Wisconsin Estate Planning

Leaving Town? Before You Move to Another State, Consider These Costs and Expenses

Moving to a different state for a new job or because your current employer has asked you to make a move raises many questions. Here are some of the key facts you’ll want to pin down.

When you and your family are faced with a move to a new state for work, the biggest question on everyone’s mind will be where will the family live. But the house is only the start of the questions you’ll need to answer before making any final decisions. This article from Kiplinger’s, “5 Financial Matters to Consider When Moving to a New State,” points out factors that you might not have thought about when preparing for relocation.

Income Tax. Consider the state’s income tax structure. If you’re moving to a state with a higher income tax rate, if you have some advance notice, you may want to recognize some income before you move. Examples include income from capital gains in your portfolio or exercise of stock options. Some states have recapture rules you’ll need to know. If you’re moving to a state with a higher tax rate, your take-home paycheck may be lower than you anticipated. Do the calculations prior to signing your relocation and cost of living adjustment package. You may want to think about asking for a higher salary to keep up with your projected after-tax living expenses. Also, there are property and sales taxes which are usually higher in states that don't have an income tax.

Estate Plan. Update your will, as estate tax and probate laws will vary from state to state. If you own out-of-state property, like your former residence, that you want to keep or rent out, speak with an estate planning attorney about creating a revocable trust or a limited liability company to avoid taxes. Likewise, check your financial and healthcare powers of attorney—these are based on state statutes that are different in each state.

Cost of Living. A big factor in a relocation package from the company is quantifying how much more housing and recreation may cost. If you have children, be sure to look at the school system and whether you want your children enrolled in private school. Tuition can be a big budget item for any family, and if you've never had to pay it in the past, you’ll need to plan ahead. Education expenses may influence where you live in the new city or town, as well as the amount of house you buy and the mortgage payment. These cash flow issues need to be in sync with your lifestyle expenses to avoid throwing a wrench in your long-term financial plans.

Investments. Your investment strategy may also need a review. Some states exempt a portion of your capital gains from income tax, and dividends aren’t taxed in Nevada (a no income tax state).

Relocation can be exciting and nerve-wracking for everyone in the family. Going through these steps will help you determine the real cost of a move, and help you make informed decisions. Another important step: your estate plan will need to be revised to comply with the laws of your new home state. Ask your estate planning attorney for a referral to a qualified colleague.

Reference: Kiplinger (October 2016) “5 Financial Matters to Consider When Moving to a New State”

Admitted or Under “Observation Status?” The Difference Could Break Your Budget, Fast

You bought all the right health insurance coverage when you retired, so you don’t worry too much when symptoms send you to the hospital. But if you aren’t admitted, costs could skyrocket.

These are the kinds of details that can derail retirement plans. Patients who are too sick to go home but not sick enough to be admitted enter a kind of Medicare purgatory known as “observation status.” The problem is, if you need follow-up care in a skilled nursing facility, it will be on your own dime.

As Money’s article “The Medicare Quirk That Can Cost You Thousands” explains, Medicare covers care in skilled nursing facilities, but only for patients who are first admitted to a hospital for three consecutive days.

Hospitals have applied this status to avoid costly penalties from Medicare for improper admissions. The number of Medicare patients classified as under observation has skyrocketed and has created pushback from Medicare enrollees and advocacy groups.

A new law, “the Notice Act,” requires hospitals to notify patients if they stay in the hospital more than 24 hours without being formally admitted. Moreover, hospitals will be required to inform patients verbally and in writing if they are on observation status for more than 24 hours.

The written notification is called the Medicare Outpatient Observation Notice (“MOON”), and also explains the cost implications of receiving hospital services as an outpatient.

The costs of observation status can impact any enrollee on traditional fee-for-service Medicare. The program typically covers up to a maximum of 100 days of care in a skilled nursing facility following a hospital admission. It will pay 100% for the first 20 days; patients are responsible for a daily co-pay for the next 80 days. However, patients who leave the hospital for a nursing facility after an observation will pay the full cost out of pocket. And skilled nursing care costs are substantial and continue to rise.

Observation status also has an impact on the coverage of drug usage in the hospital. Medicare Part B would cover drug usage for the specific problem related to the hospitalization, subject to the Part B 20% co-pay. For routine drugs taken at home, the practices vary. Some hospitals let patients bring their own drugs from home, others don’t, and charge much more than you’d pay at your pharmacy.

