5 Emotional Roadblocks That Impact Your Estate Plan

As CERTIFIED FINANCIAL PLANNER™ professionals, we get to discuss everyone’s two favorite topics, death and taxes. The reality is that no one wants to discuss their death and this is the greatest hurdle to overcome and the reason so many people do not have an estate plan. Below are some other common roadblocks that can reduce the quality of your estate plan.

1. Not Discussing Finances with Your Heirs

Some interesting studies have shown inherited wealth typically does not make it past the first generation of heirs. The wealth that does make it and is passed to several generations have one common trait, the heirs were well prepared to handle the inheritance properly. The reason for this is the parents did a great job of communicating and teaching the proper values to their kids. This does not mean telling them everything they will receive but instead communicating your values and wishes for them to follow.

2. Thinking This Will Never Happen To Me

It is human nature to see something happen to a friend or on the news and think that could never happen to me. Many individuals do not want to consider their mortality and instead live with a feeling of invincibility. This trait is most common in men for sure but it can impact anyone. Delaying your estate plan is a recipe for disaster and this is a common reason why this occurs.

3. Deciding Who Gets What and How Much

Family dynamics are difficult to navigate, even for the closest of families. As you begin the process, uncomfortable truths will begin to emerge and are difficult to navigate. Who gets family heirlooms? Are there items that have strong emotional ties to you or heirs? The best way to get started is to make a list and start with the easiest assets and slowly work your way down.

4. Not Clearly Defining Your Goals or Objectives.

As you develop the estate plan, it is important to clearly define how you want to leave your legacy. Is there an alma mater or charity you want to leave money to? Do you have a child with substance abuse problems and how do you leave money to them in a way that doesn’t fuel their addiction? If you have a child that is well off and another that is struggling financially do you not split the assets evenly? How do you protect your kids from themselves, their potential ex-spouses, or creditors? It is important to have an estate plan that navigates difficult issues by clearly stating how your estate is to be handled in those circumstances.

5. Paying For and Working With An Attorney

People seem to have a fear of working with an attorney, just like many people have a fear of going to the doctor. Nobody sees an attorney for the fun of it and many people dread the topics discussed and also the seriousness of the topic typically begins to creep in. The other part of this is everyone knows working with an attorney is not cheap. While creating a good estate plan is not cheap, it will pay for itself tenfold by reducing hassles and costs for your estate when the documents are finally needed.

We also recommend you watch the replay of our Summer Webinar Series “Estate and Legacy Planning” which discusses estate planning basics, the documents you will need, and common estate plan designs.

The Joys and Financial Challenges of Parenthood

Parenthood can be both wonderfully rewarding and frighteningly challenging. Children give gifts only a parent can understand — from sticky-finger hugs to heartfelt pleas to tag along on Saturday morning errands. As you raise them and make sure they get a good, strong start in life, one thing is obvious — children are expensive! Fortunately, you can take steps to prepare for the financial challenges you face.

How expensive is raising a child?

The United States Department of Agriculture estimates that the average nationwide cost of raising one child in a two-parent family from cradle to college entrance at age 18 ranges from $174,690 to $372,210, depending on income.1

Reassess your budget

As your family grows, you may need to make changes to your budget. Many living expenses may increase, including grocery, clothing, transportation, healthcare, insurance, and housing costs. You may also need to account for new expenses, such as childcare, or adjust your budget to account for a decrease in your income if you decide to become a stay-at-home parent. Your budget may also need to expand to include new financial goals, such as saving for college or buying a home. Making sure that your budget reflects your new financial priorities can help you stay on track.

Review your life insurance coverage

What would happen to your children if something happened to you? Life insurance is an effective way to protect your family from the uncertainty of premature death. It can help assure that a preselected amount of money will be on hand to replace your income and help your family members — your children and your spouse — maintain their standard of living. With life insurance, you can select an amount that will help your family meet living expenses, pay the mortgage, and even provide a college fund for your children. Best of all, life insurance proceeds are generally not taxable as income.

Keep in mind, though, that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. We typically recommend term life insurance which covers you for a fixed period (i.e., 10, 20, or 30 years), is designed to protect your dependents in case you die prematurely and is cheaper than other life insurance policies (i.e., whole life).

We also recommend you check with your employer who may offer group-term life insurance coverage (typically $50,000 per employee).  If your employer provides in excess of $50,000, the excess amount must be included in your income and is subject to Social Security and Medicare taxes.2

Consider purchasing disability income insurance

If you become disabled and unable to work, disability income insurance can pay benefits — a specific percentage of your income — so you can continue meeting your financial obligations until you are back on your feet. Short-term disability insurance is sometimes provided through your workplace, either as a mandatory or voluntary benefit. For more flexible and comprehensive protection, consider buying disability income insurance.

What about Social Security? If you do become permanently and totally disabled and are unable to do work of any kind, you may be eligible for benefits, but qualifying isn’t easy.3

Start building a college fund now

According to the College Board, for the 2019/2020 school year, the average cost of one year at a four-year public college is $21,950 (for in-state students), while the average cost for one year at a four-year private college is $49,870 (the total cost of attendance includes tuition and fees and room and board). Even if those numbers don’t go up (and they are expected to continue increasing), that would come to $87,800 for a four-year degree at a public college, and $199,480 at a private university.4 Oh, and don’t forget graduate school.

College costs may seem daunting, especially if you’re still paying off your own college loans, but you have about 18 years before your newborn will be a college freshman. By starting today, you can help your children become debt-free college grads. The secret is to save a little each month, take advantage of compound interest, and have a sum waiting for you when your child is ready for college.

The following chart shows how much money might be available for college when your child turns 18 if you save a certain amount each month.

