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Planning for Retirement When You Are Single

planning for retirement while single

If you aren’t married, you should consider these potential expenses & needs.

Provided by TechGirl Financial

How does retirement planning differ for single people?

At a glance, there would seem to be no difference in the retirement saving effort of an individual versus the retirement saving effort of a couple: start early, save consistently, and use vehicles that allow tax-advantaged growth and compounding of invested assets.

On closer inspection, differences do appear – factors that single adults should pay attention to while planning for the future.

Retirement savings must be built off one income

Unmarried adults should save for retirement early and avidly. Most couples have the luxury of creating retirement nest eggs from either or both of two incomes. They can plan to build wealth with a degree of flexibility and synchronization that is unavailable to a single saver. So when it comes to building retirement assets, a single adult has to start early, save big and never let up, as there is no spouse around to help in the effort and only one income from which savings can emerge.

 

The Social Security claiming decision takes on more importance

An unmarried person’s Social Security benefits are calculated off his or her lifetime earnings record. Simple, cut and dried.1

Married people, however, have an option that the unmarried lack. Once their spouses begin to collect Social Security, they have a chance to claim a spousal benefit as early as age 62 rather than wait for benefits based solely on their own earnings. In fact, they may be able to claim this spousal benefit at age 62 even if they are widowed or divorced. If they are caring for a son or daughter from that marriage who is also receiving some form of Social Security benefits, they may be eligible for a spousal benefit before age 62.2,3

All this means that a couple can potentially rely on two Social Security incomes before both spouses reach what the program deems full retirement age. An unmarried person cannot exploit that opportunity, so the decision to claim Social Security early at reduced monthly benefits or postpone claiming to receive greater benefits becomes critical.

 

An unmarried person may someday have a huge need for long term care insurance

If there are no adult children or spouse around to serve as caretakers in the event of a debilitating mental or physical breakdown, an unmarried individual may eventually become destitute from costs linked to that sad consequence. LTC coverage is growing more expensive and fewer carriers are offering it these days, so many married baby boomers are wondering if it is really worth the expense; in the case of a single, unmarried baby boomer retiring solo, it may be.

Housing is often the largest expense for the unmarried

In an ideal world, a single adult could pay half of the monthly housing expense of a married couple. That seldom happens. Relatively speaking, housing costs usually consume much more of a sole individual’s income than the income of a couple. This is true even early in life: according to Bureau of Labor Statistics data, married folks in their late twenties spend $7,200 per person less on housing expenses annually. So a single person would do well to find ways to cut down housing expenses, as this frees up more money that can be potentially assigned to retirement saving.1

Saving when single presents distinct challenges

In fact, saving for retirement (or any other financial goal) as a single, unmarried person is often more challenging than it is for a married couple – especially in light of the fact that spouses are given some distinct federal tax advantages. Still, the effort must be made. Start as early as you can, and save consistently.

 

Why Does the Wage Gap Between Men & Women Persist?

why does the wage gap between

While it has narrowed, a notable inequality remains.

Provided by TechGirl Financial

Last year, the median weekly earnings for an American woman came to $719

Bureau of Labor Statistics data shows that the median weekly earnings for an American man were $152 higher, or 21.1% more.1

Calculated over the course of 52 weeks, that means the median yearly pay for a man in America was $45,292 in 2014. Median yearly pay for a woman: $37,388.1

The good news, relatively speaking: in the past 35 years, this gap has narrowed. In 1980, women working full-time earned only about 65% of the wages of their male counterparts.2

 

 

After all these years, why is there still such wage inequality?

Two quick explanations are often put forth. One, there is still appreciable wage discrimination against women in the workforce, with mothers being perhaps most affected. Two, some women accept lower-paying jobs or leave work altogether while staying at home with their kids or taking care of ailing relatives.

These factors are certainly present in wage inequality, yet so are others that get less media notice.

