How to Make a Few Bucks after Retirement

When you retire, it can be hard to generate extra income. However, if you can lower your spending, you won’t need to dip into your retirement funds as much. Money Talks News’ recent article entitled “7 Unusual Ways to Cut the Cost of Living in Retirement” gives us some atypical ways to lower your expenses in retirement:

  1. Move in with the children. Children these days often live at home until they’re in their 20s. They can return the favor by letting their retired parents live with them after they’ve formed their own households. However, prior to moving in with Junior, make sure that you reach an agreement about whether you’ll help out with household expenses.
  2. Rent out a room in your home. If you have empty bedrooms in your house because your children have grown up and moved away, consider renting one out. Companies such as Roommates4Boomers and Silvernest help seniors rent out extra space in their homes or find an older roommate with whom to reside. However, being a landlord requires some effort. You’ll need to screen tenants, collect damage deposits and collect the rent, unless you use a company that handles that for you.
  3. Get your green thumb going. You can max out your savings if you grow vegetables that can be easily stored or preserved, such as potatoes, onions and winter squash. Beans, tomatoes, cucumbers, beets and sweet corn can be preserved by freezing or canning.
  4. Downsize your fleet. When you retire, you may be able to share a single vehicle with your spouse. That would eliminate the expenses associated with owning and operating a second car. Transportation-related costs are the second-largest type of expense for the average household led by someone who is 65 or older, after housing.
  5. Drop unhealthy habits. You can reduce your medical costs in retirement, if you make a greater effort to stay healthy. One way to do this is to avoid unhealthy habits, such as smoking or drinking alcohol to excess.
  6. Canceling your life insurance. The purpose of life insurance is to replace the income of household earners, providing for dependents in the event of a breadwinner’s untimely death. However, when you’re retired, odds are that your kids are grown and supporting themselves. If you no longer have dependents, the money you’re spending on life insurance might be better spent on your daily needs.
  7. Plan to age in place. If you take action now to make your home safe and accessible as you age, you may increase your chances of staying in your home longer. If you’re able to “age in place,” rather than moving into an assisted-living facility or nursing home, you’ll likely also save money.

Reference: Money Talks News (Sep. 3, 2021) “7 Unusual Ways to Cut the Cost of Living in Retirement”

 

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What are the Key Documents in Estate Planning?

A basic estate plan with a Last Will can be fairly straightforward to create with the help of an experienced estate planning attorney.

Here are the main items you need in an estate plan. However, ask your estate planning attorney about what else you may need in your specific circumstances.

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” says there are three things you need in every good estate plan: last will, a power of attorney and an advance healthcare directive – and each serves a different purpose. Let’s look at these:

A Last Will. This is the cornerstone of your estate plan. a last will instructs the way in which your assets should be distributed.

Everyone needs a last will, even if it’s a very basic one. If you do nothing else in planning your estate, at least create a last will, so you don’t die intestate and leave the decisions to the courts.

A Power of Attorney (POA). This document permits you to give a person the ability to take care of your affairs while you’re still alive. A financial power of attorney can help, if you’re incapacitated and unable to manage your finances or pay your bills. A medical power of attorney can also help a loved one take care of healthcare decisions on your behalf.

With a financial power of attorney, you can give as much or as little power over your financial affairs as you want. Note that when establishing this document, you should have a conversation with your power of attorney agent, so if called upon, he or she will have a good understanding of what they can and can’t do financially for you. A healthcare power of attorney also allows a person to make healthcare decisions, if you’re unable to do so.

An advance healthcare directive. This document instructs medical staff how you want them to handle your health-related decisions, if you’re unable to choose or communicate. It includes resuscitation, sustaining your quality of life, pain management and end-of-life care.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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Death of Entertainer’s Brother, John R. Nelson may have Impact on Estate

John R. Nelson, Prince’s oldest brother and one of his heirs, died, his sister announced on Twitter, according to The Star Tribune’s recent article entitled “John R. Nelson, Prince’s oldest brother and one of his heirs, has died, his sister announced on Twitter Friday” reported.