Bipartisan legislation has been introduced in the U.S. House and Senate that would require time spent in observation to be counted towards meeting the three-day prior inpatient stay necessary to qualify for Medicare coverage, but it is not yet law. Until such time as that legislation becomes law, “observation status” is yet another worry for seniors needing emergency care.

Reference: Money (September 29, 2016) “The Medicare Quirk That Can Cost You Thousands”

How a Taxable Investment Account Can Be Good for Your Retirement

We’ve been so inundated with the idea of tax-free investment accounts that the taxable investment account’s role in retirement planning is underutilized and overlooked.

If you’re like most Americans, you’ve got at least one and maybe a few retirement accounts. You like the tax benefits that come from having IRA's, 401k's, 403b's, 457b's and defined benefit plans. You know you’ll have to pay income taxes when you start taking distributions from them, except for the Roth accounts, but seeing those accounts grow makes you feel good. And if you have a Roth, you like knowing that even if you aren’t getting a deduction now, distributions will be tax free. But there are other kinds of investment accounts for retirement planning.

As Physician’s Money Digest says in “10 Reasons You Need a Taxable Investment Account,” taxable retirement accounts are ignored because we’re so focused on IRS-approved retirement accounts. But you might think about supplementing your savings with a taxable retirement account. This can be a regular, old-school investment portfolio that’s not linked to any government regulations and that you’re building for retirement.

Here are some of the benefits of a taxable retirement account:

1. You have complete freedom over investments;
2. You’ve got total flexibility over your account;
3. You can use your portfolio as collateral for a loan;
4. You don't have to start withdrawing your taxable account when you turn 70 1/2;
5. You have "basis" in your account, which means when you withdraw money, you pay taxes only on the growth;
6. You only pay a maximum tax rate of 20% on long-term capital gains and qualified dividends (from stock held for at least one year);
7. You can write off capital losses in the account;
8. You can use income from the account to offset an unused investment interest deduction;
9. Your heirs will enjoy a stepped-up basis if they inherit the account from you; and
10. Your heirs don't have to start taking withdrawals from the account when they inherit it from you.

But be aware that taxable accounts aren’t protected in the event of a lawsuit, and you get basis instead of a tax deduction. That should be examined in light of your goals and insurance protection.

So while your non-taxable accounts are your first priority when preparing for retirement, take a look at the possible role that taxable accounts may have in your retirement plan. There may be some gaps that a taxable account can fill, and depending on where your finances are, may be a useful tool in tax planning for short and long term goals.

Reference: Physician’s Money Digest (September 28, 2016) “10 Reasons You Need a Taxable Investment Account”

Don’t Bury Your Tax Returns, Use Them for Informed Financial Decisions

Most of us like to stash away our tax forms as soon as we file our taxes, but that’s a mistake.

When it comes to making financial decisions, you want to arm yourself with as much information as possible. One often overlooked source is your Form 1040, advises CNBC in “Use your tax return for more than paying taxes.” Sharing this document with your estate planning attorney will allow them to get a clearer picture of your situation as well.

Lines 1-5 (Filing status). If you need to check a different box for your filing status, you should review your estate plan. If you get married or divorced, you'll need to update your will and the beneficiaries for life insurance and retirement plans.

Line 6c (Dependents). An increase in the number of dependents is a good reason to update your estate plan. This might mean a change to your cash flow for college savings and insurance needs.

Line 7 (Wages, salaries, tips, etc.). Take a look at your W-2s to see if you're making the most of workplace benefits. For instance, employees can benefit from boosting pre-tax retirement contributions, and those with children may be missing the opportunity to contribute to a pre-tax account for dependent care expenses.

Line 11 (Alimony). This is considered earned income, so consider using some of it to bolster retirement savings by contributing to an IRA.

Line 12 (Business income). If your business has become more profitable, look at whether a sole proprietorship is still the best business structure. There may be significant tax and liability considerations that suit your growing company.

Line 13 (Capital gains). Your capital gains and the details on your Schedule D can say a lot about how you are investing. If the numbers are too high or too low, it could mean you need to reexamine whether the investments and diversification are appropriate for your age and acceptable risk levels. You may have some missed opportunities to offset capital gains with capital losses.

Line 17 (Rental real estate). If you're buying property, think about the best way to hold ownership.

Line 28 (Self-employed SEP, SIMPLE and more). If you're a Schedule C or F worker, a zero on line 28 may be a missed opportunity to increase your retirement savings.

