Sunday, September 26, 2010

9 Mistakes Retirees Make: Advice from a Certified Elder Law Attorney

Retirees often make legal and financial mistakes that cost them or their families thousands of dollars.  Here is a listing of some of the most common financial and estate planning mistakes that I see being made by retirees.

1.  Power of Attorney - Failing to have an effective Power of Attorney document.  Does your Power of Attorney adequately cover the following issues?
a.     Asset Protection provisions - Does the document give your agent the gifting powers you desire for tax or asset protection purposes?
b.     Are there adequate back-up Agents?
c.     Do you have a health care Power of Attorney?  A living will is not enough. It only deals with the treatment you want if you are terminally ill. Who will speak for you if you are not terminally ill but unable to make medical decisions for yourself? Name that person in your health care power of attorney.  

2.  Beneficiary Designations - Failing to periodically review and update the beneficiary designations on:
a.    IRAs and other Retirement Plan Accounts;
b.      Life Insurance Policies.
c.      Annuities
Make sure that not only are the primary beneficiaries correct, but that you have named contingent (secondary) beneficiaries in the event of a primary beneficiary death.  Here is an example. John has two children, Midge and JoAnn. Midge has children of her own, but not JoAnn. If Midge predeceases John, should her ½ of his IRA go to her children or to JoAnn? John needs to document his decision on this important issue on the beneficiary designation form he files.     

3.  Giving Away the Wrong Assets
a.     It is usually a mistake to give away your home - can result in your heirs paying unnecessary taxes.
b.     It may be a mistake to give away appreciated stock or land.
c.     Life insurance is often a good asset to give away.
d.     Misunderstanding the $13,000 (formerly $10,000) annual exclusion for gifts. In additional to annual exclusion gifts, and gifts for tuition and health care, individuals can actually give away $1 million dollars during their lives without having to pay federal gift taxes. Gifts can save lots for your heirs, but you should make them cautiously after getting expert tax and estate planning advice.   

4.   Failing to plan for Long Term Care costs.
     a. Not doing effect planning in advance with appropriate Powers of Attorney, Asset Protection Trusts, and Gifts that can protect assets.
     b. Thinking nothing can be done after a Nursing Home Admission has already taken place. Assets can usually be protected even at this late date. All of a married couples’ assets may be able to be protected though the use of a DRA compliant annuity 
     c. Listening to poor advice (relying on nursing home personnel, friends, or lawyers or other professionals who are not experts in nursing home asset preservation planning). Get advice from a certified elder law attorney. You can find one in your location at
     d. Not considering the purchase of long term care insurance when you are healthy enough to qualify.

5.   Confusing Probate with Taxes.
     a. Retirees often do not understand the probate process.  They try too hard to avoid probate. They buy expensive and unnecessary living trusts and annuities with the goal of avoiding probate. They create transfer on death accounts or survivorship accounts that throw off their estate disposition scheme and leave inadequate funds in their estate to pay taxes and expenses.
     b. Believing sales pitches for Living Trusts and trusts to get VA pension benefits. Sometimes a living trust is appropriate planning. But often, it is not. Be especially aware when a non-lawyer is suggesting you pay to have a living trust prepared. Before buying a living trust, read ALiving Trust, Living Hell@ by Professor John P. Huggard.

6.   Tax Saving Bypass Trust.
Married couples with a combined taxable estate of over $1 million should include a tax-saving bypass trust in their estate planning documents. This kind of trust can avoid federal estate taxes for your children while protecting the financial security of your surviving spouse.

7.   Trying Too Hard to Avoid Income Taxes.
     a. Seniors often keep old Series E bonds after their final maturity of cash them in at the wrong time.
     b. Buying tax-deferred annuities; especially when your tax bracket is modest.
     c. Withdrawing too much from retirement plans (e.g. IRAs).

8.   Having only fixed income investments (e.g. CDs).
     a. Too much ordinary income may increase income taxes and Medicare premiums and cause Social Security benefits to be taxed.
     b. May limit eligibility for public benefits
     c. Fails to provide for growth to keep up with inflation.
     d. It is dangerous not to diversify.

9.   Not getting Expert advice and assistance.
     a. Failing to understand that rules and planning may be too complicated for non-experts. For elder law issues, seek the advice of a certified elder law attorney. Retirees in Northcentral and Northeastern Pennsylvania can seek advice from one of the 5 certified elder law attorneys at Marshall Parker & Associates.  
     b. Failing to seek the highest quality advice.  Being Apenny wise and dollar foolish@.
     c. Waiting until a crisis arises to seek the help of an elder law/estate planning specialist.

DISCLAIMER: This general information is not intended, and should not be construed as legal advice. This posting does not create any attorney client relationship. Its author is licensed to practice law in Pennsylvania. He is certified as an elder law attorney (CELA) by the National Elder Law Foundation under authorization by the Pennsylvania Supreme Court. For specific advice about your particular situation, consult a lawyer who is licensed to practice in your jurisdiction.

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