Estate Planning Archives - The Free Financial Advisor

Mistakes to Avoid in Retirement

May 27, 2020 by Jacob Sensiba Leave a Comment

In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.

In this article, we’ll explore several mistakes to avoid when you reach this milestone.

Spend beyond your means

This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”

You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.

Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.

Make Quick Decisions

Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.

I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.

Investing Aggressively

Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.

While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.

This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.

Ignoring Estate Planning

Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.

Estate attorneys can be expensive, but I believe it’s 100% necessary to find one you trust, so your estate is well taken care of.

Isolating Yourself

Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.

Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.

Letting Yourself Go

Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.

Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.

Expecting it to be easy

This is a BIG life change and the transition will not be easy.

Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.

Go easy on yourself and be patient.

Taking Social Security too early

Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.

Getting Swindled

Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.

Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).

Doing it alone

A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.

Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.

Why Your Will Should Be Up To Date

April 8, 2020 by Jacob Sensiba Leave a Comment

With the Coronavirus making its way through countries and countless healthcare systems, it’s a good opportunity to check in with everyone about their will and general estate planning.

We’ve written a couple of posts about the finer details of estate planning, but one of the most important things you can do is make sure that you have an updated will.

Beneficiaries

A beneficiary is anyone that will receive an asset, or assets when you pass away. You will have beneficiaries listed on your retirement accounts and life insurance policies. They can also be added to brokerage accounts via a Transfer on Death (TOD) designation.

It’s important to note that beneficiary designations and TOD designations bypass probate. The assets that the deceased owned at the time of death do not need to go to court. They go directly to the beneficiary (beneficiaries) listed on the account.

So…why is it so important to keep your beneficiaries up to date? The obvious answer is because life changes all the time.

Life Changes

People get married, divorced, re-married, etc. People have kids or marry someone that already has kids. The more grim circumstance is when a beneficiary predeceases you. It’s unfortunate, but something that does happen.

When you assign beneficiaries, there is often a box you can check labeled “per stirpes”. This simply means that if one of your beneficiaries passes before you do, that beneficiaries portion would be received by their children instead.

Not only can changes take place with your beneficiaries, but they can also change with the people you’ve entrusted with your estate. Roles like the power of attorney and executor.

Again, people can pass away before you and/or relationships can fall out of favor.

When it comes to your assets, those change often too. Good or bad years in the stock market can see drastic fluctuations in portfolio value.

Moving will change your residence, but it can also change your net worth depending on the value of your new home and how much you owe on that home. Remember Finance 101? Net worth = assets – liabilities?

Consequences

There could also be consequences for not having an updated will. The wrong beneficiaries could receive assets. Your power of attorney could be your brother and not your sister.

You actually have a much higher net worth than you thought, so now your heirs will have to pay estate taxes. Had you known that, you could have taken advantage of the gift tax exclusion and shared your wealth in order to bring your net worth down to avoid taxes.

To sum things up, you need an updated will because the items within it are going to change…plain and simple.

Financial Planning Basics: The Financial Pyramid

March 9, 2020 by Jacob Sensiba 1 Comment

The first time I heard about the financial pyramid, I was instantly intrigued. I had never thought about it in this concept before, but I unintentionally had been practicing this in my own life.

In finances you have to build the base before you can reach the top or it will all fall apart, hence the allegory of a pyramid.

The Base

The base of your financial pyramid should be a solid financial plan. This includes your written budget, short-term and long term goals, and how you will make your income as well as an investment plan to be implemented in the future.

You should have a positive cash flow, meaning, no longer using debt to fund your lifestyle.

Once you have implemented the base, you can move onto the first building block: protection.

Protection

You must protect yourself from the unimaginable, so I recommend everyone have a will and power of attorney, insurances such as life, health, auto, homeowner’s/renter’s, and disability, and a basic emergency fund of at least $1,000-$2,500.

I was thankful to have my mini-emergency fund when I had some car issues because I was able to pay cash to repair them instead of having to go into debt. The overall pyramid looks something like this:

The second building block is low-risk wealth accumulation. This would include saving for a home, retirement, and children’s college education, in addition to reducing consumer debt.

Debt Reduction

Financial guru Dave Ramsey teaches that you should get completely rid of any debt before beginning savings, although, in my opinion, you should still invest in retirement while reducing debt only if your employer offers a match.