 

 

More women work for low pay than men

Citing BLS data, the National Women’s Law Center notes that more than two-thirds of minimum-wage jobs in this country are held by women. In fact, the NWLC found in 2014 that women made up 76% of employees in the ten most common occupations with hourly wages of $10.10 or lower. Even in these low-salaried jobs, full-time working women still made an average of 10% less than their male co-workers.3,4

As the Great Recession ebbed, these entry-level jobs were an immediate source of work for many women: 35% of the net employment gain for women from 2009-13 occurred in these fields, compared to 18% of the net employment gain for men. As the number of women in these low-wage occupations markedly exceeds the number of men, this is one of the underpublicized reasons for the continuing wage gap by gender.4

 

 

Careers in which women predominate pay less than careers in which men predominate

As an example, more than 75% of classroom teachers in America are women (and the median pay for classroom teachers, adjusted for inflation, is essentially where it was in 1970). Only recently have initiatives emerged to encourage women to enter “STEM” career fields (careers rooted in science, technology, math and engineering), which are male-dominated and comparatively high-salaried.5

It may be argued that a teacher contributes much more to society than a software engineer, but that argument is not bolstered by the pay gap between those careers. Looking at Payscale.com, the average salary for an elementary school teacher is $40,311 while the average software engineer earns $63,080.6

 

Women do a lot of unpaid work

A mother earns no salary for raising children; a wife earns no salary for taking care of a disabled or seriously ill spouse or partner. Historically, women have left the office to perform this work to greater degree than men have. This tendency also contributes to the wage gap, as the woman involved may end up choosing lower-paying work or not work at all.

Wage discrimination still exists, and is partly accountable for the differential in median wages between the sexes. There is more to the story, however; the career and life choices women are encouraged or impelled to make also influence the numbers.

 

The Reasons for a Roth Solo 401(k)

reasons for a roth solo 401k

Here is a way for a solopreneur to save much more for retirement.

Provided by TechGirl Financial

Self-employed? Seeking to ramp up your retirement savings?

You should look at the potential of the Roth Solo 401(k). If you are a high-earning solopreneur, this savings vehicle may be a great choice, because it allows you to make both employee and employer contributions to a 401(k) account in the same year.1

 

 

How does a Roth Solo 401(k) work?

This is a Roth variation of the standard Solo 401(k). In the standard or “traditional” Solo 401(k), employer and employee account contributions are made with pre-tax dollars. In the Roth version, the employer still contributes pre-tax dollars but the employee contribution is made with after-tax dollars.2

There is a very nice tradeoff for doing this. If you abide by IRS rules, the Roth contributions you make, and the earnings they generate, can be eventually be withdrawn tax-free.2,4

 

 

You can make an employee contribution of up to $18,000 to a Roth Solo 401(k) in 2015

This amount will rise in future years, as it is indexed for inflation. Yearly catch-up contributions of up to $6,000 are currently allowed for those 50 and over.1

 

 

Your business may also contribute 20-25% of your yearly net earnings to the plan

If you have incorporated your company, this profit-sharing contribution limit is set at 25%; if you have not, the limit is 20%. Total employer & employee contributions to a Roth Solo 401(k) are capped at $53,000 for 2015, $59,000 if you are old enough to make the $6,000 catch-up contribution. (The maximum amount of employee elective deferrals and employer non-elective contributions should be calculated via the methods detailed in IRS Publication 560.)1,3

 

How can you invest the Solo Roth 401(k) assets?

You can invest them in myriad ways. This is truly a self-directed retirement plan, and that means you aren’t limited to a dozen or two dozen investment options as you might be with a 401(k) sponsored by a large employer.4

 

What are the restrictions on a Roth Solo 401(k)?

As the name implies, this is truly a retirement plan for the smallest businesses. To have any kind of Solo 401(k), you must work for yourself and have a maximum of only one other full-time employee (and that other FTE needs to be your spouse). If you foresee hiring people as your business evolves, then this is not the retirement account for you.1

Once the Roth Solo 401(k) contains more than $250,000 in assets at the end of a year, you must file Form 5500 annually with the IRS. The plan is also subject to non-discrimination testing if you have common-law employees. (If you have an employee and you can control what will be done by that worker and how it will be done, that is a common-law employee under the IRS definition.)1,5

If by chance you also contribute to a 401(k) at another employer, your total Roth and traditional employee contributions to all 401(k)s will be capped at the common employee limit – $18,000 in 2015, $24,000 if you are 50 or older. Participation in another 401(k) plan does not limit employer profit-sharing contributions to a Roth Solo 401(k).

As you can’t deduct after-tax dollars, you can’t deduct your employee contributions to a Roth Solo 401(k). Your business, however, can still make traditional, tax-deductible contributions.2

 

 

December 31 is the annual deadline

If you want to contribute to a Solo 401(k) for the current tax year, you must create the account by that date or earlier. Many self-employed people need to establish a retirement plan, and through a Solo Roth 401(k), you could go a long way toward fixing a retirement savings shortfall.6

Teaching Your Heirs to Value Your Wealth

teaching your heirs to value your wealth

Values can help determine goals & a clear purpose.

