Total Counsel Law Group

Which is the Better Place to Retire: Arizona or Florida?

“Is Arizona calling to you, too, as you plot your retirement? Here are nine things you should know before deciding to retire in Arizona.”

Arizona’s population increases in the winter months, which is just one thing it has in common with Florida, says Kiplinger in the article “9 Things You Must Know About Retiring to Arizona.” Many retirees have settled in Arizona year-round. The nation’s first active adult retirement community was in Youngtown, Arizona in 1954. Now 17% of the state’s 7.2 million residents are 65 and older. Let’s look at the Grand Canyon State as a retirement destination.

You’ll have lots of company. Between 2010 and mid-2018, Arizona’s population grew by 12.2%. By comparison, the population of New York (state, not city) only grew 0.8%. In 2018, Arizona ranked number five (behind Vermont, Oregon, Idaho, and Nevada) among states with the most inbound movers. Retirement was the reason for the relocation cited by 37% of the Arizona newcomers in a United Van Lines survey. Arizona has more than 100 age-restricted retirement communities.

It’s a dry heat. You’ve heard it before, and it’s true. The dry heat is more tolerable for most people than the humidity and heat of Florida. Annual precipitation ranges from 3 inches in the arid southwest to 40 inches in the mountains of east central Arizona, according to the Arizona State University’s climate office.

There are plenty of great places to retire. The state isn’t one big arid desert. There are a variety of climates that offer seasonal changes. If health care is important, look at Mesa, one of 10 U.S. cities celebrated by Kiplinger’s Personal Finance in 2018 as great places to retire for your health. Mesa received high scores for its proximity to top-rated hospitals, a cost of living that’s lower than the national average and a variety of activities.

Snowbirds and rental property. Planning to rent before you buy to look at different communities? In most spots, January through March or April is peak snowbird season. Migrators often book the same place for the coming year, before they leave in the spring. Others start booking their rentals as early as August. Early birds get the biggest blocks of time and the most-desirable properties. Expect to pay monthly rent (excluding fees and taxes) of $2,500 to $3,500 for a standard condo (two-bedroom, two-bath) or $3,000 to $9,000 for a single-family home (three-bedroom, two-bath) from January through March.

It’s a seller’s market in late spring. The best time to buy a home in Arizona is usually in the late spring, when the competition from snowbirds ends. In summer and fall, you’ll have fewer options to buy.  However, the remaining sellers may be more motivated and willing to deal.

Arizona’s income tax for retirees is mixed. Your state tax bill in Arizona will depend a lot on your retirement income sources. Arizona doesn’t tax Social Security benefits, and on most other income that is taxed, rates are low—from 2.59% (for married filers with as much as $20,690 of taxable income) to 4.54% (for married filers with more than $310,317 of taxable income). However, private pensions are fully taxed at ordinary income tax rates. The same is true for government pensions from other states. For those with military, civil service and Arizona state and local government pensions, only the first $2,500 in this income is exempt from Arizona state taxes.

Sales taxes vary. Arizona’s state sales tax is 5.6%. However, localities can add their own sales taxes. As a result, you could pay as much as 5.3% more in sales tax, depending on where you live (and shop).

You don’t need to reset your clocks. Arizona is one of only two states (with Hawaii) that don’t have daylight saving time. Arizona aligns with Pacific Daylight Time in spring, summer, and part of fall. However, they are on Mountain Standard Time during most of the fall and winter.

Reference: Kiplinger (April 19, 2019) “9 Things You Must Know About Retiring to Arizona”

Should I Leave an Inheritance to My Kids?

“Deciding whether to leave an inheritance for your children impacts the amount you save, the retirement plans you choose and how you take qualified retirement plan distributions. However, beyond your desire to leave some wealth to your children (or not), there are some essential personal financial issues to consider.”

Some retirees make a big mistake and give their retirement savings away without considering their own income needs. Before you make gifts to others, take a look at how much to spend on yourself. Determine how much you need to save and how much you can withdraw each year, when you retire.

Investopedia’s article, “Challenges in Leaving Inheritance to Children,” says to consider the effect of inflation and taxes and maintain a diversified portfolio of growth and income investments to help your portfolio keep pace with inflation.

The biggest unknowns with retirement income and children's inheritance are unexpected illness and high healthcare costs. Government programs are frequently not helpful in paying for nursing homes and other forms of long-term medical care. Medicare covers nursing home stays for a very limited period. Medicaid mandates that you spend nearly all of your own money, before it will pay for long-term care. You can’t just move assets to family members to qualify for Medicaid, because the program restricts benefits, if asset transfers were made within five years prior to applying for Medicaid. The rules are tricky, when it comes to eligibility.

