RJG Legal

Federal Employees Need Estate Planning, Just Like the Rest of Us

“Estate planning is an often-neglected part of financial planning, particularly among federal employees. “It’s for the rich” is an excuse I’ve heard people give for not taking the time to consider estate planning.”

Many people, including federal employees, think estate planning is just for the well-to-do.

FedSmith’s article, “Estate Planning for Federal Employees,” says that at the very least, you should understand what estate planning is, so you can make a decision regarding the legal documents you need. You don’t want to create a stressful problem for your family and loved ones. We also want our wishes carried out when we pass away. Take a look at these important estate planning documents:

Last Will and Testament. This document states your wishes for distributing assets after death. Everyone needs a will, even if you’re a person of modest means. If you don’t have a will and die (this is known as dying “intestate”), a judge may determine who gets property that does not have a surviving joint owner or designated beneficiary. Your will can also designate who you want to care for your minor children, if you pass away. You can also name who will manage your assets for the children.

Living Trust. A living trust avoids probate and is private. The reason it’s called “living” is because you create it while you’re alive. The creator of the trust transfers ownership of assets to the trust, but still controls the assets in the trust during his or her lifetime. The creator and manager of the trust is technically no longer the owner of the assets. At death, the trust assets are transferred to the designated beneficiaries. In addition, if your living trust is “irrevocable,” then it may protect your assets from creditors. Work with a qualified estate planning attorney to set it up correctly.

Healthcare Power of Attorney. This is also known as a durable power of attorney for healthcare. It’s a legal document that gives a person of your selection the authority to make healthcare decisions, if you are incapacitated.

Living Will. A living will is a legal document that details how you want your end-of-life decisions to be handled.

Financial Power of Attorney. This allows a trusted agent to act on your behalf, if you’re incapacitated.

Estate planning documents are state-specific, which is important to remember, if you own property in multiple states. A qualified estate planning attorney, who practices in your state, will know how your documents should be prepared.

Reference: FedSmith (June 27, 2018) “Estate Planning for Federal Employees”

Are You Planning Your Retirement Backwards?

“You’d be surprised that many people go about the planning process the wrong way. Instead, here are three key steps to help achieve a comprehensive retirement blueprint.”

Many people only focus on what’s happening inside their portfolio at this very minute. A recent Kiplinger article asks, “Is Your Retirement Plan Completely Backward?” According to the article, many investors have their tools, but not a plan.

That’s backward, because retirement planning is a process. Consider these steps:

1. Goals. You may want to retire at a certain age and/or with a certain income to maintain your lifestyle. You may want to achieve the financial freedom and flexibility to do what you want, when you want, with your money. Some others want to leave some kind of legacy behind for their children. It may be both. It’s critical to understand your objective before you set out to achieve it.
2. Strategies. Part of your strategy should be an income strategy that will reliably cover your expenses for the rest of your life. You’ll need to have an idea of what your expenses are. You’ll also need to understand how you can maximize your Social Security benefits, plan for inflation, know how a surviving spouse will adjust to any changes in income and expenses and help guard your assets against longevity risk, with a retirement that can now last 30 years or longer. You don’t want to outlive your income.

Your financial strategy should help protect and preserve the assets you don’t draw from month to month. Your tax strategy should also legally keep more money for your family. Your health care strategy needs to address rising medical costs and look at long-term care options, in the event of a chronic illness.

Your legacy strategy must ensure that your money is passed on to your beneficiaries in the most tax-efficient way, and your estate doesn’t wind up in probate. Talk to an estate planning attorney about trusts and other protections to prevent your IRA from becoming fully taxable to your beneficiaries upon your death.

3. Financial vehicles. You’re now ready to confidently select the financial tools you’ll need. There are plenty to choose from, depending on your needs. Each of them has its pros and cons, depending on your specific situation and objectives.

Reference: Kiplinger (June 26, 2018) “Is Your Retirement Plan Completely Backward?”

Queen Insisted that Meghan Markle Sign a Prenup

“According to palace insiders, Queen Elizabeth was adamant that the 36-year-old Duchess of Sussex sign a prenuptial agreement before she married Prince Harry, in order to protect his $500 million fortune.”

