Stapleton Elder Law

There’s a Right Way and a Wrong Way to Downsize

Before your downsizing project for 2017 begins, start by reviewing these tips. Enthusiasm for a fresh start with less “stuff” sometimes leads people to make bad decisions that cannot be undone.

Downsizing includes more than moving to a smaller home, but according to this article,“8 things you need to know before you downsize in 2017,” from Starts at 60, doing it right can have a positive impact on your finances. Doing it wrong, can wreak havoc on your retirement and your estate plan. Before you take one more thing to the curb, consider the following:

1. Allow yourself plenty of time. Start the downsizing process early. Plan the move several years in advance, so you have time to see where you’d like to move and to crunch the numbers.
2. Ask for advice. Buying and selling a home can be a real emotional event, so ask a family member, friend, or financial adviser for a second opinion or a fresh pair of eyes to review the situation.
3. Review any impacts on your pension. You should determine what effect your move will have on your pension.
4. If you’re headed to a retirement community, figure out what would be left were you to move again. Many retirement communities charge what is called a Deferred Management Fee for each year you live there. For every year you live in the retirement village, you’re charged a fee, which is taken out of the proceeds when you choose to sell your home. It’s possible the amount you leave that retirement village with when you sell will be less than what you paid.
5. Consider regular fees the facility may charge. There may be a monthly fee to defray some of the expense of running the village.

Here are a few “Don’ts” to remember:

1. Don’t purchase a new home before selling your old one. Don’t sign a contract on a new home until you sell your old home. While you may have had some wiggle room while you were working, there’s little or no margin for error now. If you sell your home first, you eliminate extra stress, and you’ll know your financial status. This makes it easier to buy the next home.
2. Don’t be overly itchy to move when you’re not ready. If you have doubts that a move will make sense financially, there’s no harm in staying put. If you stay a little longer, you can avoid a stressful move.
3. Get help from a trusted estate planning attorney for any retirement community contracts. Buying a home is always a complex transaction. However, if you are buying a home in a retirement community or a continuing care retirement community, those contracts are even more complicated and may have a significant impact on your estate plan. Talk with an estate planning attorney who can review the contracts with an eye to your personal situation. Your estate planning attorney will also be able to tell you if the numbers work, or if you need to rethink your overall plan.

Reference: Starts at 60 (December 28, 2016) “8 things you need to know before you downsize in 2017”

To learn more about retirement planning, please visit our website.

Another Way to Ensure That You Are Never Forgotten

Most people don't know that their beneficiary designations trump their wills. Failing to update your beneficiaries will hand assets over to people from your past, like ex-spouses and people who you might not have thought about for decades.

If you don't remember who your beneficiaries are for your investment accounts, insurance policies or annuity contracts, then you need to carve out some time to go through your accounts and see who you named as your beneficiary. If it's been a while, you may be in for a rude awakening.

Beneficiary designations allow certain assets owned by an individual to transfer efficiently at her or his passing. These include retirement accounts like IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, and pensions, as well as life insurance death benefits and the residual value of annuities.

These types of assets with designated beneficiaries will transfer automatically, despite anything written to the contrary in a person's will or trust. These assets with designated beneficiaries are also excluded from the decedent's probate estate unless the "estate" is the designated beneficiary.

Owners can designate both primary and contingent beneficiaries. The primary beneficiary inherits the asset, but if he or she dies before the owner, then the contingent beneficiary will be the new owner. If you don't name a contingent beneficiary, the asset will go into your general estate for distribution, which is what you're trying to avoid in the first place by naming beneficiaries.

There are no restrictions on how many beneficiaries can be designated to inherit an asset. You can split your 401(k) 50-50 if you have two children, or 60-40 or 90-10. You can also name a charity as your beneficiary, which can be a nice way to transfer assets to a special organization at your passing. Charities don't pay income tax, so they would get 100% of the value of the asset. If an individual inherits this asset, he or she will be liable for income tax right away or as funds are distributed.

A trust can also be designated as beneficiary to provide control over the asset to someone other than the inheritors. Many times it's used when minor children or individuals with disabilities are to be the ultimate beneficiaries. You should work with an estate planning attorney if you go this route, as the tax and distribution rules are complex.

Review your current beneficiary designations now to be sure they reflect your desires. You also should look at them whenever life circumstances change, like a marriage, birth, divorce, or death. You can change a beneficiary designation at any time.

Your estate planning attorney can help you make sure that your beneficiary designations align with your estate plan. For instance, if one child is the sole beneficiary of a million dollar investment account, you may wish to leave assets that are governed by your will to another heir.

Reference: Inside Indiana Business (February 29, 2016) "Who Are Your Beneficiaries?"

To learn more about beneficiary designations and ensuring a sound estate plan that reflects your wishes, please visit our website.