“It is with great sadness, we announce that our beloved brother Johnny R. Nelson received his heavenly wings tonight at 7:47 p.m.,” Sharon L. Nelson tweeted Friday. “Johnny’s loving personality and spirit shined brightly, and he fought hard to help preserve Prince’s legacy.”

John R. Nelson was Prince’s half-brother. He was born in 1944 to Prince’s father, John L. Nelson, and his first wife, Vivian. John’s passing leaves Sharon and their sister Norrine as the music icon’s major remaining family heirs. Prince’s half-sister Lorna Nelson died in 2006 at the age of 63.

Roughly 50% of Prince’s estate is controlled by Primary Wave, a New York music company that owns rights to thousands of popular songs from artists ranging from Ray Charles to Nirvana. The company bought 100% of the inheritance of Omarr Baker, the youngest of Prince’s six siblings, and 100% of the late Alfred Jackson’s inheritance. The company also acquired 90% of sister Tyka Nelson’s share of the estate. After Primary Wave acquired half of the estate, Norrine, Sharon, and John were left as Prince’s remaining family heirs. That number has now been reduced to two following John R. Nelson ‘s death on September 4th.

In the five years since Prince died of a fentanyl overdose without a will or direct descendants, his estate has been embroiled in legal disputes. Most recently, the IRS and the estate’s administrator, Comerica Bank & Trust, have fought over its value. Comerica says it’s worth $82.3 million—about half of what the IRS says it’s worth. In June, the IRS and Comerica reached a partial settlement, agreeing on the value of the musician’s real estate as $17.7 million. However, the value of Prince’s music and royalties, an issue that may wind up being decided in court, is still unresolved.

Since Prince died without a last will or direct descendant, it resulted in a number of legal disputes over his estate. In May 2017, a Minnesota judge ruled that his sister and five half-siblings were the rightful heirs to the estate. Prince’s sister, Tyka Nelson, and his half-siblings, Sharon Nelson, Norrine Nelson, John R. Nelson , Omarr Baker, and Alfred Jackson, were listed as the estate’s heirs, while Brianna Nelson and Victoria Nelson, who claimed to be his niece and grandniece, were rejected.

Reference: Star Tribune (Sep. 4, 2021) “John R. Nelson, Prince’s oldest brother and one of his heirs, has died, his sister announced on Twitter Friday.”

 

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Mega IRA s Could Be a Source for New Public Policies

There are few specifics but owners of Mega IRA accounts worth more than $5 million might be presented with new withdrawal requirements, if legislation for a new national safety net becomes law. For a very small slice of the American population, IRAs have become million and even billion dollar tax deferred accounts, according to a recent article from CNBC titled “Democrats may change the rules for ‘mega’ IRAs over $5 million.”

There are roughly two dozen tax categories being considered by Congress to help raise money for the expansion of the nation’s safety net, which for now is anticipated to have a $3.5 trillion price tag.

The policy concept was spotted on a draft of ideas lawmakers assemble before formally pitching the ideas before their colleagues. Floating game-changing ideas to gauge response is part of today’s legislative process.

The list didn’t include a specific amount but suggests a limit of $5 million. It also included information regarding the number of mega IRA accounts. Apparently, the number of IRA accounts worth more than $5 million has tripled in the past ten years.

In contrast, the average American’s IRA is valued around $39,000.

The idea is part of a broader theme of raising revenue from the wealthy to pay for social needs, like education, address climate change, assist working families with paid leave, childcare and other basic human needs.

It may have been sparked by a recent report that one of the founders of PayPal owns a Roth IRA valued at $5 billion. IRAs were created as a means of encouraging working Americans to save for retirement. However, they have become huge tax shelters for the wealthy.

More than 28,600 taxpayers owned IRAs worth more than $5 million in 2019, but they account for less than a tenth of 1% of the 70 million Americans who have a traditional or Roth IRA. The mega accounts add up to $280 billion, or about 3% of the total $8.6 trillion owed in IRAs.

Limiting the size of tax-deferred retirement accounts isn’t new. Several attempts have been made to cap the amount in IRAs or change distribution rules.

The final legislation may not be known for some time, but one response to this proposal would be to convert traditional IRAs to a Roth. Paying taxes at the time of the conversion, even if done over time, could be useful to eliminate having to pay taxes on the funds, if withdrawal rules change. In addition, there are no Required Minimum Distributions (RMDs) on Roth IRAs, so funds can grow tax free for the life of the owner.