People all over the globe watched the festivities as American actress Meghan Markle and Prince Harry said their “I do’s” at Windsor Castle near London, England on May 19.

Everyone acknowledges it was the wedding of the year, but now word is out that the groom’s grandmother, Queen Elizabeth was thinking about estate planning, as well as how the bride would look on her special day.

Yahoo’s report, “The Queen 'asked Meghan to sign a $500m prenup' before marrying Prince Harry,” noted that according to palace insiders, Queen Elizabeth insisted that the 36-year-old Duchess of Sussex sign a prenuptial agreement, before she married Prince Harry. This was to protect his $500 million fortune.

Meghan starred on the USA Network series, Suits, for many years, before falling in love with the 33-year-old Prince. She’s said to have been “only too happy” to sign the prenuptial agreement.

Meghan’s only request was that she didn’t want the Queen to discuss it with any other senior royals, like Charles and William. She wanted it confidential.

A prenuptial agreement (or "prenup" for short) is a written contract signed by the bride and groom before they’re married. This agreement typically lists all of the property each person owns (as well as any debts) and details what each person's property rights will be, if the marriage ends in divorce.

“She doesn’t want anyone thinking that she’s entered into the marriage with bad intentions, especially the Queen,” the insider told New Idea.

A royal insider told Star magazine that when Harry and Meghan moved into the antechamber before the ceremony at St. George’s Church to sign the marriage registry, they also signed the prenup.

Reference: Yahoo (June 18, 2018) “The Queen 'asked Meghan to sign a $500m prenup' before marrying Prince Harry”

Virginia County Stepping Up Fight Against Elder Abuse

“After discovering some elder abuse cases are difficult to prosecute, a southwest Virginia community is putting new emphasis on seeking justice for victims.”

The National Council on Aging found that one in 10 Americans over the age of 60 has experienced some type of elder abuse. One southwest Virginia community has placed a new emphasis on seeking justice for those victims.

Wise County, Virginia’s MDT which stands for “multi-disciplinary team,” recently gathered for the very first time.

WJHL.com’s recent article, “Fighting elder abuse with collaboration, new 'MDT team' meets in Wise County, VA,” reports that the new MDT is made up of law enforcement, prosecutors, victim advocates, social workers and prosecutors in Wise County.

Wise County Commonwealth's Attorney Chuck Slemp said this team is the type of collaboration already used in child abuse cases.

"Well, why can't we do that same thing for elder abuse cases. We have the same difficulties in prosecuting them, they're under reported, they're under prosecuted and the victims have a hard time testifying, " Slemp said.

Elder abuse cases, like child abuse cases, are often hard to prosecute.

Elder abuse includes physical abuse, emotional abuse, sexual abuse, exploitation, neglect and abandonment. The perpetrators of this abuse can be children, other family members, spouses, and staff at nursing homes, assisted living and other facilities.

Slemp said he sees extensive credit card fraud, with people opening up credit cards in the name of the other person and charging those up. The elderly or incapacitated person is then responsible for the credit card debt. He also confirmed what the National Council on Aging found: it’s frequently a family member or caretaker who's doing the abuse. In many instances, the victim doesn’t want that person prosecuted.

In one month alone, Wise County Department of Social Services received approximately 40 reports of adult abuse, neglect and exploitation, of which 85 to 90% are 60 or older.

Slemp hopes the new MDT new team will continue to effect change in fighting elder abuse. He sees it as a first step in a very large movement to protect senior citizens from those who would do them harm.

Reference: WJHL.com (June 28, 2018) “Fighting elder abuse with collaboration, new 'MDT team' meets in Wise County, VA”

Can a Life Insurance Beneficiary Refuse the Proceeds?

“Here's what happens if a life insurance beneficiary doesn't want the money.”

The contingent beneficiary receives the insurance proceeds of a life insurance policy, when there is a primary beneficiary and a contingent beneficiary, when the primary beneficiary predeceases. What if that beneficiary is alive, but refuses to collect the benefit?

A recent nj.com article asks “Who would get this life insurance payout?” The article explains that an individual who’s designated as a beneficiary of a life insurance policy, has a right to disclaim the proceeds.

In effect, the beneficiary is telling the life insurance company “Thanks, but no thanks. I don't want to accept the money.”