I, myself, am in the debt reduction stage but still contribute to my retirement account since my employer offers up to a 4% match into my 401(k).

Additionally in this step, you should create your emergency savings fund. Many people believe an emergency fund of 3-6 months’ worth of expenses is adequate.

Investing

The third building block is high-risk wealth accumulation. This includes investing. Expanding on the second block, in this stage, you will max out your retirement accounts and then build a non-registered investment portfolio.

Once you have built your net worth to an amount sufficient to fund your lifestyle and retirement, you can move to the next stage of investing– speculation (also known as speculative investing.) In this stage, you invest money into investments such as start-up companies.

This is very risky, so you don’t want any debt by this stage. Also, you should only invest a small portion of your total investments into speculation. Also in this stage, you’ll want to begin tax planning, especially as your retirement investments increase.

Estate and Charity

The final building block is wealth distribution. You’ll gift and spend the money you have earned. As well as plan your estate for future generations or charity upon your death. Since your net worth increased quite a bit since you first started the financial planning pyramid, you should update your will and/or trust.

Finally, once you’ve got these basics nailed down, it’s time to hire some help. One approach a lot of millennials use is robo-advisors. A robo-advisor is a machine that uses various theories about portfolio allocation to make investing decisions. If you’re interested in a critical review of this, consider checking out Roboadvisorpros.com, they have a good article on the topic.

If you aren’t into trusting your cash to a computer, consider signing up with Personal Captial. They’ve pretty much become an industry leader among the newer financial planning firms.

If you’re’ going to use them, please use this link or click on the banner below. It will help keep the lights on here at The Free Financial Advisor.

For help getting your financial pyramid in order, check out these great articles.

10 Best Financial Planning Blogs
Best Free Financial Advice
Become a Financial Expert Step-by-Step

Protecting Assets from Probate

March 25, 2019 by Jacob Sensiba 1 Comment

In a time when your loved ones are grieving, often they are tasked with organizing, coordinating, and sometimes fighting over your estate.

Make it easier on them and plan ahead using some of the tools below.

What is Probate?

Probate is the process by which a deceased person’s will is validated, and the general organization and distribution of that person’s estate.

During probate, if a person died with a will, the court validates the will and then formally appoints the person named in the will to direct (executor) the deceased person’s estate. This includes collecting assets, paying any outstanding taxes and debt, and distributing whatever is left to the beneficiaries listed in the will.

If a person died without a will, the court will appoint an executor to collect the assets, pay the taxes and debt, and distribute the remaining assets according to state law. What needs to be done with any real estate is determined by the county that person lived in.

The probate process is expensive, so anything you can do to speed up the process or avoid it, the better. You will go through probate whether you have a will or not, though it takes a lot more time when the individual died without a will.

Transfer on Death Designation

A transfer on death designation also referred to as a payable on death designation, is something you add to an account so your assets immediately go to your beneficiaries when you pass away without having to go through probate.

A TOD designation can be added to a brokerage account, individual stocks and bonds, and bank accounts.

When the individual with the TOD designation passes, the beneficiaries usually have to create an account in their name in order to transfer the assets.

Will

A will is a legal document, usually created by an estate attorney, in which the individual or couple list who will be the executor of the estate, guardianship of any minor children, arrangements for surviving pets, assets and property owned, insurance policies, beneficiaries, and what is to be done with the assets and property when the creators have passes.

A will lists all of the property and assets, even the ones that do not need further instructions for distribution to the beneficiaries (retirement plans, life insurance policies, TOD designated accounts).

Trust

A trust is a legal entity created by an estate attorney where the grantor (person creating the trust) appoints a trustee (or several) to follow the rules of the trust.

In a trust, the grantor can very specifically list what they want to be done with their assets while they are alive and/or when they pass away. They can list each asset separately and which beneficiary receives that asset or they can list them all at once and pick how those assets will be distributed to the beneficiaries.

They also have the ability to dictate how the care and financing for a minor, or a child with disabilities will be implemented.

Trusts are costly to set up but are a very useful estate planning tool. It’s also the only way to avoid probate, as long as the trust is the owner of the assets.

Life insurance proceeds

The majority of the time, life insurance avoids probate. There are two exceptions, however.

If the beneficiary named in the life insurance policy passes away and there are no contingent beneficiaries, the estate will receive the proceeds. The other is if the estate is directly named as the beneficiary.