You can protect your assets from the costs of catastrophic illness with a long-term care insurance policy. However, these policies can be very expensive and have coverage limitations. Consider them carefully.

What happens if you outlive your retirement funds? With longer life expectancies, it's crucial to try to manage retirement-plan withdrawals, so you do not deplete all of your assets during your lifetime.

You could purchase an immediate annuity with some retirement money to ensure a guaranteed amount, for at least as long as you live. Some pension and retirement plans may allow you to stretch payments over single or joint life expectancies, rather than receive the proceeds as a lump sum.

If you expect to inherit assets from your parents, you may be in a better position financially than someone who doesn’t expect to receive an inheritance. Note that certain inherited assets, like stocks and mutual funds, are eligible for a favorable tax treatment called a step-up in basis. If you are leaving assets to others, this could mean significant savings for heirs.

You may also want to set up a trust to control distributions from the estate to the surviving spouse and children. If you or your spouse have children from previous relationships but don't have a prenuptial agreement, trusts can ensure that specific assets are passed to designated children.

You may share your wealth with others by gifting assets, creating a trust, deferring income or purchasing life insurance or tax-deferred variable annuities.

Talk to an estate planning attorney to determine the best options for your circumstances.

Reference: Investopedia (November 26, 2018) “Challenges in Leaving Inheritance to Children”

What Happens When Inheritance Taxes are Paid Late?

“The New Jersey inheritance tax return is due, and the tax is required to be paid eight months after the death.”

It’s not that uncommon for an elderly relative to pass away, and for younger family members to be tasked with cleaning out her home. That can take some time.

If the siblings started cleaning up the place but it took a year to sell the home, there may be some tax issues.

Because of the delay, perhaps a sibling didn’t pay the inheritance tax on time, because the home wasn't yet sold. The taxes were finally paid, with interest, but the question arises, could the sister have used a “guesstimate” for the value of the home to pay the inheritance tax on time? Or could she have asked for an extension or an amended return?

nj.com’s recent article, “Inheritance taxes were paid late, with interest. Can we get a redo?” explains that an extension of time to file the return can be obtained for up to four months with another two-month extension without explanation. However, the taxes must still be paid. If not, interest accrues at the rate of 10% per annum.

Interest payments could’ve been avoided, by getting a market analysis from a real estate agent to assess the value of the home. Each of the beneficiaries could have then paid their estimated share of the tax from their personal funds, assuming there were not enough liquid assets in the estate to pay the tax.

If the beneficiaries were not willing to do so, and there weren’t enough liquid funds in the estate to pay the tax until the house was sold, it may be that a fiduciary had no other option but to let interest accrue, until funds were available to pay the tax.

Also note that not every expense that’s paid by an estate, is available as a deduction on the inheritance tax return. However, if the deductions that are available weren’t taken on the original return, an amended return can be filed prior to a Notice of Assessment or other such notice being received from the Division of Taxation. That will close the matter.

Appeals and applications for refunds at that point may be made. However, limited time periods and certain procedures must be followed.

An estate planning attorney would be able assist with preparing and filing this type of return and reduce the risk of the taxing authority auditing the estate returns. The cost of working with an attorney would no doubt be less than the time and expense of handling this aspect of the estate incorrectly and racking up taxes and penalties.

Reference: nj.com (April 24, 2019) “Inheritance taxes were paid late, with interest. Can we get a redo?”

What Can I Expect for Healthcare Costs in Retirement?

“The nation's health expenditure growth is anticipated to average 5.5 percent annually from 2017 through 2026, compared with 4.6 percent through 2028 for Medicare's per-capita spending.”

Although it’s expensive, the good news about retirees' health-care costs is that they aren't rising as fast as they were even a few years ago.

CNBC’s recent article, “Health-care costs for retirees climb to $285,000,” says that a healthy male-female couple retiring at age 65 in 2019 can expect to spend $285,000 on health-care expenses in retirement, according to Fidelity Investments' annual analysis. When looked at by gender, the estimate is $150,000 for women and $135,000 for men.

The amount is up a bit from $280,000 in 2018. Although the annual increase slowed over the last two years—3.6% compared with 12.2% from 2015 to 2017—the amount still is a challenge for retirees who are mostly unprepared to cover the overall cost of retirement.

Since Medicare is the primary insurer for those 65-and-older, various factors have led to slower increases in older Americans' health-care costs versus those of the general population. The national health expenditure growth is anticipated to average 5.5% annually from 2017 through 2026, but Medicare's per-capita spending is projected to grow at an annual rate of 4.6% through 2028.