However, when the primary beneficiary disclaims the proceeds, he or she doesn’t have the right to decide who should be paid instead. If you waive your rights to the money, the life insurance company will treat the circumstances as if you were a beneficiary who died before the insured. You don’t have a say in the matter because you’re dead—for purposes of this insurance policy.

The insurance company will then pay the proceeds to the contingent beneficiary.

The way to disclaim insurance proceeds will vary among insurance companies. However, a person must contact the life insurance company and make it aware of their desire not to receive the proceeds.

Some insurance companies may want to see a letter from the primary beneficiary, while others will request that the primary beneficiary fill out their own form.

However, if you’re waiving the life insurance proceeds because you’re concerned about taxes, remember that life insurance benefits are not taxable.

While you’re at it, make sure your own beneficiary designations are up-to-date on all of your own life insurance policies.

It is important to understand that a life insurance policy is a contract: the terms of the life insurance contract will supersede the terms of your last will and testament. Therefore, you can’t change the beneficiaries of a policy by just changing your will. You need to contact the insurance company and follow its procedure (usually a simple form).

Reference: nj.com (June 22, 2018) “Who would get this life insurance payout?”

Working a Bit Longer Can Significantly Increase Your Standard of Living in Retirement

“A new study of retirement planning reaches a surprising conclusion.”

Question: Which of these has the greatest effect on your retirement standard of living?

1. Saving an additional 1% of your salary for the 30 years prior to retirement.
2. Postponing your retirement by 3 to 4 months.

MarketWatch’s recent article, “The single most important retirement strategy,” says that a new study by the National Bureau of Economic Research found that the two options have roughly the same impact for the majority of investors.

No, really! It’s hard to believe, because not spending 1% of your salary for each of 30 straight years seems like a much bigger sacrifice than working for a few more months. However, the researchers base their conclusion on rigorous statistics and straightforward, plausible assumptions about the typical retiree. The study, “The Power of Working Longer,” conducted by Cornerstone Research, Financial Engines and professors at Stanford and George Mason Universities, shows the importance of focusing on what matters the most.

The number of additional months of work required to offset a 1% greater savings rate, depends on your lifetime rate of return. If your retirement portfolio’s performance merely equals the inflation rate over the 30 years before retirement, you’d need to work a little more than three more months to increase your retirement spending by as much as it would be by saving 1% more for 30 years.

Even if you beat inflation by 8% annualized, you still wouldn’t need to work much longer to hit the same increase in your retirement standard of living. Even under the assumption of that good a return, working about six-and-a-half more months ups your retirement standard of living by just as much as a 1% greater savings rate for 30 years.

The study’s conclusions don’t apply to the super wealthy, those with retirement portfolios worth millions or more. The study is relevant to the 95% who are not in the upper end of the income distribution. The researchers say there are four primary reasons why working longer has such a large impact on retirement standard of living:

1. Your Social Security benefits will be higher the longer you delay retirement;
2. You’ll contribute more to your 401(k) or retirement portfolio the longer you work;
3. Your retirement portfolio will be able to grow more the longer you delay retirement; and
4. The older you are, you can buy a better annuity for the same amount of money.

Reference: MarketWatch (June 26, 2018) “The single most important retirement strategy”

Laws, Rules, & Regulations That May Not Apply To Small Businesses

An extraordinary number of laws, rules, and regulations govern businesses and their employees. A small business, however, may be exempt from one or more of them depending on its number of employees. For example:

 

1. Discrimination Laws. Small businesses may be exempt from Title VII, the ADA and the ADEA:

 

• Title VII. Title VII prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion. It generally applies to employers with 15 or more employees, including federal, state, and local governments.

 

• ADA. The Americans with Disabilities Act (ADA) prohibits discrimination against people with disabilities and guarantees equal opportunities for individuals with disabilities in employment, transportation, public accommodations, state and local government services, and telecommunications. It also generally applies to employers with 15 or more employees, including federal, state, and local governments.

 

• ADEA. The Age Discrimination in Employment Act (ADEA) protects certain applicants and employees 40 years of age and older from discrimination on the basis of age in hiring, promotion, discharge, compensation, or terms, conditions, or privileges of employment. It generally applies to employers with 20 or more employees.