Joint ownership

There are two types of joint ownership:

With rights of survivorship – when one of the owners dies, the surviving owner receives the decedent’s portion.
Tenants in common – when one of the owners dies, their portion is included in their estate. The other joint owner(s) have no right to that portion.

Conclusion

Probate is time-consuming and expensive. For the sake of your loved ones, namely the ones who will be taking care of things when you pass, plan ahead and make things as easy as possible.

I previously wrote an article about where your money goes when you die that goes into much more detail about wills and trusts. Give it a look.

If you’d like to learn more about estate planning, send me an email! I’d be happy to answer any questions you may have.

Please visit our website for our disclosures.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Ultimate Estate Planning Guide

July 25, 2018 by Jacob Sensiba Leave a Comment

Estate planning is a very important step in the financial planning process.

What does it mean, what are the steps, and what’s the most effective way to plan?

Let’s dive into these questions in this estate planning guide.

What is it?

Estate planning is the process of figuring out what you would like to happen to your assets when you pass away. Assets include retirement accounts, non-retirement accounts, and physical assets (house, cars, etc.).

What should I do?

Get an inventory – physical and non-physical items. Physical items can include property (primary residence, rental property, land, etc.), vehicles (cars, boats, recreational vehicles, etc.), and precious metals (gold bullion, silver bullion, etc.).
Make a list of all debts – Mortgage, personal loans, car loans, credit card debt, etc.
Make a charity list – Organizations and/or charities you would like to leave a specific amount of assets for.
Make a few copies and send these lists to your estate administrator (more on this below)
Review retirement accounts – Retirement accounts include traditional IRA, Roth IRA, Rollover IRA, and employer-sponsored plans like 401(k), SIMPLE IRA, SEP IRA, 403(b), and 457. (Click here to learn more about these plans). Whichever account(s) you have, make sure the beneficiary information is up to date.
Review life insurance policies and annuities – Same go for any insurance policies/annuities you may have. Make sure the beneficiaries are accurate and up to date.
Assign Transfer on Death (TOD) designations to non-retirement accounts. A non-retirement account includes individual brokerage accounts, savings accounts, money markets, CDs, etc.
Create a will or a trust (more on these below)
Get a list of accounts and passwords – any online account you may have, create a list of accounts, usernames, and passwords. This makes it easy for the person in charge of your estate (executor) to cancel all these accounts.
Visit some professionals – Meet with a financial professional and an estate attorney so they can review your plan and help you with any corrections or things that you’ve missed.
Consolidate your accounts – If you have several bank accounts or retirement plans from past employers, consolidate them into one account. This makes it much easier on the executor.
Select who you want to get what – Specify who you’d like to give your house too, cars, other physical assets, and money. You like to think that your family won’t fight over who gets what, but it happens very often, so take your time here.
Write a living will – A living will is a document that you put together that states what medical treatment you would like to have done and what medical treatment you would not like to have done if you are incapacitated and/or unable to make any decisions.
Establish power of attorney – A power of attorney is someone that you trust to make decisions for you. There is a medical power of attorney and a financial power of attorney.

Estate administrator

The person in charge of your estate. If you have a will, this person is called the executor. If you have trust, this person is called a trustee. If there is no person named in the will as executor and/or there is no trust/trustee named, the courts will appoint a personal representative.

This person collects assets, pays debts, and pays out any remaining assets. If a will or trust has been drafted, then the executor or trustee has to act in accordance with the will or trust.

Wills

A will is a legal document created by you and your estate attorney that specifies who will be your executor, the beneficiaries that will receive the assets that haven’t been specified yet (retirement accounts and TOD designations), and when those assets will be transferred.

Trusts

A trust is similar to a will in regards to it being the “playbook” on who is in charge and where your assets will go. It is different, however, because you can transfer ownership of assets to a trust and any asset owned by the trust will avoid the probate process.

Probate

A court-based process where the will (if one was written) is verified of its validity. If it is, the court then goes ahead and appoints the executor named in the will as the estate administrator. This gives that person the ability to act in accordance with the will to distribute assets.

If there is no will, then the deceased died intestate. The court then appoints an estate administrator and they distribute the deceased assets in accordance with state law. They are also tasked with tracking down heirs of the deceased.

This can be an expensive process, however, so planning ahead to avoid probate as much as you can is always beneficial.