Fidelity's analysis assumes that the two theoretical people are eligible for Medicare and includes premiums, copays and other cost-sharing expenses, as well as prescription drug costs. However, there are items that aren’t covered by Medicare, like dental, basic vision, over-the-counter medicines and long-term care. Those costs would be in addition to that $285,000 estimate.

The biggest unknown for retirees is long-term care. This can include assistance for daily living activities, such as eating and dressing. Someone turning 65 has a nearly 70% chance of needing long-term care services in the future, according to government data. There are insurance policies that cover those costs, but the premiums can be expensive. Some life insurance policies may have a rider that covers long-term-care costs.

Pre-retirees should familiarize themselves with Medicare, which isn’t free. Part A (hospital coverage) has no cost, but Part B (outpatient coverage) has an average monthly premium of $135.50 for 2019. For prescription coverage under Part D, the average premium is $32.50 this year.

We should all be saving for retirement as much as we can, and taking advantage of the tax-advantaged accounts at our disposal.

Reference: CNBC (April 2, 2019) “Health-care costs for retirees climb to $285,000”

What Are Some Advantages of Making Lifetime Gifts?

“You probably give to others each year, such as for birthdays and Christmas gifts. Gifting can be done for other reasons, including during life or as bequests at death. The reasons for doing so could be to accomplish nontax or tax goals.”

There are several non-tax advantages of making lifetime gifts. One is that you’re able to see the recipient or “donee” enjoy your gift. It might give you satisfaction to help your children achieve financial independence or have fewer financial concerns.

WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

At your death, your property may go through probate. Lifetime giving will help reduce probate and administration costs, since lifetime gifts are typically not included in your probate estate at death.  Unlike probate, lifetime gifts are private.

Let’s discuss some of the tax advantages. First, a properly structured gifting program can save income and estate taxes. A gift isn’t taxable income to the donee, but any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor must pay state and/or federal transfer taxes on the gift. There may be state gift tax, state generation-skipping transfer tax, federal gift and estate taxes, as well as federal generation-skipping transfer (GST) tax.

A big reason for lifetime giving is to remove appreciating assets from your estate (i.e., one that’s expected to increase in value over time). If you give the asset away, any future appreciation in value is removed from your estate. The taxes today may be significantly less than what they would be in the future, after the asset’s value has increased. Note that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, it will usually receive a step-up in value to a new basis (usually the fair market value at the date of your death). Therefore, if the donee plans to sell the asset, she may have a smaller gain by inheriting it at your death, rather than as a gift during your life.

You can also give by paying tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These transfers are exempt from any federal gift and estate tax.

Remember that the federal annual gift tax exclusion lets you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees, without any federal gift and estate tax or federal GST tax (it applies only to gifts of present interest).

Prior to making a gift, discuss your strategy with an estate planning attorney to be sure that it matches your estate plan goals.

Reference: WMUR (April 18, 2019) “Money Matters: Lifetime non-charitable giving”

Does Estate Planning Include Your Account Passwords?

“Estate administration in the digital age requires having a strategy to share passwords to your computer, email and online accounts. Without that, things quickly get complicated.”

With most bank customers receiving financial statements electronically instead of on paper, there are some actions you need to take to be sure your accounts are incorporated into your estate planning.

Kiplinger’s recent story, “Your Estate Plan Isn't Complete Without Fixing the Password Problem,” says that having online access to investments is a great convenience for us. We can monitor bank balances, conduct stock trades, transfer funds and many other services that not long ago required the help of another person.

The bad thing about these advancements, is that they can make for a very difficult situation for a surviving spouse or executor attempting to determine where the assets of a deceased person are held.

This was in the news recently, when the founder and CEO of a cryptocurrency exchange died unexpectedly. Gerry Cotten didn’t share the password to the exchange’s cold storage locker—leaving $190 million in cryptocurrency belonging to his clients totally inaccessible. Investors may never see their funds again.

You can see how important it is to provide a way for someone to access your data, if you become incapacitated or die.

The easiest, but least secure answer is to just give your passwords to a trusted family member. They’ll need passwords to access your accounts. They’ll also need a password to access your email, where electronic financial statements are sent. Another simple option is to write down and place all passwords in a safe deposit box.

Your executor or guardian/attorney-in-fact through a power of attorney (in the case of incapacitation) can access the box and your passwords to access your computer, email and financial platforms.

This is a bit safer than simply writing down and providing passwords to a trusted friend or spouse. However, it requires diligence to keep the password list updated.