Provided by TechGirl Financial

Some millionaires are reluctant to talk to their kids about family wealth

Perhaps they are afraid what their heirs may do with it.

In a 2015 CNBC Millionaire Survey, 44% of families having at least $1 million in investable assets said that they had not yet told their children about their future inheritance. Another 27% said they had refrained from mentioning it until their children were 30 or older.1

It can be awkward to talk about such matters, but these parents likely postponed discussing this topic for another reason: they wanted their kids to grow up with a strong work ethic instead of a “wealth ethic.”

If a child comes from money and grows up knowing he or she can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. It may be relied upon if nothing works out; it may be tapped to further whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in an addiction or a penchant for racking up debt, and the stage is set for wealth to dissipate.

How might a family plan to prevent this? It starts with values. From those values, goals, and purpose may be defined.

 

 

Create a family mission statement

To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a financial services professional or estate planning attorney. Introducing the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.

This mission statement can be as brief or as extensive as you wish. It should articulate certain shared viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want to be remembered? These questions (and others) may seem philosophical rather than financial, but they can actually drive the decisions made to sustain and enhance family wealth.

 

 

Feel no shame in exerting some control

A significant percentage of families seek to define a purpose for transferred wealth. In CNBC’s survey, 32% of parents aged 55 or younger said they were going to specify what their heirs could use their inheritances for, and that was also true for 15% of parents aged 55-69 and 9% of parents aged 70 or older.1

 

 

You may want to distribute inherited wealth in phases

A trust provides a great mechanism to do so; a certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later, as carefully stated in the trust language.

This is a way to avoid a classic mistake: giving your heirs too much money at once. In fact, a 2015 Merrill Lynch Private Banking & Investment Group report notes that 46% of high net worth parents share that very concern.2

Just how much is too much? Answers vary per family, of course. In the aforementioned Merrill Lynch survey, 46% of families said that they wanted to avoid handing down the kind of money that would dissuade their heirs from realizing their full potential in their lives and careers.2

By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer.

 

The Importance of Life Insurance Audit

the importance of life insurance audit

Is it time to review your policy?

Provided by TechGirl Financial

Life insurance is hard.

It’s hard to know if you have the right kind. It’s hard to know if you have enough. And it’s hard to know if you need any at all.

The insurance companies have made it even harder by coming up with bewildering names: whole life, term life, universal life. Some life insurance policies have a cash value while others do not. Some invest that cash value in the stock market while others pay a fixed rate of interest. Some insurance policies combine all of these ideas.

A recent study by life insurance advocacy group LIMRA discovered that most Americans thought a 20-year $250,000 level term life policy for a healthy 30-year-old costs about $400 a year. In reality, annual premiums for such a policy typically run about $150. No wonder, as LIMRA noted, that 83% of consumers forego buying life insurance. I see this misperception all the time. In addition, some people are paying for insurance that is not right for them.1

This is why it is important for you to sit down annually with an insurance professional to review how your policy works and how it will help you to protect your family.

When you’re young, a certain type of policy is needed. As you raise a family and take on more responsibilities, your needs change again. At some point – when the nest is empty or other life changes occur – there may come a time where you don’t need life insurance at all or you may desperately need it to protect your estate. Reviewing your life insurance policies is one way to make sure you have the coverage that is right for you and your family now, today – not when you bought it.

When is the last time you thought about your life insurance? Is it time to take another look?

Request a Complimentry Insurance Audit Consultation

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How Might Higher Inflation Affect Your Investments?

how might higher inflation affect your investments

With the Fed poised to gradually raise rates, this is worth considering.

Provided by TechGirl Financial

America once experienced something called “moderate inflation.”

It may seem like a distant memory, but it could very well return in the second half of this decade.
A remote possibility? Most economists think the Fed will start raising interest rates in late 2015 and take them higher in 2016 through a series of incremental hikes – a march toward normal monetary policy, in which the Fed funds rate ranges between 3-5%. Once the Fed begins tightening, it usually keeps at it – as an example, the central bank raised rates 17 times during 2003-06 alone.1

Keep in mind that there are two forms of interest rates. Short-term interest rates are mainly controlled by Fed policy. Long-term interest rates ride on the bond market’s expectations. Still, short-term rate hikes have an effect on investors as well as lenders. They influence the mood and outlook of Wall Street; they affect interest rates on credit cards, some home loans and short-term savings vehicles.

