Tax Savings, Asset Protection, New Year's Resolution, Estate taxes, inflation

9 Strategies to Protect Your Retirement Savings From Inflation

Inflation-1
 
What is Inflation? Simply put, inflation is an increase in the general price level of goods and services that occurs over a period of time. From a consumer standpoint, inflation corresponds to a loss in the purchasing power of money. Inflation is the prime culprit for why Dollar Tree now charges $1.25 per item or why ‘penny candy’ now costs several dollars per pound.
 
While many variables are linked to inflation, there are two core categories: demand-driven inflation and cost-driven inflation. Demand-driven inflation is essentially a “supply and demand” issue, where prices increase because consumer demand outpaces supply. This can result from a shortage of raw materials, a labor deficit, or the inability to manufacture at the required rate. Similarly, cost-driven inflation occurs when there is a supply shortage coupled with sufficient demand to allow producers to raise prices. Global supply chain issues are a prime factor
in cost-driven inflation. 
 
The inflation rate is measured on an ongoing basis in several different ways. The Bureau of Labor Statistics publishes multiple variations of the Consumer Price Index (“CPI”) each month, including All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The CPI-U for All Items Less Food and Energy is referred to as the “core” CPI, and as its name suggests, does not factor the price of food or energy into its measure of inflation. 
 
Below are some examples of index increases as of November 2022, noting that the increases in fuel costs disproportionally impact people in the Northeast.
 
ITEM                                                INCREASE
• Fuel Oil                                         65.7%
• Piped Gas Service                       15.5%
• Transportation Services            14.2%
• Electricity                                     13.7% 
• Food and Groceries                    12%
• Gasoline                                        10.1%
 
Most people think in constant dollar terms, yet every year money saved has the ability to purchase less and less as time passes. If Inflation is occurring at 2-3% annually, as it has historically, you don’t notice its effects until 20-30 years elapse and the price of things has doubled.When you have a 10% or greater rate of inflation in any given year, you notice the effects quite suddenly.  
 
Food and energy costs make up a disproportionate amount of most retirees’ overall expenses. Food consumption is unavoidable and the cost of energy directly impacts heating, electric and gasoline prices. The cost of energy also indirectly impacts us in many ways: anything that is shipped or transported is affected by the price of energy, including your Amazon deliveries, the medicines that you take, and even the food that you purchase at the supermarket. Food prices are also very volatile because of the success or failure of crops at different rates based on storms or natural disasters. Right now, the war in Ukraine is affecting both food and energy prices. 
 
So what can you do to mitigate the inevitable effects of Inflation? 
Here are nine actionable tips that can save you money now and in the long term.
 
1. Long-Term Care Planning  The cost of long-term care is one of the most significant costs for seniors, and it is increasing at high rates. If you and your spouse do not have a concrete plan for protecting assets against the cost of long-term care, consider putting a trust in place to cover these costs. Having a trust in place can help shield against some of the highest costs you may face in retirement. Without proper planning, even a well-crafted financial plan can be completely decimated if one spouse suddenly needs long-term care for an extended period of time.
 
2. Adjust Your Investments   Ensure that a sizable portion of your retirement assets are investments that will rise in value commensurate with Inflation. Examples include real estate, stocks, and inflation-protected bonds.
 
3. Manage Purchasing Power Risk Consider managing risk in your portfolio by looking at the risk to your purchasing power and income, not just your risk to principal. Be aware of the long-term compound effects of inflation on purchasing power.
 
4. Keep Some Assets in Short-term Investments Always keep some assets in short-term investments that will allow you to ride out any recession so you are not forced to sell volatile assets in a downturn. Talk to an investment advisor about managing your investment allocation annually. 
 
5. Look for Strategic Reductions Consider your lifestyle and see if there are areas for strategic reductions to counter the additional costs of living. For example, do you really need a 4-bedroom, 2.5-bath house for just two people? Yes, it’s nice to have extra bedrooms for when the grandchildren visit, but is the convenience outweighed by higher property taxes, insurance, energy and maintenance costs? 
 
6. Consolidate Accounts to Reduce Fees Assess the fees you may incur by having investments scattered among multiple advisors or custodians. Consider consolidating your accounts to obtain lower rates and avoid hidden fees.
 
7. Review Your Insurance Policies Evaluate your insurance and make sure you have adequate coverage. Perhaps there are things that you are insuring that you no longer need or want or use frequently. Unused boats, cars and jewelry can be sold or donated, allowing you to reduce your cost of coverage.
 