Finally, the most secure way to safely and securely store passwords is with a digital wallet. A digital wallet keeps track of all your passwords across all your devices and does so in an encrypted file in the cloud.

There’s only one obstacle for an executor or surviving spouse to overcome—the password for your digital wallet.

Reference: Kiplinger (April 19, 2019) “Your Estate Plan Isn't Complete Without Fixing the Password Problem”

Why is Musician Prince’s Estate Still Up in the Air?

“Sunday will mark the third anniversary of Prince’s death from an opioid overdose at the age of 57.  However, the ‘Purple Rain’ singer’s estate remains as unsettled as it was the day he died in his Paisley Park mansion outside Minneapolis.”

Prince’s estate, which includes master tapes of his recordings and a 10,000-square-foot Caribbean villa, has been estimated at $200 million.

However, even after all this time, it’s not clear what the Purple One’s estate will be worth after it’s been run through the ringer of battling heirs, lawyers and consultants, who are costing the estate a load of money.

Page Six reported in its article, “Fight over Prince’s $200M estate could go on for years,” that Prince’s heirs are entrenched in a fight to rein in the estate’s administrator. They’ve spent more than $45 million in administrative expenses, according to a probate-court petition filed by Prince’s designated heirs.

They’ve asked for “a transition plan” for a new administrator, which is scheduled for the end of June, according to court filings.

Prince didn’t have a will and his six heirs—all siblings—had to be selected by a probate judge. That’s because soon after Prince died in April 2016, more than 45 people came forward to claim they were his relatives, in order to get a piece of the purple pie.

Some said they were his wife, brother or sister, according to an Associated Press report. One Colorado inmate claimed to be Prince’s son, but a DNA test proved this not to be true. The list of Prince’s heirs has since been whittled down to his full sister, Tyka Nelson and half siblings Norrine Nelson, Sharon Nelson, John Nelson, Alfred Jackson and Omarr Baker.

These heirs had been in a bitter disagreement. However, they came to an agreement this year in their effort to challenge Comerica, the court-appointed Dallas bank that became the estate’s administrator, after St. Paul, Minn.-based Bremer Trust served temporarily in that capacity for nine months.

In a February petition, the heirs argued that Comerica is $31 million behind on estate taxes that “continue to accumulate interest.”

The heirs wrote that they “do not agree with Comerica’s cashflow projections, accounting or inventory of estate assets.” They also complained that Comerica was unresponsive to their questions.

“The heirs are understandably frustrated that, three years after their brother’s death, the estate is not ready to be closed,” Comerica said in court filings. However, Comerica insisted that it should not be fired.

Reference: Page Six (April 19, 2019) “Fight over Prince’s $200M estate could go on for years”

What Do I Need to Know About ABLE Accounts?

“What is an ABLE account and who is eligible?”

Millions of Americans with disabilities and their families depend on public benefits to help provide income, health care, food and housing assistance. Eligibility for assistance through Supplemental Security Income, SNAP and Medicaid is based upon a resource test, so disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets. This can present a difficult problem.

The Achieving a Better Life Experience Act (ABLE) was created as a way to create a tax-advantaged savings tool for individuals with disabilities and their families.

nj.com’s article, “ABLE accounts–A tax advantaged tool for special needs planning,” advises that when used correctly, this overlooked savings account may allow families to build a small nest egg, without affecting eligibility for public program benefits.

An ABLE 529 account is designed to be a savings or investment account to supplement public benefits. It can be a powerful strategy for individuals, who previously were unable to build supplemental funds outside of a trust for their needs. An ABLE account is funded with after-tax contributions that can grow tax-free, when used for a qualified disability expense. The account owner is also the beneficiary and contributions can be made from any person including the account beneficiary, friends, and family.

The ABLE account is available to individuals with significant disabilities, whose age of onset of disability was before they turned 26. A person could be over the age of 26 but must have had an age of onset before their 26th birthday.

Contributions are restricted to $15,000 per year. Because the ABLE account is connected to the 529 plan for education, the total contribution limit is based upon the individual state’s limit for 529 plans. Individuals can have up to $100,000 in an ABLE account, without impacting SSI eligibility. The first $100,000 also does not count toward the $2,000 resource restriction.

A frequently asked question is whether to use an ABLE account or a Special Needs Trust for planning purposes. ABLE are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a Special Needs Trust. Remember that ABLE accounts can only receive $15,000 in deposits each year, but, in most cases, Special Needs Trusts can receive much larger contributions in a year, once they are funded. This is an important difference for parents who want to leave more substantial assets to their child when they die but don’t want to jeopardize the child’s eligibility for critical services. In that situation, a Special Needs Trust may be more desirable.