 

What if moderate inflation resumes & the Fed reacts?

What might higher inflation (and correspondingly higher interest rates) mean for your portfolio? Under such conditions, your investments may perform better than you think.

 

 

Equities should still be attractive.

The ascent of the federal funds rate should be gradual over the next couple of years, and the market may price it in. A climbing federal funds rate need not become a market headwind. Remember that as the Fed authorized all those rate hikes in the mid-2000s, the market pushed toward all-time highs. When it becomes apparent that the Fed has taken rates too high, then Wall Street tends to adopt a defensive mindset.

 

 

Fixed-income investments may hold up well.

It is true, long-term bonds may lose market value in a market climate with rising interest rates (though this will eventually promote additional income for investors with patience). Many investors may see wisdom in a fixed-income ladder, which means putting money into fixed-income securities with staggered maturity dates, typically from one to five years away. As interest rates gradually increase, you can gradually take advantage by replacing the shortest-term security with a medium-term or longer-term security. (Some of the other kinds of fixed-income investments, which have been earning next to nothing, may start to become more attractive; we might see interest-earning checking and savings accounts make a full-fledged comeback.

In the big picture, consider how unimpeded the Barclays U.S. Aggregate Bond Index (in shorthand, the S&P 500 of the bond market) was in prior rising-rate environments. In the six such instances during the past 40 years (and these periods lasted 2-5 years), T-bill rates increased between 2.3-11.9% while the total annual return for the index ranged from 2.6-11.9%, with most of those total returns varying between 4-6%. For the record, the index posted a total return of 5.97% in 2014.2

So, gradually increasing inflation might not hold back the return on your portfolio. Your portfolio aside, what steps could you take that may put you in a better financial position as inflation normalizes?

 

You may want to adjust your spending habits.

If consumer prices start rising notably, you may decide to spend less and buy less often. You may want to buy durable goods such as cars now rather than later in the decade. You may also want to make your house more energy-efficient, drive vehicles that get better MPG, and take full advantage of your health care coverage – as energy, fuel, and medical costs often rise faster than others.

 

You could live with less debt.

As determined by Bankrate.com, the average credit card currently carries a 15.91% interest rate. Can you imagine that going higher? It almost certainly will when the Fed makes its move. Credit card interest rates are based on the prime rate; movements in the prime rate closely mirror movements in the federal funds rate. Credit card issuers frequently adjust interest rates upward right after the central bank does.3

 

Lastly, remember the upside to rising inflation.

A larger annual increase for the Consumer Price Index implies a boost in Social Security income for seniors, and rising interest rates will translate to appreciable yields for risk-averse savers.

 

Can the Market Ride Through the Greek Debt Crisis?

can the market ride through the greek debt crisis

U.S. equities face their biggest test of 2015.

Provided by TechGirl Financial

June definitely ended with some drama

When Greek government officials told Reuters Monday that the nation could not make its €1.5 billion loan repayment to the International Monetary Fund on June 30, the Dow plunged 350.33, the S&P 500 43.85 and the Nasdaq 122.04 while the CBOE VIX rose 36%. The Dow closed under its 200-day moving average. The big three stabilized Tuesday while investors braced for more turbulence.1,2

 

Greece’s last-minute requests were turned down Tuesday

Greek Prime Minister Alexis Tsipras asked eurozone finance ministers for an extension, a haircut on the nation’s debt, or a third bailout. Each request was denied, and that meant the official end of the Greek bailout coordinated by the European Financial Stability Fund. The Greek government will present a proposal for a new, third bailout to the same finance ministers (a.k.a. the Eurogroup) on Wednesday. Approval of any such bailout package will only be considered in July.