8. Triage and Sell Some Extra Heirlooms Ask your heirs if they want all the heirlooms you’ve collected; if not, liquidate them to defray other costs. For example, you may be surprised to learn that your children are not interested in your antique jewelry, pocket watches and collections of figurines.
 
9. Pay Attention to Taxes Finally, if you’re paying more than $50,000 per year in taxes, you may wish to consult with one of our attorneys to discuss how to optimize the tax strategies for your unique situation and your investment portfolio.

January 18, 2023

Asset Protection

8 Strategies to Avoid Senior Scammers

Senior_Scams

1. ONLINE SHOPPING SCAMS
With the variety of products offered by online retailers, it is no surprise that people are turning to the internet for their shopping needs. Scammers have taken advantage and 'set up shop' posing as online retail stores with professional-looking websites and domains. Customers are often lured in by low prices, but the advertised products differ drastically from what is received—if the buyer receives anything. Before purchasing from an unknown seller, a savvy buyer should read reviews about others' experiences with the retailer. Be especially wary if a seller requests payment unconventionally, such as a money order or wire transfer. Last year alone, people over 60 lost at least $14 million from online shopping scams.

2. ROMANCE SCAMS
In 2020, romance scams were the leading cause of fraudulent financial loss, with total reported losses of $304 million. The increased popularity of online dating has led to an increase in romance scams. Typically, a scammer will create a fake (but very attractive!) profile on a dating or social media site and will reach out to the victim to develop a relationship via chatting or texting while avoiding in-person meet-ups and video chats. Eventually, the scammer will request money or gifts, such as gift cards, from the victim. To avoid falling victim to a romance scam, never send cash or gifts to someone you have not met.

3. TECH SUPPORT SCAMS
Technology has become increasingly central to modern society. To keep up, seniors may seek assistance from scammers posing as tech support professionals. These fraudsters take advantage of the 'client's' inexperience and sell them unnecessary products and services or charge a severe markup. The most common place to encounter these scammers is online. When browsing the internet, a pop-up warning may alert the user of a virus or other security issue on their computer. Although the message may appear official and seem urgent, it is a way to trick the user into contacting and sending money to the fraudster. When these pop-ups appear, close the tab and ignore the warning. Be sure to keep your anti-virus software up-to-date for peace of mind.

4. HEALTHCARE/MEDICARE FRAUD
Fraudsters conducting healthcare-related scams take advantage of the fact that every citizen over 65 qualifies for Medicare, making it a prime candidate for fraud. Fraudsters may pose as a Medicare representative to get seniors to share their personal information. Scammers might provide bogus services for seniors at makeshift clinics, then bill Medicare and pocket the money. Medicare scams commonly follow the latest developments and trends in medical research, such as genetic testing and COVID-19 vaccination. Contact your attorney if you are uncertain of the identity of someone requesting your Medicare information.

5. IMPOSTER SCAMS / THE "GRANDPARENT" SCAM
Imposter Scams are plentiful and diverse: Fraudsters may pose as government officials, financial institutions, charitable organizations, friends or family members to obtain money or sensitive information such as bank accounts, passwords and other personal data. In an imposter scam, a fraudster will present themselves as a familiar person or institution, either by creating an online profile or website or simply by introducing themselves as being associated with a particular organization such as a charity, the IRS or your local bank. If the fraudster is posing as someone you know personally, such as a grandchild, ask questions only your loved one would know the answer, or call your loved one to confirm whether the request is legitimate. Scammers posing as government officials may try to frighten or intimidate you by telling you your Social Security Number has been linked to criminal activity or has been suspended, or they may tell you that you have unpaid taxes and action will be taken if not paid immediately. Note that you will likely be contacted via mail if there are any issues with your taxes. If you have questions about the legitimacy of a request for payment to a charity or government institution, contact your attorney for guidance.

6. SWEEPSTAKES SCAMS/ADVANCE FEE SCAMS
In a typical sweepstakes or 'advance fee' scam, a victim will be notified that they have won a prize or are entitled to some benefit, for example, an inheritance from a foreign source. The victim is told that to receive the prize or benefit, they will first be required to pay a fee or tax upfront. Actual sweepstakes generally state "no purchase necessary," and winners should not be asked to pay money to claim the prize. Be leery and contact your attorney if you find yourself in this situation.

7. FRAUDULENT INVESTMENT SCHEMES
With older adults looking to plan for and manage their finances after retirement, fraudsters have created investment schemes targeting these individuals. From Ponzi schemes to tales of unclaimed inheritance money from a distant relative to exceedingly complex financial products, investment schemes are a tried and true way of taking advantage of people. Word of advice: if it sounds too good to be true, it probably is. Always verify the legitimacy of an organization before investing money, and contact your attorney if you have questions.