Line 40 (Itemized deductions). By bunching deductible expenses, you may be able to alternate years of claiming the standard deduction and itemized deductions. This is used in some instances to avoid the alternative minimum tax every other year. There are also trends in charitable giving that may yield planning opportunities.

An estate planning attorney can help you identify further tax-savings opportunities.

Reference: CNBC (September 28, 2016) “Use your tax return for more than paying taxes”

There are Ways to Discourage Challenges to Your Estate

With a longer life span in the U.S. today there are more opportunities to create potential challenges to a will with second marriages and more money accumulated over a lifetime.

USA Today discussed measures that can be enacted that will help reduce the possibility of challenges to your estate in “5 ways to make a bulletproof will.”

Among the measures are:

1. The no-contest clause. This provision will discourage people from disputing a will. It means that if you challenge the will, you get nothing. This clause can make beneficiaries think long and hard about trying to get more than you bequeath them.
2. Emphasize your wishes verbally. Creating your will may seem to be a personal and private task. However, you should really try to communicate with your heirs to avoid unintended turmoil after your death. If you tell your loved ones while you’re alive, you can explain your rationale. It also makes it more decided that your choices are yours alone—making it more difficult to successfully contest the will. It also allows heirs to understand your wishes, which might help defuse hard feelings.
3. Ask your doctor to verify your mental health. A valid will must be made by someone of sound mind. Disgruntled heirs may question whether you were in your right mind when you made the will and could argue to a judge to disregard your wishes. To avoid this, older individuals should include a doctor’s note that confirms their mental capacity with the will.
4. Get a lawyer. The do-it-yourself, fill-in-the-blanks will-preparation software is inexpensive and convenient. However, it's risky to go with the cheapest option when you have so much to lose. It’s similar to what astronaut Alan Shepard said before blast-off: “It's a very sobering feeling to be up in space and realize that one's safety factor was determined by the lowest bidder on a government contract.” A cheap online will may not be up-to-date with current laws, which could open the door for challenges.
5. Consider a living trust. A living trust legally transfers your assets to designated beneficiaries. However, a trust is private, where a will is a public record. Also, the legal time frame to challenge a trust is usually shorter than for wills, plus a living trust will include directions for your finances in the event you are incapacitated. A will doesn’t have this.

An estate planning attorney can guide you in creating an estate plan that is likely to carry out your wishes.

Reference: USA Today (Sept. 27, 2016) “5 ways to make a bulletproof will”

Long-Term Medical Care Costs May Become More of an Issue

Assisted living facility has average cost of $42,000 a year for a one-bedroom unit in the U.S.

While post-retirement medical costs are often under estimated during retirement there are ways to cover those costs with careful planning, according to the Deseret News article, “How to cover the cost of long-term care.”

Many people planning for retirement expect Medicare to cover the costs but Medicare is very strict as to the types of long-term care it covers. The program only covers stays in skilled nursing facilities and hospice care under certain strict circumstances.

The article explains that for skilled nursing facility (“SNF”) coverage a beneficiary is required to be admitted to a hospital for at least three days, then discharged with a condition that requires skilled nursing level care.

Medicare will cover all of the expense for the first 20 days of the stay. The program then charges a co-pay for every day up to 100 days. Once a patient reaches 100 days, he or she must cover the entire cost after the initially covered 100 days. But if he or she is out of an SNF for more than 60 days, the coverage resets and they can be admitted for another 100 days after a three-day hospital admission. Simple, right?

Medicare covers most types of hospice coverage when a patient has received a terminal illness diagnosis and is not projected to live more than six months. This will encompass the patient’s medication, support services, and services such as grief counseling. Medicare will also pay for short-term hospital stays and inpatient care for caregiver respite. In addition to Medicare, the federal government also provides some coverage through Veterans Affairs (VA). But unlike Medicare and the VA, Medicaid can assist those seniors who qualify with most types of long-term care.

Medicaid is administered by the states, so the benefits and eligibility will vary. However, most of these programs are given incentives for administering alternative programs that let seniors stay at home or with a family member. If the beneficiary qualifies, family members providing their care may be certified as providers and reimbursed for their efforts by Medicaid.

One option for the proactive is purchasing long-term care insurance to cover the costs. However, if that coverage is too expensive because you’re late in buying a policy or you have pre-existing health issues, you should look at other options like Medicaid. If you go that route, you may need to transfer assets and income to trusts or family members. Speak with a competent elder law attorney before you make any moves.

An elder law attorney can guide you about long-term medical care costs during retirement.

