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A Presidential Election Metaphor (Part 2 of 3)

April 25, 2017

We hope you enjoyed and found Part 1 of this series informative.  As a reminder, in spirit with the upcoming elections, I've arranged a personal finance metaphorical slant to the political issues being discussed. Each week I will be discussing three of the issues listed below. In Part 2, we’ll cover charitable giving and estate planning (social justice), insurance needs to protect your family (gun control), and caring for your elderly family (Social Security reform).



Social Justice and Taking Care of Others

Estate planning is developing a plan to transfer wealth to loved ones or organizations.  The transfer of assets can be done either during a person’s life and/or upon a person’s passing.  The recipients are referred to as the beneficiaries.  Retirement accounts, such as IRAs and 401Ks, have beneficiaries listed so that the assets can be transferred directly to the recipients.  While there may be special circumstances to list a Trust as the beneficiary, in most cases it is better to list the individual people that are to receive the assets.  For non-retirement assets, a Trust is a primary tool to pass along assets while avoiding probate.  As a side note, a Living Will does not bypass probate.  Understanding the differences in how assets can be distributed, the choices that the beneficiaries have to keep or liquidate the assets, and the tax implications will help a person determine how best to set up the accounts.

Charitable giving is another method to transfer wealth and to help others that are in need.  One benefit of charitable giving is that it will reduce a person’s tax liability as long as it’s done within the IRS guidelines.  Additionally, it allows someone to give directly to organizations that focus on causes that the individual supports.  Besides giving cash, other forms of giving can be the donation of appreciated assets (which avoids the donor from paying taxes on the capital gains); property, such as cars, items to Salvation Army; and the use of Charitable Trusts that can be funded (tax benefit is received the year funded) and then distributed throughout future years as directed by the owner of the trust.  Another thing to remember is that the miles driven and expenses incurred while helping with a qualified charitable event or organization may be tax deductible.  It’s important that we meet together with your accountant before claiming these items to ensure they qualify.


Gun Control & Right to Protect Yourself

There are various forms of insurance to protect your family and yourself in case of unexpected events.  The most known is life insurance.  There are two general types of life insurance; term and whole.  Term covers a specific period of time and is less expensive than whole, which is in place for a person’s entire life.  When deciding between the two, it’s important to know what expenses would need to be paid and for how long.  Some expenses, such as a mortgage balance, decrease as time passes, whereas other expenses, such as those related to children, have a shorter timeframe as they grow older and move out on their own.

Disability insurance helps to replace lost income when a person can’t work from being disabled.  Most companies offer disability insurance that cover a portion of income, say 60%.  Additional insurance can be obtained.

Long-term care (LTC) insurance covers nursing home care, assisted living, and expenses related to basic personal tasks of everyday life referred to as Activities of Daily Living (ADLs).  These include bathing, dressing, using the toilet, transferring (to or from bed or chair), caring for incontinence (loss of bladder control), and eating.  Medicare does not cover long-term needs in these areas.  Unfortunately, LTC insurance is becoming increasingly expensive and rates are not guaranteed to remain fixed.  A general rule-of-thumb is to consider LTC in your early 50’s while still in relatively good health.

There are other types of insurance, such as mortgage, funeral, and coverage for children, along with many others.  While it might be comforting to know you have coverage, it’s also unwise to over-insured as it is to be under-insured.  Ideally, you’d like to plan so you can be self-insured – having the assets and reducing debt and lifestyle expenses to be able to pay for unexpected expense yourself.  During our client meetings, this is one of the areas that will be important to address to ensure you understand what makes sense for you based on your needs


Social Security Reform

Social Security was never intended to provide enough to be the sole source of income and more frequently people are finding themselves in the position of needing to financially provide help to their parents.  To best help your parents, you first should make sure that you’re in a good financial position so not to create a situation where you will need help from others.  This is just like the airline safety demonstration we hear every time we fly – “put on your oxygen mask first before assisting others”. 

Some things to consider before helping are:

  • Talk with your parents to determine if they might need help.  This could be a sensitive subject for them, but you might be able to get an idea based on their health, living conditions and choices they’re making.
  • If you have siblings, talk with them and their spouses to determine who can help and in which ways – financially and logistically.
  • Understand what Medicare and Medicaid do and don’t cover.
  • Don’t be quick to sign off to accepting financial responsibility if a parent is unable to pay for certain care, such as nursing or other facility care as you might eliminate a parent from qualifying for Medicare or Medicaid benefits.
  • Understand the tax implications of supporting a parent.  For example, you might be able to claim them as a dependent if you’re covering more than half of their financial support or may be able to deduct their medical expenses that exceed 10% of your adjusted gross income if you’re under the age of 65.
  • Your parents could consider a reverse mortgage on their home to receive cash, but the loan will need to be paid back when they sell the house or pass away.  Do thorough research to understand the terms and interest rate being used.

Next week I will review the last three topics: preparing your kids to manage money (entitlement reform), tips to reduce your healthcare costs (healthcare costs), and effective communication with spouse about $$$ (debating).

The SFA does not give tax or legal advice.

This information is not intended to be a substitute for personalized financial planning.

All guarantees are subject to the claims-paying ability of the issuing company.