Conclusion

As I said in the beginning, estate planning is an important step in your financial planning process. Hopefully, you’ve learned a lot about what’s involved and what you need to do to sure up your estate plan.

For more information about estate planning and for our disclosures, visit www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

5 Emergency Documents You Should Have Now

March 12, 2018 by Tamila McDonald Leave a Comment

While no one wants to think an emergency will strike, they happen to people every day. You could become ill or injured unexpectedly, or even die.

Yes, it’s hard to think of these things happening to you. But, the truth is, it happens to everyone eventually. That makes it wise to have specific documents in order, in case the unthinkable happens to you.

With that in mind, here are five emergency documents everyone should have right now. [Read more…]

What are the Responsibilities of a Power of Attorney?

March 5, 2018 by Tamila McDonald Leave a Comment

At some point in your life, you may either need to issue or act with a power of attorney. But, unless you’ve are already familiar with the arrangement, you likely have questions regarding what it can and can’t do.

Essentially, a power of attorney is a legal document. It allows one person, the agent, to act in the name of another, the principal. However, with these authorities also come responsibilities.

If you’re wondering about the responsibilities of a power of attorney, here’s what you need to know. [Read more…]

DIY Financial Planning Software

October 2, 2017 by Emilie Burke Leave a Comment

When you’re ready to start creating your financial plan, there’s one thing you really need and that’s a good program to keep track of all those numbers. If you’ve never created a spreadsheet before, don’t know what you need, or what you’re using isn’t working for you, these software picks will help you out.

Get ready to create a workable financial plan with these software programs:

Financial Fate

This is a free program for personal financial planning for both families and individuals. Just download to your computer and open it up to start planning. Start with your personal information, debt, financial goals, and retirement age. Financial Fate will automatically start tallying numbers to help you figure out where you need to make some shifts. It also shows you a year-by-year breakdown of your financial details and makes recommendations for future planning. This software is only for Windows and does not contain a print option.

eFinPLAN Online Financial Planning

eFinPLAN is a subscription financial planning program and costs run $99 a year or $149 to include a session with a financial coach. You can use the plan to enter your current financial information as well as your financial goals. There are no uncomfortable interviews with a financial planner and the process is simple and easy to use. Take your time filling out the information at your leisure, the program will save as it goes, it will then customize a road map to help you reach your financial goals. During your subscription, you’ll receive a 65-page financial plan, access to online financial courses, and an action item checklist. You can even run “what-if” scenarios to plan for different goals and challenges. The upgraded version includes a 30-minute phone or online session with a financial coach to answer questions and help with your planning.

VeriPlan

VeriPlan is a spreadsheet software that allows you to easily integrate your budget with your goals. It’s user-friendly and it does all of the calculations for you as you go. It analyzes your income, expenses, debts, taxes, and cash flow to help you make a personalized plan for your future. It also includes retirement savings calculators, tax estimators, and budgets. There is a one-time expense of $49.95 and works on any Mac or Windows computer the runs Microsoft Excel.

FlexScore

FlexScore puts a new twist on financial planning software. It’s a free online app that creates a financial score using the information you input to calculate your financial health. Then it offers advice for improving your financial score along with resources and links to help you. Just sign up for a free account, input your retirement goals, add your assets and income you expect to have in retirement along with your expenses, then get your results to see if you’re on track. If you’re not, it will make suggestions and give you action steps to get you on track. It’s an easy way to see if your current financial plans are getting you to your retirement goal.

If you’re just starting out or you’re not sure if you have a good plan, these financial planning programs will help get you organized and create a plan for your financial future.

Create A Financial Plan Without Hiring A Professional

May 1, 2017 by Emilie Burke Leave a Comment

You’ve probably heard lots of advice about how you need a financial plan for your future so that you can retire with a healthy bank account. But have you listened to that advice and started investing? If not, it’s time to get started.

Many people avoid investing because they think a professional financial planner. And most of people don’t want to spend the time or money to hire someone.

But, if you do your research, the only person you really need is you. A financial plan is not as complicated as you might think; you can create one on your own.

In basic terms, a financial plan should include your current and future financial situations and a plan for getting from one to the other based on your income, expenses, and any assets you have. Here’s how to get started:

Know your current status

Create a list of your income streams, monthly expenses, and current assets to get a clear understanding of where you are and what you can expect to have for the future. Review your annual budget and the most current credit card and bank statements to get the big picture of your debts, income, and monthly expenses.