Reference: Deseret News (Sept. 27, 2016) “How to cover the cost of long-term care”

How to Protect Your Family and Your Assets

Many people may find themselves too busy to consider an estate plan but they don’t want to consider their own death either.

If you want to protect your family and your assets you need to think about an estate plan as The Street’s article explains in “Estate Planning Needs to Be on Your Retirement To-Do List.”

Everyone needs to do a review of investments and be certain the beneficiaries on life insurance, IRAs and 401(k) are updated, in addition to transfer on death (TOD) accounts, powers of attorney, and a health care proxy.

Many haven't done estate planning because they’re too busy. Plus, talking about death is not a lot of fun for most of us.

Many folks start to consider their estate planning after experiencing the probate process for themselves with a loved one who has passed away. A parent’s death and going through the process of probating an estate may be a real struggle if there’s no estate plan in place. They don't want to leave the same mess for their children.

Remember, documents also need to be updated. This includes health care proxies, powers of attorney and beneficiary designations.

Estate planning is the smartest way to take care of your family and loved ones. Some will need trusts to help accommodate their children and to ensure they get through college.

Different types of estate planning are needed in different stages of life, as well as different stages of wealth building. More advanced planning should come in the later stages of life when wealth has accumulated.

People generally don't think about estate planning before they get into their 50s and 60s. It’s just how folks think. Younger people are concentrating on making money and their careers.

Work with an experienced estate planning attorney to protect your family and your assets.

Reference: The Street (Sept. 24, 2016) “Estate Planning Needs to Be on Your Retirement To-Do List”

Play by the Rules When Making IRA Contributions

The rules for IRAs have always been complicated, and penalties can be levied when mistakes are made.

Adding assets to an IRA is only simple when they are being automatically deducted from your paycheck! To contribute assets or transfer funds into your IRA, pay careful attention to the rules and let an experienced estate planning attorney help you before you make a costly mistake. For instance, what if you wanted to move a stock account into your IRA?

Unfortunately, it’s not as easy as transferring stocks from one account to an IRA. The rules stipulate that IRA contributions must be made in cash—that means you can deposit a check, electronically transfer cash between accounts at different financial institutions or authorize an internal cash transfer between accounts at the same bank.

Selling some stock in a non-retirement account is an option to free up enough cash to make an IRA contribution, but NJ 101.5’s article, “Moving your money to an IRA,” explains that first you should look into whether a contribution to a traditional IRA or a Roth IRA is a better option.

Each type of IRA must be in a separate account. Whether you need to open a new IRA depends on your desired IRA contribution type and what kind of IRA you already own. Also, it’s important to note that contributions into a SEP-IRA or Simple IRA have a different set of rules.

With a traditional or Roth IRA, you can make an annual contribution up to $5,500 or 100% of earned income—whichever is less. In addition, if you’re at least age 50 and have more earned income, you can also contribute an extra $1,000, which is called the “catch-up” contribution.

You can make an IRA contribution at any time during the year, but you have up until April 15^th of the following year to make your contribution. There aren’t any extensions, even if the IRS grants you an extension to file your income taxes.

With a traditional IRA, the contributions are deductible, but only if you or your spouse aren’t a participant in a qualified company retirement plan—like a 401(k) or profit-sharing. If you are a participant, your ability to deduct a traditional IRA contribution is phased out at $61,000 adjusted gross income (AGI) for singles and $98,000 for a married couple. Your spouse’s ability to deduct a contribution starts to phase out at $183,000 if only you are a participant in the qualified plan.

You can’t contribute to a traditional IRA if you are over 70½, despite having had earned income.

IRA distributions are usually taxable. They are also subject to a 10% early withdrawal penalty prior to age 59½, and minimum withdrawals are required after age 70½. For a Roth IRA, contributions are never deductible, but distributions are typically tax-free.

Whether or not you can contribute to a Roth IRA plan depends in part on your age and if you are participating in a qualified plan, but overall your ability to contribute to a Roth IRA is phased out at certain levels: $117,000 AGI for singles and $184,000 for marrieds. One of the pluses of a Roth IRA is there are no minimum distributions; however, the earnings portion of distributions may be taxable and/or subject to a penalty if the Roth wasn’t opened for five years, but this depends on your age. Keep in mind that there are different rules for people who fall into one of three categories: under age 59½, between the ages of 59½ and 70½, and over 70½. Talk with a financial planner and an estate planning attorney who can help guide you through the complexities of IRAs.

Reference: NJ 101.5 (September 7, 2016) “Moving your money to an IRA”