 

2. OSHA Requirements. The Occupational Safety and Health Administration (OSHA) oversees workplace safety conditions, seeking to avoid employee injuries. Businesses who violate OSHA requirements pay fines – sometimes quite large fines. However, OSHA cuts small employers a break.

 

• Employers with fewer than 25 employees only pay 40% of a normal fine.
• Employers with fewer than 10 employees are actually exempt from requirements to report workplace injuries at all.

 

3. Workers Compensation. State laws set workers compensation insurance requirements, so every state’s laws vary. Some states exempt small businesses with 5 or fewer employees, some offer no exemption, and others fall somewhere in between. Check with your state’s workers compensation department to see what applies to you.

 

4. FDA. The Food & Drug Administration (FDA) exempts nutritional labeling requirements for some small businesses in the food industry. Businesses which employ fewer than an average of 100 full-time equivalent employees and sell fewer than 100,000 product units in a 12-month period are exempt from labeling requirements. To qualify, a notice must filed with the FDA.

 

Businesses with annual gross sales of less than $500,000, or with annual gross sales of foods or dietary supplements to consumers of less than $50,000, are also exempt. However, the FDA does not require notice in this situation.

 

 How We Can Help You

 

Have questions about how to start, manage, or operate a business? Confused about which laws apply to you?  The attorneys at Gregorek and Associates, PLLC can help.  As business attorneys, we understand the challenges you face and can help you to achieve your goals.  We invite you to schedule an appointment to make sure you’re working within the laws applicable to your business.

How Do You Catch Up on Retirement Savings?

“You still have enough time to significantly improve your retirement prospects, if you're willing to start taking serious steps now.”

If you’re in your early 50s and have next to nothing saved for retirement, you're not alone. The Employee Benefit Research Institute found that more than a third of workers between the ages of 45 and 54 who responded, said they had less than $25,000 set aside for retirement, while more than a quarter of those 55 and older said they had less than that saved.

CNN’s recent story, “3 ways to recover from a late start on retirement planning,” says that your situation isn't hopeless. You still have time to significantly improve your retirement prospects, if you begin taking serious steps now. Consider the three most important things you need to do:

1. Start saving! You need to make a major course correction in your finances that will mean major lifestyle adjustments. If you do make the commitment to save, you can still put together a pretty sizeable nest egg in the later part of your career. Look at doing most of your saving in an employer-sponsored plan like a 401(k). It has tax advantages, generous contribution limits ($18,500 this year, plus a $6,000 catch-up contribution for people 50 and older) and makes saving easier by automatically transferring money from your paycheck to your account. If you don't have access to a 401(k), you can start an IRA, which allows you to deposit $5,500 a year, plus an extra $1,000 for people 50 and older. The sooner you start and the more you put away, the better your odds of having a secure retirement.
2. Keep working. In a recent study titled "The Power of Working Longer," retirement researchers found that delaying retirement and continuing to work can be one of the most effective ways of raise your post-career standard of living—and can be better than increasing your savings rate. Staying in the workforce lets you delay claiming Social Security. You can then qualify for a bigger monthly Social Security check in the future. You’ll also have more years to save for retirement, and your nest egg has more time to grow before you use it.
3. Stay flexible and resourceful. Based on how far behind you've fallen in your retirement planning efforts, you may not realistically be able to save enough or put in enough extra years in your job to make up for lost time. Therefore, you need to be creative with other ways to enhance your retirement security. You could find sources of extra income, aside from Social Security and your savings. If you're a homeowner, you might downsize to a smaller home or take out a reverse mortgage. Part-time work may also be an option.

Reference: CNN (June 21, 2018) “3 ways to recover from a late start on retirement planning”

How Many Witnesses Do I Need for My Estate Planning Documents?

“Take steps to make sure you properly execute legal documents.”

A durable power of attorney is a written document, whereby a person (“the principal”) can authorize or grant authority to another individual (or individuals, called the “agent” or the “attorney-in-fact”) to perform certain tasks on behalf of the principal, whether or not the principal is under a disability.

nj.com’s recent article, “Don't mess up this estate planning document,” says that whether two witnesses are required for a durable power of attorney in New Jersey or whether a notary signature alone is sufficient, typically depends on whether the POA deals with the principal's property or finances or if it deals with health care.

