Archive for Children and Family
Surviving the Death of a Breadwinner
Posted by: | CommentsIf you were to die tomorrow, how would your family carry on financially?
Financial preparedness is especially important if you (or your spouse) are the sole breadwinner. According to the Bureau of Labor Statistics, in 2007 there were 58 million “married-couple families” in the U.S. In just over half of them, both husband and wife worked. That percentage has been falling ever since. The Center for American Progress found that in 2010 alone, more than 1 million two-earner married couples were reduced to one earner.
With more American families now relying on one income, it’s important to plan for the unlikely and unexpected death of the sole breadwinner. The last thing you want to do while grieving the loss of your spouse is sell the family home, get a second job, or impoverish yourself to pay for medical bills and living expenses. Here are some steps you can take now to help avoid a financial crisis during an emotional tragedy.
The Truth About Life Insurance
Most people have life insurance, and most life insurance policyholders believe they have an adequate amount of coverage. Unfortunately, many policyholders are wrong. Only a minority of surviving spouses describe their life insurance payouts as adequate.
The problem is one of perception. Many people have life insurance through their employer. Because these families know they have at least some insurance, they believe they’re prepared. But employer-sponsored life insurance is rarely enough to help a family maintain its standard of living. Once the life insurance proceeds are gone, most families with only employer-sponsored coverage have to start making serious changes in how they live and work.
Assess Your Needs
You can begin with an objective look at what your family needs right now to get by. Do you have dependents, such as young children, a non-working spouse, or parents? How much money do you need to pay the bills and send your kids to college?
When planning for a tragedy such as the premature death of a spouse, it’s particularly important to establish this baseline because a terminal illness could drastically increase your expenses. The death of your spouse also means the loss of that spouse’s health care coverage.
When considering how much life insurance you need, you should also factor in lifestyle changes you anticipate in the near future. Do you plan to have a baby or buy a larger home? Are your aging parents becoming increasingly dependent? Are you considering sending a child to private school? Perhaps you anticipate a more sophisticated lifestyle in the future as your income increases.
You can’t anticipate every future lifestyle change, but you can provide your family with life insurance coverage sufficient to meet their needs. You can review your policy riders, options, and beneficiary designations at regular intervals and purchase additional coverage or make changes as needed.
Evaluate Your Resources
Life insurance may not be your only source of support. Take stock of other assets that may be available to you:
- Investment accounts that can be accessed to meet the family’s changed circumstances
- Retirement accounts that can be earmarked for the surviving spouse’s retirement years
- College savings accounts
- Social Security Survivors Insurance (based on your spouse’s work history)
- Family resources (wealthy relatives who would be willing to release part of an inheritance early)
Understand Your Finances
Ideally, both partners should know where their money comes from, where it goes, how to pay the bills, and have an understanding of investment accounts. You should also understand your spouse’s employer-provided benefits. If you or your spouse has taken a backseat in the management of the family finances, it’s time to take a more active role. It’s better to learn your cash-flow picture now, instead of when you’re forced to understand at a time when it will be much more difficult.
Preparation is Best
A surviving spouse will have a lot of financial issues to address. It’s best to address them well in advance. A financial professional can guide you through the difficult questions you should ask to prepare for an event that, hopefully, will never occur.
Special Planning for Special Needs
Posted by: | CommentsAs the parent of a special needs child, you work hard to give your child the most fulfilling life possible, and to meet their medical, educational, and therapeutic requirements. But don’t neglect their financial health. Your child will likely outlive you, and there are particular legal and regulatory issues to consider. However, good planning can help ensure that your child has financial resources later on. Read More→
College or Retirement? A Savings Dilemma
Posted by: | CommentsIf you’re a parent with less-than-deep pockets, you’ve probably wondered which savings goal is more important—your children’s education or your own retirement. After all, good parents put their kids’ needs above their own, right?