 

The next hurdle is Greece’s July 5 nationwide referendum

Tsipras and his far-left Syriza party have slated a national vote for next Sunday, in which Greeks can express whether they are for or against the current IMF/EU bailout proposal. Practically speaking, Syriza is polling the Greek people to see if they want to quit the euro.4

As NPR notes, while Tsipras has argued that the austerity measures imposed on the country amount to a humiliation of Greece, most Greeks want their nation to stay in the EU. Wolfgang Schaueble, Germany’s finance minister, characterized Tsipras’s stand this way: “When you’re driving down the Autobahn and everyone else is driving the opposite direction, you may think you’re right, but you’re wrong.”4

 

Still, Greece could remain in the EU even if it defaults

Though Schaueble has been a severe critic of the Greek government, Bloomberg notes that he has indicated the European Central Bank will do what it must to keep Greece in the eurozone, even if its people vote to leave it. As he told ARD Television earlier this week, “Greece is on a difficult path. But we will do everything to keep Europe stable.”5

Germany is Greece’s largest creditor, and German Chancellor Angela Merkel did not soften the nation’s stance in the matter, saying bluntly on June 30: “This evening at exactly midnight Central European Time the program expires. And I am not aware of any real indications of anything else.”6

 

Would a “Grexit” damage the solidarity of the EU?

Spanish Prime Minister Mariano Rajoy worried about that this week, expressing that if Greece leaves the eurozone, it would send “a negative message that euro membership is reversible.”6

If Greece does leave the euro and return to the drachma, it would undeniably make things worse for a nation with 26% unemployment that just experienced a run on its banks and a credit downgrade to CCC- (junk status) by Standard & Poor’s.4,7

On our shores, the Dow gained 23.16, the Nasdaq 28.40 and the S&P 500 5.48 Tuesday, offering a little hope that U.S. equity markets might possibly be able to decouple from this crisis.8

 

Estate Planning for Your Digital Assets

estate planning for your digital assests

Estate Planning for Your Digital Assets

Have you addressed this issue?

Provided by TechGirl Financial

Social media and email accounts. Creative works, photos and keepsakes kept on home computers, the cloud or external storage drives. E-commerce accounts. Domain names. Bitcoin. These are all examples of digital assets. You will manage them closely as long as you live – but what will happen to them once you die?

Have you talked about it with those you love?

In a recent survey of baby boomers, antivirus software provider AVG Technologies found that only 16% of respondents had thought about what would happen to their digital assets after their deaths. A mere 3% had alerted or prepared their loved ones in regard to this issue.1

If you have a will or a revocable trust, you must plan for the transfer and/or administration of digital assets just as you have for tangible assets. Your digital assets may or may not be of great financial value, but they need protection against exploitation as well as abandonment.

Distributing digital assets is part of fiduciary duty.

That is what makes articulating your wishes so important. A financial professional or financial firm acting in a fiduciary role on your behalf has an obligation to distribute your digital assets – but many social media and e-commerce websites will not readily allow this without the permission given by the user or his or her heirs.2

 

How about social media & email accounts?

Facebook has a legacy contact feature for its users. You can appoint a custodian for your page after you are gone: your legacy contact will be able to respond to friend requests, change your cover photo and profile picture, and write a notice of your memorial service or funeral; he or she will not be permitted to log in with your password or username, read messages sent to you or modify your account settings. Alternately, you can simply tell Facebook that you would like to have your account immediately deleted at your death. Google has an Inactive Account Manager option that will let you leave instructions for what should be done with your Google Drive docs or Gmail account once you are deceased.3

As for LinkedIn, a loved one fills out an online form on behalf of the deceased, which is reviewed by LinkedIn pursuant to getting in touch with that person. The notifying party will need to supply your name, profile URL, email address and date of death plus information on the company you last worked for and a link to your obituary. Twitter handles accounts of the deceased in similar fashion, and it can also remove images in a person’s account per request; the Twitter account is frozen at death, with access barred even to immediate family.4,5

Computer files.

Your executor or trustee should be provided with the location of your computers, tablets or e-readers after your death and the passwords to them if you have set password protection. Locating backups may also become crucial. Remember that annual fees for antivirus programs and website hosting may no longer need to be paid; the executor or trustee will need to be informed about those user agreements.

 

E-commerce accounts.

Most of us have eBay, iTunes or PayPal accounts, all with monetary value (with a PayPal account, the value may reach into the five-figure range). Moreover, these accounts can serve as pathways toward our banking and credit card information.

What if your idle e-commerce account is hacked after your death? What if the account balance is drained or the cybercriminal uses the account to go on a shopping spree? What if your username and password could be stolen and used at other websites you have accessed? These what-ifs need to be considered – and addressed during your lifetime and in your estate plan.

 

Domain names.

