As our nation ages, many Americans are turning their attention to caring for aging parents.

Thanks to healthier lifestyles and advances in modern medicine, the worldwide population over age 65 is growing. In the past decade, the population of Americans aged 65 and older has grown 38% and is expected to reach 94.7 million in 2060. As our nation ages, many Americans are turning their attention to caring for aging parents.1

For many people, one of the most difficult conversations to have involves talking with an aging parent about extended medical care. The shifting of roles can be challenging, and emotions often prevent important information from being exchanged and critical decisions from being made.

When talking to a parent about future care, it’s best to have a strategy for structuring the conversation. Here are some key concepts to consider.

Cover the Basics

Knowing ahead of time what information you need to find out may help keep the conversation on track. Here is a checklist that can be a good starting point:

  • Primary physician
  • Specialists
  • Medications and supplements
  • Allergies to medication

It is also important to know the location of medical and estate management paperwork, including:2

  • Medicare card
  • Insurance information
  • Durable power of attorney for healthcare
  • Will, living will, trusts, and other documents

Be Thorough

Remember that if you can collect all the critical information, you may be able to save your family time and avoid future emotional discussions. While checklists and scripts may help prepare you, remember that this conversation could signal a major change in your parent’s life. The transition from provider to dependent can be difficult for any parent and has the potential to unearth old issues. Be prepared for emotions and the unexpected. Be kind, but do your best to get all the information you need.

Keep the Lines of Communication Open

This conversation is probably not the only one you will have with your parent about their future healthcare needs. It may be the beginning of an ongoing dialogue. Consider involving other siblings in the discussions. Often one sibling takes a lead role when caring for parents, but all family members should be honest about their feelings, situations, and needs.

Don’t Procrastinate

The earlier you begin to communicate about important issues, the more likely you will be to have all the information you need when a crisis arises. How will you know when a parent needs your help? Look for indicators like fluctuations in weight, failure to take medication, new health concerns, and diminished social interaction. These can all be warning signs that additional care may soon become necessary. Don’t avoid the topic of care just because you are uncomfortable. Chances are that waiting will only make you more so.

Remember, whatever your relationship with your parent has been, this new phase of life will present challenges for both parties. By treating your parent with love and respect—and taking the necessary steps toward open communication—you will be able to provide the help needed during this new phase of life.

1. ACL.gov, November 2022
2. Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

“I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”
Entertainer Arthur Godfrey

The irrevocable life insurance trust (ILIT) can be an important estate strategy tool that may accomplish a number of estate objectives; however, it may not be appropriate for every individual.

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

What Is an ILIT?

An ILIT is created by an individual (the grantor) during his or her lifetime. The ILIT owns a life insurance policy on the grantor’s life via the transfer of ownership of an existing policy or through the grantor’s annual contribution of cash to pay the premiums on a policy purchased by the trust.

The grantor designates beneficiaries, usually family members, who will typically receive the proceeds upon the death of the grantor.

The trust is irrevocable, meaning that the grantor forfeits all rights to the property contained in the trust. Its irrevocable nature is integral to accomplishing the ILIT’s objectives.

What Can an ILIT Accomplish?

The ILIT may be able to accomplish several estate objectives, including:

  1. Meeting liquidity needs;
  2. Managing estate taxation on the policy proceeds;
  3. Providing income to survivors.

How Does an ILIT Work?

When you die, the trust is designed to receive a payment equal to the policy coverage amount, e.g., $500,000. Since the trust’s ownership of the policy is irrevocable, the proceeds are not considered your property. Consequently, they do not fall into your estate, thus potentially avoiding estate taxation. (Remember, generally no income tax is due on such life insurance proceeds.)1

Keep in mind, this is a hypothetical example used for illustrative purposes only. It is not representative of any specific estate or estate strategy. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

The trust provisions should be set up to provide direction about how and to whom payments may be made. You may direct that the trust pay out cash to cover certain expenses, e.g., funeral costs, probate, taxes, final medical expenses, and debts.

This may obviate the need to sell less liquid assets at an inopportune time to cover such costs.

The trust’s beneficiaries may receive the proceeds (after any payments are made to satisfy liquidity needs), creating an inheritance free of estate taxes.

Finally, creditors should not be able to attack these assets since they belong to the trust, not you.

Creating an ILIT should be done only with the assistance of a qualified estate planning attorney. It is a complicated exercise in which mistakes may result in losing the benefits ILITs offer.

1. Investopedia.com, January 5, 2023
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. CopyrightFMG Suite.

When do you need a will?

The answer is easy: Right Now.

You may be wondering if it’s time to draw up a will. Even if you don’t have a large net worth. 

Watch video…

When Do You Need A Will - Video Image

Divorce is a painful process in many ways. It’s not a topic many want to discuss or think about, but it happens. One of the major areas of focus throughout the process is the division of finances. While marriage is ideally a matter of the heart, if it ends in divorce, it quickly becomes also a matter of assets and debts.

From the date of a legal marriage through divorce, any property, income, assets, money, possessions and debts accrued are considered part of the marital property. In Iowa, that means everything may considered 50/50 equal ownership by the married couple.