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Managing Your Finances After A Divorce
Posted by: | CommentsEvery divorce is different, but they all end the same way—after a divorce you need to plan for your financial future. Though it may be hard to think about during an emotional time, taking some important steps could save you frustration later and help you get started on the right financial path.
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The Best Gifts for Grads
Posted by: | CommentsYou’ve seen momentous changes in the life of your son or daughter. You helped them take their first steps and learn to ride a bike. Now they’ve graduated from college and “officially” entered adulthood. What makes a good graduation or house-warming gift? You can’t go wrong with solid financial advice, particularly this summer, when jobs are scarce.
Give Them a Guiding Philosophy
One sure way to build net worth over time is to live below your means. Of course, spending less than you make is easier said than done for young adults. Excess cash in savings and checking accounts can easily disappear.
A budget can help your grad control his or her spending. The best way to track this information is to compile three lists: debt, expenses and earnings. A budget should also allow for some savings, no matter how small. Saving is an important habit to develop at a young age.
Saving money for the sake of saving money is not appealing, but establishing a few short- and long-term goals can lead to success. They make the process of saving money real, giving your son or daughter a way to measure progress, and make the sacrifices of saving easier to accept.
Make the Most of Total Compensation
Salary is not the only form of pay. Equally important are benefits like health, life and disability insurance, retirement plans and paid vacation time. Some companies offer subsidies for education and health clubs and discounts on services or products, including company stock. Encourage your adult child not to leave money on the table!
New workers tend to do one of two things when it comes to taxes—they withhold too much or too little. Teach your grad that withholding too much means the government keeps his or her money interest free—money that could go to a retirement or emergency fund.
Get a Head Start on Retirement
People in their 20s should sign up for their company’s 401(k) or 403(b) plan the minute they’re eligible. Putting money aside for retirement is always a good idea, but an employer’s retirement plan accomplishes far more than simple savings. In addition to the employer’s matching contribution, such a plan teaches new workers the value of “out of sight, out of mind” savings—when money goes into savings before they have a chance to spend it.
Tame the Debt Monster
The two biggest sources of debt among young adults are credit cards and student loans. Generally, student loan payments should not exceed 8-10% of the borrower’s gross monthly income. Help your son or daughter explore student loan consolidation and establish automatic monthly payments from a checking account.
It can be hard to get along without credit cards in this increasingly paperless society, but even a relatively low credit card balance can grow into an unmanageable burden. Encourage your grad to manage credit cards wisely by doubling the minimum monthly payment and making payments on time.
Keep a Lid on Housing
A good rule of thumb for new college grads is to spend about 25% of their income on housing. This includes rent, parking, and utilities. Decisions about where to live can be emotionally charged. Before signing the lease, help your child consider his or her priorities. The more they spend on a place to live, the less they’ll have for their social life, travel, hobbies, and savings. By holding the line at 25% or less, they’ll be better able to fund a down payment on a house someday.
Insurance Is Not an Afterthought
Young adults must find another insurance resource if their employer has a waiting period, if they are unemployed, or if they can’t piggyback on your health plan. Encourage them to research temporary health insurance plans or join a local HMO. If your grad is single he or she may not need life insurance, but auto, renter’s and disability insurance are necessities.
“If Only I Had Done This Earlier!”
As a financial planner, I’ve heard this many times. Here’s your chance for a do-over with your grown children. Help them establish good financial habits from the outset and you’ll help them lay the groundwork for a flourishing financial future.
Stay on Track if You Stay at Home
Posted by: | CommentsWhen starting families, many couples wrestle with whether one parent should leave the workforce to become a stay-at-home parent. With one parent at home childcare costs and other work-related expenses are reduced, but there are other financial implications to consider.
Budget
When a parent stays home, a budget becomes more important than ever. In addition to showing you what is needed for a family to live on a single income, a budget lets you see where you can save and spend. It also helps both parents understand where the money is going. When planning a budget for a reduced income, it’s important to be realistic. Cut costs where you can without sacrificing essential expenses and without risking your goals for your future.