The document must be signed by the principal and his or her signature should be witnessed by one subscribing adult witness. It also must be acknowledged before a notary or other person authorized to take an acknowledgement, such as a New Jersey attorney.

The subscribing witness may be called upon to "prove" the document. This means he or she must swear that the principal executed the document freely and that to the knowledge of the witness, the principal knew what he or she was signing.

In some states, powers of attorney must be signed by the principal and two witnesses to be valid. Especially when the document is intended to be used in that state, two subscribing witnesses are used, so that the document is more readily recognized.

This acknowledgement is especially important, if the power of attorney is being used in connection with real estate transactions. That’s because it must be recorded, and a document must be acknowledged in order to be recorded.

In addition, an advance directive or health care power of attorney is a similar written document that a person uses to designate an individual as their health care representative to act on his or her behalf. An advance directive for health care is effective, if either signed in the presence of two subscribing adult witnesses or acknowledged before a notary or other person authorized to take an acknowledgment.

Reference: nj.com (June 21, 2018) “Don't mess up this estate planning document”

Two Ways to More Tax-Free Retirement Savings

“Even in a world of uncertainty, taxes are inevitable. The good news is there are many ways to significantly reduce the amount of taxes you owe so, you can save more for retirement.”

Investopedia’s recent article, “2 Ways to Reduce Taxes and Save More for Retirement,” provides two great ways to start accumulating more tax-free retirement savings: a Spousal IRA and a Backdoor Roth IRA Contribution.

Spousal IRA. Under the usual situations, a person who wants to contribute to an IRA has to earn income. However, there’s an exception, if you’re a non-working spouse. Your working spouse can establish a “spousal IRA” on your behalf. With a spousal IRA, the working spouse can contribute up to $5,500 on an annual basis to the spousal IRA (or $6,500 if the nonworking spouse is over the age of 50), in addition to their contributions in their own retirement accounts. A married couple must file a joint tax return to qualify.

It’s important to consider whether the spousal IRA should be a traditional IRA or Roth IRA. With a traditional IRA, you’re able to deduct the contributions to the spousal IRA from your income, which will decrease your taxes. You then pay taxes when you withdraw money out of your account during retirement (and when you are presumably in a lower tax bracket). With a Roth IRA, you pay taxes prior to making the contributions, so you don’t get an up-front deduction on your income, but you’re able to make tax-free withdrawals from your account once you reach 59½ and have had your account open for a minimum of five years. You can withdraw your contributions from your Roth IRA whenever you want. It’s only when you withdraw the earnings or interest your account has earned, that you must reach the age and five-year account establishment requirements.

If the working spouse earns more than $199,000, direct contributions into a Roth IRA for his or her spouse are not allowed, so a traditional IRA is the only option (but see the backdoor option below). If the working spouse has access to a 401(k) plan at work, contributions to traditional IRA accounts are still allowable, but the working spouse can’t take a tax deduction, if his or her income is more than $121,000, and the non-working spouse loses the deduction, when household income is more than $199,000. Contributions can still be made to traditional IRA accounts, regardless of a household’s income, and when withdrawals are made, the couple is only liable for taxes on the earnings accrued on the non-deductible contribution.

Backdoor Roth IRA Contribution. The IRS doesn’t allow individuals who earn more than $135,000, or couples who earn more than $199,000, to contribute directly to a Roth IRA. But you can still contribute to a traditional IRA, then convert the money to a Roth IRA. Since you already paid taxes on the traditional IRA contribution, the only tax you owe is on the appreciation the money earns prior to the conversion to the Roth IRA. Therefore, you must make certain that you do the conversion quickly to limit the amount of time your money can grow and the amount of tax you owe on that growth, once the conversion takes place.

But there is a gotcha: if you have other IRAs, a conversion becomes significantly more complicated. This is because the IRS prevents individuals with traditional IRAs, containing both pre- and post-tax money, from converting only the post-tax money. However, you can roll all of your pre-tax money into your current employer’s 401(k) plan and leave the post-tax contribution of $5,500 in your IRA, where it can be converted to your Roth IRA.

Reference: Investopedia (April 9, 2018) “2 Ways to Reduce Taxes and Save More for Retirement”