How, then, is the equal division of assets and liabilities determined? It certainly would be easy if we could just take the current value of each item amassed during a marriage and divide it equally in half. For obvious reasons, that’s not always possible. Most couples have shared many years together, collecting mutually meaningful memories in the form of items as well as valuable accounts. Even when both parties want to keep the process simple, emotions run deep and can cause angst amidst the details.

Here are some of the financial complexities we often deal with in divorces:

Values that may change over time

The longer divorce proceedings are drawn out, the more it is possible that the value of certain items or accounts may change.For values that may change quickly, find an agreeable date on which you start the conversation about property’s value. This provides a mutually agreed upon starting point for both parties to gather value statements.It can be tempting to withhold or make it difficult for the other party to receive information, but in the end, that just results in more attorney fees and it definitely prolongs the divorce process. Remember, the slower everyone gets needed value information, the more time and opportunity for the value to change.

No current value

When there are assets subject to a variety of variables, such as vesting schedules, contingencies on continued employment, and future retirement income streams, there are methods for calculating the potential value using a complex list of assumptions.While some investments or accounts may be worth more in the future, valuations will only be based on today’s value. It’s important not to focus on the largest cash value available now, but instead to consider the future when child support or alimony payments cease or retirement living becomes a reality.

Division of finances in divorce is incredibly complicated. As difficult as it is to see the next hour or day, it brings to light the importance of having a trusted advisor to help guide you through the fog while keeping an eye on your future.

In the next article, I will discuss tax implications in the division of property among divorcing couples.

Until next month, be wealthy and wise!

 

As an independent financial planning firm, we help people in all stages of their life plan for, grow and enjoy their finances. Recently I have noticed an interesting new trend among the clients we help through tough divorce decisions — approximately 60 percent are in what is being called “grey divorces.”

Grey divorces are among couples who are nearing or at retirement age. While divorce rates in younger couples have leveled off, couples who have weathered the storms of marriage for twenty or more years are increasingly making the tough decision to live their lives apart.

There are specific things senior adults can do to avoid making big mistakes during divorce at this stage of life:

      1) Fix, don’t fight. There is a very positive, mutually beneficial divorce practice called the collaborative divorce process. Collaborative divorce brings both spouses, their attorneys, a Certified Divorce Financial Analysts (CDFA) and other specialists to the same table to discuss areas of importance. CDFAs help divorcing couples explore various financial choices before final decisions are made. Seeing the short and long impacts of financial decisions helps each side better understand the implications; in some cases, we’ve even seen couples decide to stay together!
      2) Pay attention to pension plans. Pensions are different because they are defined benefit plans, not defined contributions. While defined contribution plans, such as 401(k) accounts and 403(b) accounts, provide the values on their statements, pension plans, such as IPERS and FERS, are future income streams for retirement.

      There are two ways to value pensions plans. A “Benson Formula,” splits monthly benefits during retirement. Present-day valuation is offset with assets. Both of these options should be assessed by an attorney and financial team.

      If there is a plan to split monthly pension benefits between spouses during retirement, it is important to protect the ex-spouse of the worker (the person who has the pension plan) in case of death before retirement and after retirement benefits begin.

      3) Create a life insurance strategy. Most attorneys will only value life insurance policies for the cash value in the event it exists. However, some policies allow change of ownership so one spouse is the beneficiary on the other spouse’s life insurance policy even after divorce. In this case, the death benefit can be of value to replace income (child or spousal support or pension income) or to pass assets to heirs through estate planning. And don’t forget — life insurance death benefits are not taxable under current law.
      4) Don’t overlook tax filing strategies for the year of the divorce. Couples should file individual returns for the year the divorce is finalized. Be careful of items that can cause unaccounted for tax implications such as spousal support, temporary orders, sale of investments, charitable contributions, withdraws from retirement accounts and child deductions, among others. Be sure to ask your CPA to review your divorce decree or settlement prior to signing.
      5) Couples married for 10 or more years may qualify for ex-spousal Social Security benefits (which does not affect the working ex-spouse’s benefits). There are two basic benefits an ex-spouse may receive: spousal benefits and survivorship spousal benefit.

Spousal benefits apply when the spouse with social security is still living and their ex-spouse is retirement age and/or disabled. The maximum available spousal benefit is 50 percent of the primary insurance amount.

If the spouse with social security is deceased, an ex-spouse of retirement age and/or who is disabled may be eligible for up to 100 percent of the survivor benefit, even when receiving social security benefits of their own.

Overall, it’s important to address your own intentions and expectations of divorce. Will you have the resources and means to maintain the lifestyle you want? Too often I see individuals who believe their lives will be much improved with divorce — emotionally, physically, financially and mentally. However, sometimes the financial realities don’t match expectations when there has been very little — or no — earning income years.

As with any major life transition, your finances need to be part of the plan. Find a professional you trust, and don’t be afraid to ask questions. In cases of divorce, a Certified Divorce Financial Analyst (CDFA) can be a major source of support and comfort throughout the planning process.

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