Healthcare
Whatever the changes in national healthcare bring, it’s essential that you have a plan that covers your entire family. If one parent works outside of the home, you may be able to obtain healthcare coverage for the whole family through the employed parent’s plan. If not, you need to find outside personal coverage. Either way, it’s an expense you need to consider and plan for as you grow your family and consider leaving behind employer-sponsored benefits. Healthcare costs are rising at a rapid pace, so make sure your healthcare budget is realistic and takes into account premiums as well as other out-of-pocket expenses. Remember that children visit the doctor a lot, particularly in the first few years.
Social Security
When one spouse stops working, they also stop paying into Social Security—which impacts the amount of Social Security benefits received in retirement. To compensate for this, the stay-at-home parent should increase his or her contributions to other retirement savings plans.
Retirement
Saving for retirement may seem daunting once you have children, especially if you’re living on a reduced income. A growing family makes it even more important that you make the most of your income to prepare for your future. Contributing to the working parent’s IRA or 401(k) provides a good source of retirement savings, but remember that you need to save enough for two people, even while potentially living on one person’s income.
In some cases, a Spousal IRA can help. With a Spousal IRA, the stay-at-home parent can contribute up to $5,000 a year to his or her own IRA. To qualify, the other spouse must be working, you have to file a joint tax return, and contributions are subject to IRS income limits.
Without the automatic withdrawals that make contributing to an employer-sponsored retirement plan easy, it’s essential that the stay-at-home parent diligently contribute to retirement accounts. A solid plan and automatic bank transfers can help.
Work-from-Home while Stay-at-Home
Working from home can allow the stay-at-home parent to earn additional income, often with the flexibility and part-time hours that make it manageable even with children. It can also have the additional tax benefit of opening up home office deductions on your income taxes. The tax laws surrounding home office deductions are complicated and the risks and rewards can be high—so it’s essential that you consult a tax specialist.
A Personal Plan
Staying home with kids can bring additional financial stress, but expert advice and a solid plan can help you maximize your current financial situation as you reap the rewards of your personal choice. A financial advisor can help you manage all the big changes in your life—and the financial implications of a growing family and a reduced income can certainly be big.
Be Generous and Smart
Posted by: | CommentsTax-Free Family Gifts
Do you have someone in your family who could use some financial help? Are you able and willing to provide it? Don’t get out your checkbook without first considering the most tax-advantaged way to help. Without research and planning, your generosity could cause you unnecessary taxation. While estate taxes govern taxation on assets after your death, gift taxes govern what you can give away during your lifetime. Let’s examine ways you can help your family without hurting your own finances.
Exclusions and Exemptions
Within current guidelines, you can still give to your family and friends without facing gift taxes—as long as you keep an eye on exclusions and exemptions.
Gift Tax Annual Exclusion – The federal tax law allows you to give up to $13,000 annually (per recipient in 2011) to an unlimited number of individuals—with no tax or reporting obligations.
Gift Splitting – Married couples can gift up to $26,000 (per recipient in 2011) each year using their gift tax annual exclusions.
Lifetime Exemption – The tax law also provides a lifetime gift tax exemption ($5 million in 2011). This allows you to give away as much as a total of $5 million to family and friends over your lifetime without owing any federal gift tax. If you are married, you and your spouse each are entitled to a separate credit. You can use any or all of the credit to offset taxes on gifts, and the amount you have used will not be available to offset taxes on your estate.
This means that gifts made under the $13,000 exclusion will not use up any of your lifetime gift tax exemption. However, any gifts you make over the $13,000 limit per individual, per year, will reduce your lifetime exemption.
Other Options
Beyond those exclusions and exemptions, there are other tax-free ways to help:
Education Savings
Another possibility might be to make tax-free contributions to the 529 college savings plan of a beneficiary. In one year, you may invest as much as $65,000 ($130,000 if you split the gift with your spouse) in a 529 plan. However, that $65,000 will be treated as if it were a series of $13,000 gifts made over five years. As a result, you won’t be able to make any other tax-free gifts to that person during that five-year period.