How can you keep a website going after you die? One way is to pay for a decade (or more) of hosting or domain name ownership with such URL longevity in mind, and letting your trustee or executor know just how to renew the agreement. Only that trustee or executor should have access to that knowledge – unless you want business partners or a future owner to know how the arrangements work.

 

Bitcoin.

You can create a copy of your Bitcoin wallet file for a trusted beneficiary, or arrange Bitcoin transfer to your beneficiary dependent on multiple signatures or the signature of an oracle server, or at a specific date. Or, a wallet file may be divided into component pieces for different heirs, with the heirs having to unite the components to form the Bitcoin wallet.6

 

Does your will or trust need amending?

Language regarding your digital assets is essential. At the very least, you want to tell your executor or trustee where digital assets are stored. Even better, the amendment should give your executor or trustee the authority to administer, archive, alter or destroy digital assets in addition to the power to direct them to heirs or other named beneficiaries. That means turning over your online passwords to your executor or trustee at your death, or having them access password management software used to create them.

 

The Fine Art of Flexible Estate Planning

the fine art of flexible estate planning

Specialized trusts & private loans can help address some “what ifs.”

Provided by TechGirl Financial

Estate planning professionals often contend with ambiguities. A plan may need to be modified in the future when some development in family life occurs – and there are some estate planning tools that may help to provide that kind of flexibility.

Standby trusts.

These are unfunded revocable living trusts that go into effect when and if families need them. (Sometimes they are referred to as contingent trusts.)1

In a common scenario, a family has a history of hereditary illnesses, and mom or dad worry about one day being mentally or physically disabled to the point where they cannot make financial decisions. So a standby trust is declared through a living trust document – or alternately, a will may contain a provision authorizing one when necessary.2

A standby trust goes into effect upon a triggering event. It could be the death of the grantor; it could be a diagnosis of a terminal illness or a form of dementia for that individual. At that point, the revocable standby trust can become an irrevocable trust with assets transferred into it via a durable power of attorney.3

Should the grantor recover from a prolonged disability or illness, the standby trust can remain revocable and the grantor can regain control over the assets.4

From a life insurance standpoint, the mechanics work as follows. One spouse buys either a survivorship life insurance policy or a single life policy insuring the other spouse, naming the standby trust as the contingent owner of the policy. The policy owner has control plus access to the cash value of the policy. If the policy owner dies first, the policy is transferred to the trust and the trustee names the trust as the policy beneficiary. Only the fair market value of the policy is added to the estate of the decedent; the trust pays the policy premiums until the surviving spouse dies, at which point the trust receives the policy death benefit tax-free.5

Spousal lifetime access trusts.

If it seems that one spouse might live decades longer than the other, a spousal lifetime access trust (SLAT) may offer a helpful estate planning option. A SLAT essentially gives a longer-living spouse access to a trust established by a spouse who passed away.6

A SLAT is actually a form of irrevocable life insurance trust (ILIT) that one spouse creates for the benefit of the other. One spouse is the grantor, and the spouse expected to live longer may be named the trustee (or another party can be named as such).5

Premiums on the life insurance policy are paid by the trust. These payments are funded by gifts of property from the grantor. A SLAT is funded with separate property of the grantor spouse rather than community property.5

Basically, this is an irrevocable life insurance trust (ILIT) with one key difference: the spouse is a beneficiary as well as the children/grandchildren. The surviving spouse (trustee) may distribute assets out of the trust for his/her own benefit as well as the benefit of the heirs. As a SLAT is also an ILIT, heirs receive a tax-free life insurance benefit when the longer-living spouse passes away.5

What if the spouse dies before the grantor dies? If that happens, the trust assets (including the life insurance policy) are usually inaccessible to the grantor as this is an irrevocable trust.5

 

Private demand loans.

Similar to a SLAT, these are also arranged with the help of either a survivorship life insurance policy or a single life policy. In this instance, an ILIT is created but the grantor loans funds to the ILIT instead of gifting them. The trustee uses these loaned funds to pay premiums on a single life policy on the grantor or a survivorship policy on the grantor and the other spouse. (The annual gift to the ILIT may vary depending on required interest rates stipulated by the IRS.) The loan is payable on demand if the grantor needs the money; the trustee can do so using the cash value of the policy. So the couple retains indirect control over the policy while they live (with access to its cash value) while also establishing an irrevocable trust.

Could these ideas work for you?