Reference: CNBC (Sep. 8, 2021) “Democrats may change the rules for ‘mega’ IRAs over $5 million”

 

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Can You Make Heirs Behave from the Grave?

Imposing strange or amusing conditions upon heirs may make for good novels. However, in the real world, terms and conditions are limited by the law. A last will or trust contains language specifying how you want assets to be distributed after your death. There are some conditions and terms included, but others should be left for fiction authors, according to a recent article titled “What Can You Force Your Heirs to Do To Get Your Wealth” from Forbes.

If something is illegal or against public policy, it is not acceptable in a last will. Defining public policy is not as easy as whether something is illegal, but it can be described effectively enough, or clarified by your estate planning lawyer. For example, making a gift of land to the town on the condition that an offensive statue be placed in the middle of the land would be against public policy. Requiring heirs to not marry a specific person or type of person before they can inherit is considered illegal in a last will. Beneficiaries are not to be prevented to live their lives freely through the force of a last will.

Whether a condition is valid also depends upon whether it is a precedent that existed at the date of your death or a condition that occurs after your death. For instance, a requirement for a beneficiary to live in a specific location at the time of your death might be considered valid by a court. However, a condition requiring a spouse to never remarry would not be valid.

Blatantly illegal terms of an inheritance are easy terminated. Leaving money to a known terrorist organization or requiring an heir to commit a crime is an easy no-go. However, sometimes things get murky. Restraints on getting married or selling or transferring property are two of the biggest problems, and often the stories behind the last wills are sad ones.

A condition of not marrying, divorcing, or remarrying is not legal. However, a condition that heirs do not marry outside of the faith has been enforced as a valid last will condition. A complete prohibition of a second marriage by a surviving spouse has been deemed void. It should be noted that certain requests have been permitted, like having a surviving spouse lose payments from a trust when they remarry. As antiquated as it may sound, courts have affirmed the concept of the specific limitation to provide financial support only until the surviving spouse remarries and is, therefore, not void.

A probate court will not void a condition on a bequest automatically, even if it is clearly illegal. The beneficiary, or another interested party, must file with the probate court to have the condition voided. If you fail to do so, when the last will or trust is allowed, it is possible to lose your right to void the condition.

A better way to go: don’t try to control your heir’s behavior from the grave. It creates terrible ill will and may cloud a lifetime of happy memories. If you don’t want to give something to someone, your estate planning attorney will help you create an estate plan, and possibly a trust, to control how your assets are distributed.

Reference: Forbes July 21, 2021 “What Can You Force Your Heirs to Do To Get Your Wealth”

 

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Should I Keep My Life Insurance Policy?

About half of adult Americans have a life insurance policy, and more say they’re interested in purchasing one. But needs can change later in life when children grow up, and a retirement nest egg seems big enough to absorb financial shocks. Those nearing and in retirement may see less need for their life insurance policy than when they first bought it and may see the premiums they pay as burdensome.

Kiplinger’s recent article entitled “Other Uses for Life Insurance You May Not Know About” says that the tax benefits of a life insurance policy are potentially even more valuable now that the “stretch IRA” is no longer available to most of us. In 2019, the SECURE Act eliminated the stretch for most non-spouse beneficiaries. With limited exceptions, non-spouse beneficiaries can no longer “stretch” out RMDs (required minimum distributions) over the course of their lifetimes. Now, most non-spouse beneficiaries must withdraw their inherited tax-deferred retirement accounts within 10 years of the original owner’s death. This may result in an increased tax burden and a faster end to the tax benefits of the inherited account.

However, life insurance proceeds paid to beneficiaries are generally income tax-free, and some use life insurance to help transfer wealth to the next generation. Life insurance policies can provide business owners additional opportunities, such as paying off business debt, funding buy-sell agreements related to someone’s business or estate, or funding retirement plans.

It’s also estimated that 70% of Americans 65 today will need long-term care at some point, but many Americans nearing and in retirement don’t have long-term care insurance. Many people who do want to plan for long-term care costs may not want to invest in traditional long-term care insurance, because premiums can rise a lot, and there are typically no benefits if the owner ends up never needing long-term care.