8. PHISHING/INTERNET SCAMS
Phishing emails, text messages, and phone calls are extremely popular these days. Scammers can create emails and spoof telephone numbers that appear to be associated with known institutions—it is even possible that caller ID would show the phone call as coming from a well-known establishment. Before opening any links or attachments in an email, carefully study the sender's email address to verify its legitimacy—often phony email addresses contain extra characters or numbers that wouldn't appear in an official email address.

If you receive a telephone call purporting to be from a government agency, a utility company, an online retailer, your bank, or another familiar contact, politely inform the caller that you will call them back. After you hang up, find a trusted contact number for the source through their website. Call the company back using the phone number listed on the website. Inform them that you received a call asking for money or personal information and verify if the request was legitimate. When in doubt, contact your attorney to seek a second opinion.

What To Do If You Think You've Been Scammed?

Even the most vigilant of individuals can fall victim to a savvy scam artist. If you think you have been scammed, take these steps:

1. Stop communication with the scammer immediately and report the fraud to the Federal Trade Commission at ftc.gov

2. Call your financial institutions and request they freeze your accounts.

3. If the scammer has gained access to your Social Security Number or Medicare number, notify the appropriate institution(s). If your Social Security Number was compromised, you may want to lock your credit with the three major credit bureaus to prevent the fraudster from opening new accounts or applying for loans in your name.

4. Contact the authorities, your insurer and your attorney to discuss your options.

 

October 7, 2022

Tax Saving, Trust, Asset Protection, Jobs Act, Tax Cuts

Tax Changes Looming on the Horizon

Tax_Changes_Sunset

How to position yourself for the sunset of the Tax Cuts & Jobs Act

Effective January 1, 2018 the Tax Cuts and Jobs Act (“TCJA”) more than doubled the federal gift and estate tax exclusion amount, increasing the individual exclusion from $5,450,000 to $11,400,000. Today in 2022, the exclusion is at an all-time high of $12,060,000 per person or $24,120,000 for a married couple.

Currently, federal gift taxes apply to inter vivos transfers of money and assets valued above $16,000 per year, per donor, per recipient. Federal estate taxes apply to the value of a decedent’s taxable estate following death. The federal gift and estate tax exclusion is first applied against any taxable gifts made during a person’s lifetime at the time such gifts are made, and any remaining exclusion is applied against the individual’s federal estate tax.

In practical terms, during one’s lifetime, the federal gift and estate tax exclusion allows a person to transfer assets valued up to the exclusion amount (as well as any future appreciation of such assets) out of his or her taxable estate, whether to a trust or to another individual or entity, free of federal gift tax. After one’s passing, any unused exclusion amount will be applied to the decedent’s taxable estate, and only the value of the estate exceeding the exclusion amount will be subject to federal estate tax at rates up to 40%.

The current enhanced federal gift and estate tax exclusion provides an optimal environment for those seeking to employ tax planning strategies to minimize future estate tax exposure. However, the enhanced exclusion created by the TCJA is set to expire, or ‘sunset’, on December 31, 2025. On January 1, 2026, the exclusion will be reduced by about half to an estimated $6,200,000.

One important consideration to factor into your tax and estate planning is that any exclusion used prior to the 2025 sunset will be first deducted from your post-sunset exclusion amount. Meaning, if prior to the sunset you use $6,000,000 of your federal gift and estate tax exclusion, and in 2026 the exclusion is reduced to $6,200,000, you will only have $200,000 remaining in federal gift and estate tax exclusion at your disposal.

In light of this caveat, one method to consider if married, is to apply all gifts made prior to the 2025 sunset against one spouse’s federal gift and estate tax exclusion, while leaving the other spouse’s federal exclusion untouched. This allows a couple to retain ownership of assets that are difficult to transfer outside of the taxable estate (such as retirement accounts). If one spouse passes with unused federal estate tax exclusion, the surviving spouse can avail him or herself of the deceased spouse’s exclusion via the Deceased Spouse Unused Election (“DSUE”).

It is also important to note that some states, including Massachusetts and New York, impose a state-level estate tax in addition to the federal estate tax. For example, Massachusetts imposes a graduated estate tax ranging between .8% and 16% of the total value of the estate to estates exceeding $1,000,000, and New York imposes an estate tax at rates between 3.06% and 16% on estates exceeding $6,110,000. New Yorkers whose estates exceed 105% of the $6,110,000 threshold (i.e., $6,415,500) will be taxed on the entirety of the value of their estate from the first dollar.