They may be worth exploring. These flexible estate planning techniques all use life insurance creatively, offering couples access to cash value while aiming to keep the death benefit of the policy out of the taxable estate of the spouse.

 

 

When a Minor is a Beneficiary

when a minor is a beneficiary

Some factors for parents & grandparents to consider.

Provided by TechGirl Financial

Naming a minor as a beneficiary brings up a major concern.

If parents or grandparents make a child a primary or contingent beneficiary of an insurance policy, IRA or investment account, they should be aware that most policies and investments will not directly transfer to a minor. They need to be received by a court-approved property guardian, a trustee of a children’s trust, or a revocable living trust beforehand.1

State laws prevent children from receiving large lump sums.

They commonly prohibit minors from owning real property worth more than $2,500-5,000 (the limit varies per state) or receiving cash inheritances greater than that. It is incredibly rare for insurers to distribute life insurance proceeds to minors.1,3

As for POD checking and savings accounts and CDs, banks will usually allow the child or the child’s parent(s) to receive sums less than the aforementioned limits. For larger sums, the parent(s) will likely have to turn to a court and ask to be appointed guardians for the money if no property guardian, children’s trust or revocable living trust is in place.2

 

A personal guardian is not always a child’s property guardian.

Usually, one person serves as both – but if that person lacks financial literacy or accountability, another property guardian may need to be appointed to manage assets for the child until the child turns 18. If that is desired, a court must review the choice of guardian and the inherited assets will be probated.3

How may circumstances like these be avoided?

Parents or grandparents would be wise to consider three options.

 

A property guardian can be appointed for a child in a will.

If an individual who may become the child’s personal guardian is negligent or incompetent at managing wealth, this may be worthwhile. The property guardian will need court approval to sell any of the inherited assets, and rules will govern how the assets are spent.3

A property guardian should be someone likely to live at least until the child turns 18. A bank is the property guardian of last resort, as banks charge fees and have no personal stake here.

 

An UTMA custodianship may be arranged.

In 49 states (South Carolina being the exception), an adult may be appointed as a custodian for assets left or gifted to a child under the Uniform Transfers to Minors Act (UTMA). This appointment is made through the language of a will or living trust. (Vermont recognizes only the older Uniform Gifts to Minors Act, or UGMA, under which the custodian is more rigorously supervised.)3

The UTMA custodian serves as asset manager and financial recordkeeper, overseeing the assets inherited by or gifted to the child until the child turns 21 (18 in some states). He or she is authorized to manage, spend and invest these assets for the child’s benefit and eventual use and file the relevant tax returns. These actions do not need to be supervised by the courts. When the child turns 21 (or 18), the custodianship concludes and the child receives 100% of the assets – which may be a problem.3

 

 

A child’s trust is another possibility.

A child’s trust, also called a testamentary trust, can be established through language in a will or living trust document; it allows a trustee to use the inherited assets to fund education, health care and everyday expenses for the child. The minor need not receive the funds at 21, as is usually the case with an UTMA custodianship; the assets can be received later in that individual’s life. A variation of this, the pot trust, provides for multiple children and lets a trustee vary the amount spent per child. A pot trust exists only until the youngest child reaches legal age; ideally, the children for whom the trust is created are born within several years of each other. If the children reach legal age or the age when they are supposed to receive the assets before the trust can be implemented, then it is revoked and the inherited assets simply pass to them. These trusts can be designed to try to minimize taxes and administrative expenses.3,4

An irrevocable variant is the §2503(c) trust, or minor’s trust. A minor’s trust is funded with irrevocable transfers of assets, which commonly begin while the trust creator is living. The transfers are tax-exempt under the Internal Revenue Code; the wealth may accumulate within the trust without the trust creator being subject to gift or estate tax. A trustee manages the trust assets until a specified date or circumstance, and then they are distributed to the young adult heir.4

 

 

Naming a minor as a beneficiary means recognizing certain factors.

Financially speaking, if you fail to appoint a trustee or a property guardian for a minor through your will or living trust, then you are leaving it open to the courts to decide who that trustee or guardian may be. So it is vital to address these matters. As one or more children approach legal age, terms of your will or revocable trust need to be reviewed and possibly changed as well.

 

Lean In To Retirement

Check out TechGirl Financial's Article Series on how to "Lean In To Retirement".

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Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisors Services through Cambridge Investment Research Advisors, a Registered Investment Advisor.

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