College Tuition and Medical Expenses
There are no limits on the amount of these expenses you can pay, as long as you give the money directly to the medical provider or the educational institution where the expenses were incurred.
Loans
You can loan money to family members at a lower interest rate than they would have to pay a bank. To avoid gift taxes, it’s important that you follow the required processes and impose the stated interest rate.
Homes
It’s unclear whether letting someone live rent-free in a home you own is considered a “gift” by the IRS, and therefore subject to gift taxes. You could avoid the issue by making them a part-owner in the home.
When to File a Gift Tax Return
A return is generally needed only when you make a gift of more than $13,000 to any person (other than your spouse) in one year. Your gifts can be cash, securities or other property, but as long as their combined value is $13,000 or less per year, per recipient, no federal gift tax applies and you don’t have to file a gift tax return.
Under current law, you won’t have to pay federal gift tax until all taxable gifts made during your lifetime exceed $5 million. You may want to file a gift tax return for a hard-to-value gift, even when a return is not required. Why? If the transfer is adequately disclosed, the IRS has only three years to challenge the valuation. Without the gift tax return, the IRS could dispute the valuation later when your estate tax return is filed (and justification is much more difficult), potentially forcing your family to pay substantial back taxes.
Generous and Smart
Making gifts while you’re still alive can help your family when they need it most—and if you plan wisely it can also help you avoid or minimize future estate taxes. Your financial advisor can help you make smart decisions to benefit your family and friends, while also keeping your own financial goals and taxes in mind.
Memory Loss—Not Money Loss
Posted by: | CommentsOne of the hardest things in life is to lose someone we love to Alzheimer’s disease or another form of dementia. In this slow-motion tragedy, the partner who once was so strong or the parent who took care of us simply disappears.
Dementia doesn’t just devastate families, either. When the family money manager loses the ability to understand money, it can devastate finances as well. How can you help keep your loved ones safe, and safeguard the assets your family will need in the future?
If you believe that a family member is at risk, there are things you can do now to help form a safety net.
Share the Burden
One person should never be responsible for an entire family’s finances. (That’s a good rule of thumb at any point in life.) Get involved:
- Pay bills, review statements, etc. with your partner.
- Find out where your parents keep their important financial documents and who their financial professionals are.
- Check with the bank to make sure that bills are not being paid more than once.
- Become a co-signer on a checking account.
- Look into online banking and bill-paying to standardize as many financial activities as possible.
- If the person is willing, obtain a power of attorney for all money matters.
Be Vigilant
You can find the ten early detection signs of Alzheimer’s disease online. Thanks to the work of the University of Alabama at Birmingham’s Alzheimer’s Disease Center, I’d add an 11th: Confusion over money. UAB researchers believe that financial capacity is one of the key activities of daily living.
Watch for unusual financial behavior. Ask questions if you think something might be wrong. Be diplomatic; you don’t want to take away anyone’s independence or dignity.
Unfortunately, your loved one’s attorney or accountant might not be able to provide information on a client’s behavior, as they are bound by the dictates of confidentiality.
Don’t Wait for a Diagnosis
When you do your long-term estate planning, keep the following indicators in mind:
- The risk of developing Alzheimer’s doubles every five years after the age of 65.
- After 85, the risk approaches 50 percent.
- People who had parents or siblings who developed this disease are more likely to develop it themselves.
- Health issues (head trauma, heart and circulatory problems, diabetes, etc.) increase the risk of dementia.
Let’s Work out a Plan
If you or someone you know is faced with this situation, I can help you find resources such as long-term care policies, Medicaid planning and more. I work with a network of professionals who can help you establish medical and durable powers of attorney or create and update wills and living wills. Let me know if I can provide a referral.