When the beneficiary of the ABLE account passes away, any leftover funds in the account are typically reimbursed to the state to defray the costs of providing services during the beneficiary’s life. However, that’s different than a properly drafted Special Needs Trust.

In 2019, ABLE account owners who work, but don’t have an employer-sponsored retirement account, can now save up to $12,140 in additional savings from their earnings.

Ask your estate planning attorney about possibly coordinating an ABLE account with a Special Needs Trust.

Reference: nj.com (April 20, 2019) “ABLE accounts – A tax advantaged tool for special needs planning”

What Are the Six Most Frequent Estate Planning Mistakes?

“Let’s talk about death. Specifically–have you planned what will happen after yours?”

it is a grim topic, but it is an important one. Without a legal will in place, your loved ones may spend years stuck in court proceedings and spend a lot in legal fees to settle your estate.

The San Diego Tribune writes in its recent article, “6 estate-planning mistakes to avoid,” that without a plan, everything is more stressful and expensive. Let’s look at the top six estate-planning mistakes that people need to avoid:

No Plan. Regardless of your age or financial status, it’s critical to have a basic estate plan. This includes crafting powers of attorney for both healthcare and finances and a living will.

No Discussion. Once you create your plan, tell your family. Those you’ve named to take care of you, need to know what you’ve decided and where to find your plan.

Focusing Only on Taxes. Estate planning can be much more than just about tax avoidance. There are many other reasons to create an estate plan that have nothing to do with taxes, like charitable giving, special needs planning for a family member, succession planning in the event of incapacity and planning for children of a prior marriage, to name just a few.

Leaving Assets Directly to Children. If you leave assets directly to your children or grandchildren under age 18, it can cause unintended custodian or guardianship issues. Minors can’t own legal property, so a guardian will be appointed by the court to manage the property for them, until they reach age 18. If you don’t name a guardian, the court will appoint one for you and that person may have very different ideas about how the account should be managed and invested.

Making Mistakes with Ownership and Property Titles. With many blended families, you may want to preserve assets from an inheritance as your own separate property or from a prior marriage for your children. There are many tax consequences and control issues in blended families about which you may not be aware.

Messing Up Your Trust. Many people don’t properly fund or update their trusts. An unfunded trust doesn’t do anyone any good. Assets that aren’t titled in the name of the trust don’t avoid probate.

Finally, be sure to review your estate plan regularly, as your circumstances change.

Reference: San Diego Tribune (April 18, 2019) “6 estate-planning mistakes to avoid”

Are You Behind in Your Retirement Saving?

“If you are behind on your retirement savings, there are a few things you can do to catch up.”

Can you believe that almost half (48%) of American households over the age of 55 still have no retirement savings? Even so, it’s better than previous years, according to the U.S. Government Accountability Office.

CNBC’s article, “These people are on the verge of retiring—and they have nothing saved,” says that the congressional watchdog group based its conclusions on an analysis of the Federal Reserve's Survey of Consumer Finances.

In 2013, roughly 52% of households over age 55 had zero saved for retirement. While the over-55 crowd may have a big savings shortfall to make up, there are steps they can take. Let’s look at what they need to do.

Catch up on contributions to retirement plans: Workers can defer up to $19,000 in a 401(k) plan at work. Those employees who are over 50, can save an extra $6,000. Older savers can also sock away more money in an IRA, since the contribution limit for IRAs is $6,000 in 2019. people who are 50 and up, can save an additional $1,000.

Increase the funds in your health savings account: If you’re still working and have a high-deductible health plan at work, you most likely have access to a health savings account or HSA. HSA’s have a triple tax advantage: (i) you contribute money on a pretax or tax-deductible basis; (ii) your savings will accumulate tax-free; and (iii) you can take tax-free withdrawals to pay for qualified medical expenses. In 2019, participants with self-only health insurance can contribute $3,500. Those with family plans can save $7,000. Account holders age 55 and older can save an extra $1,000 in an HSA.

However, remember that when you’re enrolled in Medicare, you can no longer contribute to your HSA. However, you can use those funds to cover health-care costs in retirement.

Work a little longer and generate income: You could earn money from a part-time job to increase your income and ramp up your retirement savings.

If you get a raise, throw most of it into your savings account. If you get a raise to your pay at work, save two-thirds of it. Increase your 401(k) deferrals, so that you're saving more of that pay increase.

Living on less than you make, is something that many people don’t learn until late in life—but as long as you are working, you can save.

Reference: CNBC (April 5, 2019) “These people are on the verge of retiring —and they have nothing saved”