Plan for the future

It’s hard to know what the future will hold, but you’ll need to make a plan based on what you expect to happen. Sit down with your spouse or a friend and talk about your financial goals. It always helps to have someone to talk about these things with and bounce ideas off.

As you’re creating your plan, work toward 5-, 10-, and 15-year goals to start. What do you want financial picture to look like at these marks? For instance, if you’re planning on buying a home in 5 years, you can start making a plan now to save for the down payment.

Mapping it out

Once you know where you are and where you want to be, the hard part is done. Now it’s time to do some math and make a plan. Your plan needs to include the financial goals you’ve set for yourself and how much you will need to reach these goals so you can lay out your map.

What are some small financial steps you can take to reach your goals? Determine how much you need to set aside each month to reach your 5-10 year goals. Follow this same step for all your future financial planning. Be sure to calculate about 5-8% a year for inflation.

Now you’re able to make smart choices about your spending and saving habits based on your goals and your financial plan.

Review the plan yearly

Make time to review your plan each year as your goals, income, expenses, and assets may change. The numbers you used last year may no longer be current. Your plan may need to be adjusted to account for these changes.

Having a plan for your future is important so that you make informed decisions about how you spend and invest your money. Without a plan, you’re just hoping for the best and you’re not able to make good decisions that will benefit you in the long run.

Having “The Talk”: Another Awkward Holiday Dinner Conversation

November 15, 2012 by The Other Guy 21 Comments

Have you had “the talk” yet? Ya’ know, the really awkward conversation we all dread? I’ve thought about having it during our Thanksgiving dinner, but I just don’t know how to begin. They’re so young…maybe I can wait a little while longer. I mean, really, how many their age are actually doing it?

Of course, I’m sure you know “the talk” I’m referring to: a discussion with your parents and grandparents about their financial and healthcare wishes should they become too sick to make them on their own. It’s an awkward conversation to bring up (hey, pass the potatoes…by the way, what would you do if you can’t manage your own money anymore?), and even more awkward to continue (Uh huh. Can you give my brother all the bills but me all the cash? Great turkey, mom!)–but what’s the cost if you DON’T bring it up?

I’m writing this tonight while driving (read: riding shotgun) from Chicago with a world-class estate planning attorney who’s so busy he can’t keep his head on straight. With so many changes looming around the fiscal cliff and government tax plan, people are battening down the hatches. I thought I’d take this time to interview this young man as we barrel down the freeway.

So, Mr. Estate Planning Attorney, what are the most important things you need to discuss with your parents about money?

Can they give you some? Ha ha ha. Well, first of all, with the estate tax going up, seriously, should they be giving you some money through a gifting strategy? Also, have they grandfathered their estate exemption?

What the heck is “grandfather their estate exemption” mean?

It basically means: Have they taken advantage of the existing laws to benefit them, compared to their new laws expected in 2013?

What about “the talk?” What kind of healthcare questions should we, as their children, know?

First, they need to know every state has a healthcare power of attorney and the forms can be found at the local public library. That POA lets them dictate who can make medical decisions if they’re not able. Secondly, they should probably let you know, or you should ask, what their long-term health wishes are. I mean…the weird questions like “Do you want life support” and stuff like that. But all of that can be handled in their healthcare POA.

So, what happens if someone doesn’t have a healthcare POA? And, while we’re on it, when should someone get one of these things?

Everyone of legal age should have one. If you don’t have one, doctors cannot follow your specific wishes regarding your healthcare. Also, if you’re unconscious, doctors cannot make healthcare decisions for you, unless it’s an emergency. For example, we had a client who went in for surgery, routine-type stuff, when the doctors found a small tear in his kidney. Without a POA, the doctors would have had to wake him up to get his permission. Now, thankfully his wife was waiting in the waiting room, and was his POA, so they were able to fix it no problem.

So we all need these things no matter what. Got it. Anything else we should know before year end?

The fiscal cliff is going to affect estate and income taxes. If you have more than $2 million, you need to talk to your attorney immediately. Remember, that $2 million includes the death benefits from your life insurances through work and outside policies–it’s not just your assets.

Sounds like your calendar is filling up fast! Thanks for your insight. Maybe we can get you on our podcast?

Would love it.