the most common ways of charging for services. It muddies the water because it can be difficult to tell whether your financial professional is a good advisor or just a good sales person. Often professionals working under commission models operate under the suitability standard (meaning that advice must be appropriate for you, a weaker duty than fiduciary duty) and their main interest is in selling a product.

A combination of fees and commission. There’s a difference between the term fee-based and fee-only advisor. A fee-based advisor can collect fees and commissions.

An hourly rate. If you are willing to implement the advice on your own, an advisor that charges an hourly rate can recommend how you should allocate your resources for instance and then leave it to you to follow through on the advice. Since a financial professional working under an hourly rate model is not receiving a benefit from any decision you make, there’s a level of confidence that the advice is objective that doesn’t exist with commission-based advisors.

A flat fee. Flat fees aren’t tied to investments or generated by the purchase of a specific investment. Fees should be quoted upfront and you should get a clear description of what will be provided.

A retainer fee. While this might not be for everyone, individuals with a more complex situation such as those who own a small business, rental properties, or a need for regular income from investments for example may benefit from ongoing advice. Retainer fees are not tied to the value of the investment nor to products, you can be confident that your financial advisor’s advice will be objective. For more about advisors that only charge a fee for their services, please read this article on fee-only advisors.

Recently, there have been several stories in the news about potential conflicts of interest from firms such as Edward Jones, Schwab and Fidelity receiving revenue sharing payments. Understanding your advisor’s fee structure won’t just potentially save you money, it will provide you with an understanding of his or her responsibilities towards you. You should always ask how your investment advisor will be paid. A USNews article put it quite succinctly when it asked, “Who comes first when the advisor makes recommendations: you or the advisor?” The answer determines which standard applies to advice given by financial advisors. Fiduciaries have the highest level of accountability by requiring advisors to make recommendations that are best for the client even at the cost to the advisor. Financial advisors with fiduciary requirements may include certified financial planners, members of the National Association of Personal Financial Advisors (NAPFA) and CPAs with a personal financial specialist designation.

The suitability standard on the other hand just means that the advisor must make recommendations that are appropriate for the client at that time. Under the suitability standard a financial advisor is not under obligation to remind you to make appropriate adjustments to your portfolio. It may be perfectly acceptable to hire someone under a suitability standard but you should understand what it means and what your agent’s duties are to you under that standard.

This article suggests one strong reason to pay attention to fees is that it simply takes far less time for advisors to provide the service to clients than it did in the ‘90s. The result is that advisors can provide more service to more clients in a shorter period of time and the one benefitting is only the advisor.

For more on this topic, please read:

Protecting your 401(k) from excessive costs

How to know if you’ve hired a good financial advisor

Using your Health Savings Account as a retirement vehicle

If you have a high deductible health plan, you can receive tax-preferred treatment of any money you set aside in a Health Savings Accounts (HSAs) to pay for medical costs. HSAs differ from Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs). (For more on these three types of health spending accounts please see this article One of the chief differences between HSAs and FSAs or HRAs is that HSAs can roll over year after year. The benefit of this is that while you cannot continue to add to an HSA once you are enrolled in Medicare, you can continue to use it.

One place you can use it is in paying for long-term care premiums. If you have a tax-qualified long-term care policy, you can use money in your HSA to pay for a policy if it pays for care when you are unable to perform at least two activities of daily living or if you have severe cognitive issues. Fortunately, most long-term policies qualify under these requirements but the limits depend upon your age. For instance, in 2014, if you were 40 or younger, you could use $370 tax-free from your HSA to pay for long-term care premiums. The amount goes up based on age so that an individual over the age of 70 could use $4,660 tax-free. You can also use HSA accounts to pay for Medicare Part B and Part D premiums, and Medicare Advantage premiums. If you have an individual health insurance policy and an HSA account, you can use funds tax-free from the HSA to pay for long-term care premiums and other expenses even if only one spouse has an HSA account.

Contributions to HSAs provide a current year tax deduction and your money grows in a tax-protected manner. If you use your money for healthcare (HSA funds can be spent on anything), it comes out of the account tax-free. That’s a triple tax advantage that 401(k)s can’t match.

The downsides to HSAs, aside from having to pay a penalty if you withdraw money for non-healthcare related expenses prior to age 65 and having to pay taxes on the withdrawal at any age if you withdraw funds for non medical needs, include being unprotected from creditors and that funds becomes fully taxable income to either your estate or your beneficiary so it’s best to fully spend it before you die.

Here’s more information on the benefits of an HSA account.