Keep saving for retirement

Many well-intentioned parents put saving for retirement on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. If you postpone saving for retirement, you might miss out on years of tax-deferred growth, and it may be hard to catch up later.

Ideally, you’ll want to save regularly for both goals. but if you have limited funds, prioritize saving for retirement. Your child may receive financial aid to pay for college, but there’s no such option for you.

  1. Source: Expenditures on Children by Families, 2015, released January 2017.
  2. Source: IRS Publication 15-B (https://www.irs.gov/government-entities/federal-state-local-governments/group-term-life-insurance).
  3. Source: Social Security (https://www.ssa.gov/disability/).
  4. Source: College Board, “Trends in College Pricing 2019”, November 2019 (https://research.collegeboard.org/pdf/trends-college-pricing-2019-full-report.pdf).

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

Building Good Financial Habits

Managing finances for many people is difficult and for some can be overwhelming. This is not because people are incapable of managing their finances, but rather they have never been shown how to do so. Basic finance like paying bills and understanding taxes is not taught in schools and most of us did not learn from our parents (or were taught bad habits instead). Below are some tips to help you effectively manage your finances:

1. Keep it simple

Life is complex enough and often the best strategies in life are the simplest. Managing your finances should be the same way. Try and automate as much of your finances as possible. For example, have direct deposit set up and on payday have your bills be paid electronically on the same day. Automate some form of savings as well on each payday to build your wealth as well. In this process, the rest of the money left over can be for you to spend.

2. Pay yourself first

It is important to make sure you save money into a savings account each payday. You want to have at least 3 – 6 months of living expenses so when something happens like a job layoff you do not have to take on debt to manage the situation.

3.  Use technology

There are many great tools out there for free to help you manage your finances. For example, your bank should provide a tool to help you track your budget. Your credit card carrier should provide a free resource to track your credit. If these tools are not available use 3rd party tools like www.creditkarma.com for monitoring your credit.

4.  Be honest with yourself

Take a close look at your spending habits and understand what bills are necessary like rent and utilities. It is important to identify bills that are non-essential items like eating out, buying expensive items, etc. and work on reducing those expenses. The idea here is to not say you can’t have fun but work on making sure you enjoy life while still focusing on long term goals. Your $3 latte each day is not what is keeping you from being a millionaire. Just focus on spending less than you bring home and monitor your progress over time to help ensure you stay on track.

5. Be kind to yourself

Managing finances is hard and there are a lot of emotions mixed with our money. If you make a mistake do not beat yourself up but acknowledge it and move on. The only mistake in life is not learning from our mistakes. 

Also, you do not have to do this alone and there are professionals out there (like us) that are happy to help you!

If you missed our Money Mastery webinar series, we discussed strategies to pay down debt and tips to create healthy financial habits.  Check out the series by clicking here.

Tips for Medicare Open Enrollment

As of October 15th Medicare beneficiaries can make changes to their Medicare benefits. This is the time to review your current benefits and make any changes. If you are unhappy with your current plan or perhaps your health has changed during the past year, now is the time to make any necessary changes like switching Medicare health and prescription drug plans. Each year, Medicare plan costs and coverage typically change so if for no other reason it is important to review your benefits to understand any changes to your current plans.

From October 15 – December 17 you can:

  • Join a Medicare prescription drug plan (Part D);
  • Switch from one Part D plan to another Part D plan;
  • Drop your Part D coverage altogether;
  • Switch from Original Medicare to a Medicare Advantage plan;
  • Switch from a Medicare Advantage plan to Original Medicare;
  • Change from one Medicare Advantage plan to a different Medicare Advantage plan;
  • Change from a Medicare Advantage plan that offers prescription drug coverage to a Medicare Advantage plan that doesn’t offer prescription drug coverage; or
  • Switch from a Medicare Advantage plan that doesn’t offer prescription drug coverage to a Medicare Advantage plan that does offer prescription drug coverage.

Keep in mind any changes do not take effect until January 1st, 2021.

Medicare Part B (hospital insurance) premium and deductible costs capped for 2021

A provision of the recent spending bill passed during COVID limits Medicare Part B premium and deductible increases to 25% of what they would normally be. In April, the Medicare Trustees expected a 6% increase of the Part B premium but we will not know the true numbers until later this month or early November as this is when costs for the next year are announced. 

New and expanded benefits for 2021

  • Medicare Advantage plan will offer expanded telehealth and other virtual services.
  • Medicare-eligible individuals with End-Stage Renal Disease (ESRD) can enroll in a Medicare Advantage plan with benefits starting January 1, 2021.
  • Medicare now covers 12 acupuncture visits in 90 days for lower back pain.
  • Now you can join a drug plan that offers lower costs for insulin. The copay is $35 for a 30 day supply.

If you have any questions, please do not hesitate to speak with your adviser or contact us at financialplanning@bfsg.com.

Asset Protection

The American Bar Association published at the end of 2017 that there were 1.3 million lawyers in the United States.  That is one lawyer for every 300 people, the most per capita of any country in the world. Now there are a few more. In today’s litigious society, many of us may be concerned about keeping that for which we have worked so hard. 

What are some of the tools that you can use to protect and preserve your assets during your lifetime and maybe for your heirs also? There are simple and complex strategies.

  • Liability insurance for your home, cars, boats, and RVs are the basics.  Also, do not forget to buy umbrella insurance that ideally will cover your net worth.
  • You can protect your assets by putting them into Family Limited Partnerships and Limited Liability Companies.
  • Assets can be protected by pre-marital or post-marital agreements.
  • Retirement plan assets that are under ERISA are not subject to claims of creditors. 
  • IRAs are exempt from creditors in certain states or up to certain limits. 
  • Life insurance is also protected from creditors.
  • Gifting assets can offer protection for your heirs.  The best protection is in giving up complete control of those assets, but most of us are not willing or able to do that.