An alternative option to long-term care insurance is to use a life insurance policy with long term care benefits. These combine the benefits of long-term care insurance with those of permanent life insurance through the purchase of an optional rider. They can still provide a death benefit if the owner passes away without having needed long-term care. If the owner does need long-term care, a certain amount of money or time is allotted to cover costs. If this amount isn’t used, some policies can offer a “return of premium” guarantee upon death or termination of the policy. If a remaining amount is passed on, beneficiaries may be able to enjoy it tax-free.

There are a number of potential benefits to life insurance beyond its traditional use when creating a retirement or estate plan.

Reference: Kiplinger (July 21, 2021) “Other Uses for Life Insurance You May Not Know About”

 

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What’s a Pot Trust ?

A pot trust can give you added flexibility as to the way in which the trust assets are used, if you plan to leave your entire estate to your children, says Wealth Advisor’s recent article entitled “How Does a Pot Trust Work?” It’s also called a discretionary, sprinkling or common pot trust and is a type of trust that can be used by families to pass on assets. Minor children serve as beneficiaries with a trustee overseeing the management of trust assets. The trustee has discretionary power to decide how the trust funds are used to pay for the care and needs of beneficiaries.

Flexibility is key in family pot trusts, since the assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if: (i) you have two or more children; and (ii) at least one of those children is a minor. As long as the trust is in place, the trustee determines how trust assets may be used to provide for the beneficiaries’ well-being. This trust is designed to address the financial needs of individual children as they arise, and there’s no requirement for trust assets to be divided equally among them.

Pot trusts can offer an advantage to parents who want to make certain the needs of their children will be met in the event something happens to them. If both parents were to die, a pot trust could provide money to cover basic living expenses, as well as other costs that might arise. You can decide when the trust should end, based on the ages of your children, if ever. Children can also still get distributions from the trust once it terminates, if all trust assets haven’t been used.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. A family pot trust can also put an increased burden on the trustee because the trustee must in effect assume a parental role when it comes to financial decision-making. There’s no predetermined set of instructions left behind by the trust grantor.

However, if you’re worried about issues of fairness or older children having to wait to receive trust assets, ask an experienced estate planning attorney about creating individual trusts instead, so that you can designate specific assets to be added to each trust and provide instructions to the trustee on how those assets should be managed. An individual trust gives you more control over what happens with the trust assets. You can also say what portion of your estate each child should receive.

Reference: Wealth Advisor (Aug. 31, 2021) “How Does a Pot Trust Work?”

 

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No Children ? What Happens to My Estate?

Just because you don’t have children or heirs doesn’t mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.

Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you don’t have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you don’t have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.

The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.

It’s not uncommon for people to appoint one of their children as the executor of their will. But if you don’t have children, you can appoint another family member or a friend. Select someone who’s trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.

You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.

It’s important to name who should receive items of sentimental value, such as family heirlooms, and it’s a good idea to discuss this with your loved ones, in case there are any disputes in the future.

Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.

Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

 

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Can You Have Bitcoin in IRA?

Experts on both sides of the cryptocurrency world agree on one thing: it’s still early to put investments like bitcoin into retirement accounts, especially IRAs. A recent article from CNBC, “Want to put bitcoin in your IRA? Why experts say you may want to rethink that, explains why this temptation should be put on pause for a while.

Investors who have remained on the sidelines on cryptocurrency are taking a second look as this new asset class surpassed the $2 trillion mark in late August. Looking at retirement accounts flush with positive growth from stocks, it seems like a good time to take some gains and test the crypto waters.

However, the pros warn against using cryptocurrency in retirement accounts. “Not just yet” is the message from both bulls and bears. One expert says using cryptocurrency in a retirement account is like taking a delicate and exotic animal out of its natural element and putting it in a concrete zoo. Cryptocurrency is not like “regular” money.

The accounts are structured differently The average investor also won’t be able to hold the keys to their own cryptocurrency investment. It’s a buy and hold, with no individual ability to move the assets around. While there are some investment platforms working to change that, an inability to move assets, especially such volatile assets, is not for everyone.

