Ask yourself this question: what do you, your financial adviser, and your attorney have in common with Olympic basketball? Allow me give a little context. In 1992, the United States assembled a dream team of basketball players that included Magic Johnson, Michael Jordan, and Larry Bird. The aptly named Dream Team of that year was able to win the gold medal in Barcelona, and landed themselves a spot in the minds and hearts of sports fans forever. So, I ask again: what do you, your financial advisor, and your attorney have in common with those three men? The answer is teamwork. All of you are working toward a goal, and will stop at nothing until that end is met. Each person on the team contributes something different, each person brings with them a new talent, but all parts are necessary to achieve what you want. For this reason, I called upon the people that I know and trust to craft the 3 Important Questions for your Financial & Legal Dream Team.
1. When should I take my Social Security?
As you head into your senior years, and helps protect your assets and legacies. What I mean by this is you need to protect your home, your real estate, and the money that you saved for retirement. Protecting all of this also means that you need a financial adviser and planner who can answer the difficult questions for you, such as: when should I take my Social Security?
The short answer is between the ages of 62 to 70. While you can take it anywhere along that timeline, there are advantages and disadvantages given your situation as to when you should take it. According to my friend Jamie Richard, who is a financial advisor and wealth planner over at Edward Jones Investment in Shelby, North Carolina, there are a few factors that determine the right time for you to take Social Security. They include:
• Life expectancy. This might be grim to think about, but consider your health. If you have very poor health, you probably want to go ahead and start taking it early on.
• Work status. Do you know when you plan to stop working? This will affect how much you can collect.
• Benefits. What will be the benefit if you wait until retirement age?
• Marital status. Single or married can have an effect on when you begin taking the Social Security, and how much you receive.
Remember that the longer you wait to take it, the greater your monthly checks will be. So if you start taking it at 62, you might get $1,000 a month. If you wait until 65, it might be $1,400 a month. If you want until you’re 70, you may get $1,800 a month. Consider these factors with your financial advisor to determine when and if you should start taking Social Security.
2. How can I protect my assets in the event of a healthcare incident?
When meeting with a client, I always ask the following questions:
• What kind of retirement assets do you have, and who is managing them?
• Do you have a long-term care piece in place like insurance or a hybrid product?
I ask these questions to determine the risks involved in your financial life should a healthcare incident occur in your life. If your assets are sound, then you will not have to worry about a lien being placed on your house or having your money taken away that you worked hard for.
According to my friend Jamie again, you need to assess what would happen if you ended up in a nursing home, for instance, or if you went into retirement with a big healthcare cost. Those are events that can derail your secure financial situation in retirement. Consider the following: Depending on where you look, nursing homes carry a price tag of tens of thousands of dollars. Assisted living homes are not far behind. Do you know how much of that bill Medicare is going to pay for? Will long-term care be included in the coverage?
One other thing to keep in mind: in working with your Dream Team, you want to discuss how to protect part of your nest egg from a Medicaid spend down. In that case, you would rely on an irrevocable trust, which we establish as a Medicaid asset protection trust. Those funds can still be managed and the trustee that you name has a fiduciary duty to provide the same monthly income for you. The money is therefore locked and safe, and cannot be touched if you find yourself in a dire healthcare situation. This will also protect your spouse and your family, for if they were relying on you for income, they can now rest easy knowing that your funds are safe.
In working with your Dream Team, you want to get qualified for Medicaid while also trying to protect as much of your hard-earned money and property as possible. At Elder Law, we work with financial experts like Jamie on a regular basis in order to do that.
3. What can I do to manage my beneficiary products?
Let’s first define what beneficiary products include:
• Life insurance
• Roth accounts
If you pass away, do you know who the designated beneficiary is of those products? I will clue you in: if you have “estate” listed as the beneficiary, then your assets are going to go through probate, which is something that you, your family, and your Dream Team do not want for you.
The whole point of having transferable-upon-death assets like insurance products with beneficiaries or 401Ks or IRAs is so you can pass it outside of the will. This will ensure that assets go directly to the person you designate in the form of a check.
One other step that Jamie and I recommend to clients is what we call a stretch IRA. You will be able to stretch out the IRA over the lifetime of whoever it is that’s inherited your IRA or your 401K. For instance, if you have an IRA worth $100,000 in it and you pass away without a beneficiary, then it’s going to be left to your estate. Taxes are thus going to have to be paid on that particular asset. However, if you name your child, your church, your local charity or what have you, there are other ways that money can go directly to the beneficiary. We therefore avoid having taxes take a chunk out of that money all in one year.
Here are some other steps to consider when it comes to beneficiary products:
• Name a contingent beneficiary. Also known as an alternate beneficiary, this is someone else that you select to receive the money on your behalf if, for whatever reason, the first person you name cannot receive that money. If your first beneficiary is a spouse, then your contingent beneficiary might be one of your children. This ensures that your money at least stays in your family.
• Consider the ages of your children. Do you have any children that are around the age of 18 at the time you are considering naming them a beneficiary? Though you might trust your kids, there are some risks involved in naming them so young. You’d want a name in the will which would provide for another adult to act as guardian or parent for the child. After you name that person, a trust document is created to bestow fiduciary duties on that adult, making them the trustee and thus responsible for managing the funds for your child. Think about it: what would you have done with $100,000 as a teenager? Instead of one lump sum, perhaps you want them to receive an annual payout of 10% over a 10-year period? That is much more manageable.
• Set up milestones for children or grandchildren. What an incredible legacy to bestow upon your children or your grandchildren, than ensuring that they are somewhat financially sound when you are no longer alive and well? What you can do with your money is create milestones that will trigger the release of a certain amount of cash upon completion. Say, for instance, you set up a milestone of college for your first grandchild. Once he/she gets into college, your grandchild will get a sum of money. The second milestone can be graduation, upon which he/she will get another sum of money four years later. This guarantees that your family will be secure, but will have to still strive a bit in your name to access that money.
I therefore leave you with this: August is Leave-a-Legacy month, so you want to begin thinking about the legacy that you are going to leave to your spouse, your children, your grandchildren, and any other loved one that you have in your life. Do not leave them in a dire situation if, in the future, you cannot provide for them. Think about not only your future, but the future of your family. It is thus crucial for you to ask these questions of your Dream Team.
Call me if you have any questions:
Elder Law Attorney
McIntyre Elder Law
123 W. Marion Street, Shelby