There are many stories of families who lost their assets when the family breadwinner lost his or her understanding of how to handle money. But these stories are not inevitable. Allow me to help you protect your family’s finances when dementia strikes.
Honor Thy Parents
Posted by: | CommentsThe increase in life expectancy in the United States has led to an unexpected consequence—the emergence of the “sandwich generation.” This term, which first appeared in 1987, describes adults who care for both their children and their aging parents.
If you’re a member of the sandwich generation, you know that one day you’ll have to talk to your parents about their money. Perhaps you are dreading that day. No matter how old you are, you may still see yourself as a kid, not a peer. Your parents may feel the same way and they could be uncomfortable talking to you about money, wills and cemetery plots.
As your parents age it becomes increasingly important that you start this conversation and keep it going, no matter how awkward it proves to be. As with all financial matters, the two best words of advice I can give you are: Start Now.
Break the Ice
Be direct and respectful and start small. For example, ask your parents for contact information in the event of an emergency. Then try to obtain the following in one or more friendly discussions:
Essential Records
Where do your parents keep birth certificates, deeds, wills, health and life insurance policies and tax returns? If they have a safe deposit box, safe or locked filing cabinet, obtain access.
Contact Information
This includes doctors, insurance agents, lawyers and financial professionals. Don’t forget the neighbors, who can be helpful if you live far away.
Financial Information
Which institution(s) hold their assets? What are the account numbers, online user names and passwords?
These conversations might be as helpful to Mom and Dad as they are to you. Becoming involved in your parents’ finances might help them refine their ideas and might also give you ideas for your own retirement.
Become Proactive
You can build on the basics of your parents’ situation to find powerful ways to help them. In particular, address these topics to assist and protect your parents:
Durable Power of Attorney
The financial power of attorney authorizes you to handle your parents’ money, from paying bills to distributing their assets according to their wishes. The health care power of attorney (also called a health care proxy) gives you the ability to make medical decisions when your parents can’t. You need both types. Without them, you could be facing a long, expensive and emotional journey through the court system.
Wills
Do your parents have a will? If so, have they updated it to reflect changes in your family or in the tax law? If not, help them find an estate planning attorney.
Medical Insurance
Do they have health care benefits other than Medicare? Long-term care insurance can help with at-home care or with an assisted-living facility or nursing home.
Protection from Fraud
Sadly, crimes against older Americans are escalating. Most victims are between the ages of 80 and 89, live alone, and require some help with either health care or home maintenance. You can help safeguard your parents by asking about undeposited checks, unpaid bills, unexplained transfers and abrupt changes in their will or other financial documents. These patterns might point to the influence of a person you’ve been unaware of, or to the onset of dementia or Alzheimer’s disease.
The Toughest Questions
No one likes to contemplate mortality, but at some point you and your parents will have to consider end-of-life issues.
Living Arrangements
Will your parents be able to care for themselves in their home without assistance? Should they be thinking about a smaller home, a retirement center, or an assisted living facility or nursing home?
Living Wills
You don’t want to guess about life and death when your parents are unable to speak for themselves. A living will (or an advanced medical directive) is a guideline for what life-saving measures your parents would like should they become seriously ill.
Put Yourself in Your Parents’ Shoes
Think of how you would want to be addressed if you were in their situation. Make your conversations a two-way street and not a confrontation. Even if your parents won’t involve you in their finances right away, if you keep the lines of communication open you will all come out ahead. Hopefully over time your conversations will help everyone involved create peace of mind. And peace of mind, in any financial calculation, is invaluable.
Help Prevent Elder Investment Fraud
Posted by: | CommentsOn June 15th, World Elder Abuse Awareness Day, the Investor Protection Trust released results of an Elder Investment Fraud survey with some alarming results. According to the survey, 7.3 million older Americans—one out of every five citizens over the age of 65—already have been victimized in a financial swindle. The survey also revealed that many adult children are worried about their elderly parents’ ability to handle their own finances.
Take a look at some key findings of this survey:
Read More→
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