Cryptocurrency is a much riskier investment. A quarterly look at account updates would be like only checking your retirement accounts every five years. Cryptocurrency values are volatile, and an account balance can change dramatically from one week, one day or even one hour to the next one. Crypto is a 24/7/365-day market.

Self-directed IRAs are allowed to have crypto assets, but just because you can doesn’t mean you should. Another reason: stocks, bonds and real estate have a stated market value, which means they are taxed when withdrawals are taken. However, the expected value of cryptocurrencies is not clear. They are not regulated, while IRAs are among the most highly regulated accounts. This is a big reason as to why most IRA account administrators don’t permit cryptocurrencies in their accounts.

Investment decisions are based on the eventual use of the funds. For IRAs, the intention is not to lose money, and ideally for it to grow, so there is more money for your retirement, not less. Separate margin or trading accounts are typically used for riskier investments.

One expert advised limiting cryptocurrency investments to 5% of your total retirement accounts. If money is lost, it won’t destroy your retirement, and any wins are extra money. Another expert says investing such a small amount won’t be worth the time or effort, so don’t even bother.

For those who are determined to get in the game, a Roth IRA may be preferable if you have an extended time horizon and can stand the ups and downs of cryptocurrency investments. The appreciation in a Roth IRA will be tax-free.

Reference: CNBC (Aug. 17, 2021) “Want to put bitcoin in your IRA? Why experts say you may want to rethink that

 

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How to Protect an Estate from a Rotten Son-in-Law

If you’ve been working for a while, you have an estate. If you’ve been working for a long time, you may even have a sizable estate, and between your home, insurance and growing retirement funds, your estate may reach the million dollar mark. That’s the good news. But the bad news might be an adult child with a drug or drinking problem, or a child who married a person who doesn’t deserve to inherit any part of your estate. Not to mention an ex-spouse or two. What will happen when you aren’t there to protect your estate?

There are steps to protect your estate and your family members, as described in the recent article “Is your son-in-law a jerk? Armor plate your estate” from Federal News Network.

Don’t overlook beneficiary designations. Most employer-sponsored retirement and savings accounts have beneficiary designations to identify the people you wish to receive these assets when you die. Here’s an important fact to know: the beneficiary designation overrides any language in your last will and testament. If your beneficiary designation on an account names a child but your will gives your estate to your spouse, your child will receive assets in the account, and your spouse will not receive any proceeds from the account.

Don’t try to sell a property for below-market value. The same goes for trying to remove assets from your ownership to qualify for Medicaid to cover long-term care costs. Selling your home to an adult child for $1 will not pass unnoticed. Estate taxes, gift taxes, income taxes and eligibility for government benefits can’t be avoided by this tactic.

A common estate planning mistake is to name specific investments in a will. A will becomes part of the public record when it is probated. Providing details in a will is asking for trouble, especially if a nefarious family member is looking for assets. And if the sale or other disposition of the named asset before your death impacts bequests, your estate may be vulnerable to litigation.

How will you leave real estate assets to heirs? Real estate assets can be problematic and need special consideration. Are you leaving shares to a vacation home or the family home? If kids or their spouses don’t get along, or one person wants to live in the home while others want to sell it, this could cause years of family fights.

Making a bequest to a grandchild instead of to a troubled adult child. Minor children may not legally inherit property, so leaving assets to a grandchild does not avoid giving assets to an adult child. The most likely guardian will be their parent, undoing the attempt to keep assets out of the parent’s control.

Include a residuary clause in a will or trust. Residuary clauses are used to dispose of assets not specifically mentioned in a will or trust. Your estate planning attorney will create the residuary clauses most appropriate for your unique situations.

Prepare for the unexpected. Your estate plan can be designed to address the unexpected. If a primary beneficiary like a daughter or son divorces their spouse, a trust could prevent the son-in-law or daughter-in-law from gaining access to your assets.

An effective estate plan, prepared with an experienced estate planning attorney, can plan for all of the “what ifs” to protect loved ones after you have passed.

Reference: Federal News Network (Sep. 1, 2021) “Is your son-in-law a jerk? Armor plate your estate”

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