Those whose taxable estates exceed both state and federal taxation thresholds will essentially be subject to a double tax on the value of their taxable estate – one to the federal government at rates up to 40%, and one to the state government at then-prevailing rates. Our attorneys can help you determine how to minimize or eliminate your state estate tax exposure while taking advantage of the enhanced federal gift and estate tax exclusion.

In anticipation of the 2025 sunset, if your assets exceed the applicable estate tax thresholds, you should speak to a tax and estate planning professional to understand your total estate tax exposure and determine options to reduce your estate tax exposure at both a federal and state level. Call us to find out how we may be able to help you.

July 14, 2022

Tax Saving, Trust, Asset Protection, Will, executor help

12 Common Misconceptions About Estate Planning

True_False_Buttons1. Wills avoid Probate.

FALSE: Wills don’t avoid probate; in fact, they all but guarantee it. Probate can be a long and expensive process, in which a court decides whether to admit a will to allow administration of an estate. Even the simplest probate process typically can last a year or more and involve significant expense. If you have real estate in more than one state, each property may have to go through probate in its respective state. Additionally, all heirs – those who would take if the will is found invalid – must be notified of the probate even if they are excluded from the will. This can result in painfully detailed genelogical research at times. Therefore, while a will provides the court with guidance on your wishes, it doesn’t avoid the probate process – only a trust can do that. For more information on avoiding probate potholes, read our recent blogpost, www.docrlaw.com/articles/probatepotholes

2. There will be a reading of the will.

FALSE: A reading of the will is one of those classic movie moments but, while dramatic and compelling, this never happens today. Wills were read before photocopies were invented, in times when many people were illiterate. Normally, people will have told their executors or family members that they have drafted a will, and where it is stored. Your family will be able to read your will after you die, usually in the form of photocopies, but they will not gather in a room and have your lawyer read the document out loud.

3. My will controls all my assets.

FALSE: A will normally controls the assets in your name upon your death, but there are certain assets that you own which are not subject to probate. In other words, these assets are not subject to the terms of your will. The first and most common type is jointly owned property, which frequently passes automatically by right of survivorship. If a jointly owned property has the right of survivorship – a common arrangement between spouses – your portion transfers into the hands of the surviving owner at death. Additionally, certain assets (life insurance policies and retirement accounts) usually pass by a beneficiary designation, and will pass directly to the named beneficiary (whether an individual or a trust) instead of having to be subject to review by the court. Similarly, some clients have bank or investment accounts that pass via a POD ("Payable On Death") or a TOD ("Transfer On Death") arrangement. These are likewise not controlled by a will.

4. If I die without a will, everything goes to the state.

FALSE: If you pass without a will, each state applies what are known as “laws of intestacy” to determine who will inherit what and how your property will pass upon your death. In most states if you are married with children, the estate is given half to your spouse, with the remaining half being divided among your children. If someone is single everything will generally pass to their children, if they have any. However, minor children cannot inherit assets, so the court will appoint someone to take care of those assets until the children reach the age of majority, usually 18 or 21. The only way a government will inherit your estate is if you die intestate (without a will) and have no identifiable surviving heirs or creditors. In this case the state where you reside would inherit your property, which is a very rare occurrence.

5. I don’t need a will – my spouse has Power of Attorney over all of my accounts.

FALSE: A power of attorney is a legal document that lets someone you trust stand in for you when it comes to certain legal, financial, or medical matters. Depending on what type of power of attorney you create, your agent then can make decisions about property or money (a financial power of attorney) or over healthcare decisions (healthcare power of attorney or healthcare proxy). When creating this document, you decide when it goes into effect, and what powers your agent may exercise. Unfortunately, though, a power of attorney ceases to be effective on death. That is where a will or trust takes over.

6. I downloaded a will -  that's good enough.

FALSE: Some people may be attracted to going online and inputting their information into a will-creating software, but as fascinating as this technology may seem, these online wills may not be the best fit for you and your family. Online wills don’t involve the advice and expertise of an attorney during drafting, and most times these online services use vague language or general terms that may not apply to your situation. Additionally, wills created online almost never take into account tax and long-term care planning. Lastly, for a will to be recognized as a legal document it must be witnessed by two or three people – depending on the state laws. Improper execution – a common mistake we see in DIY wills – gives an opportunity for the will to be contested in the future, which can be costly and time-consuming, and lead to the imposition of unexpected taxes.

7. I will never go into a nursing home.

FALSE: Although many of us don’t like to consider the possibility of living at a nursing home or a long term care facility when the time comes, the reality is some people may need to move into these facilities so they can receive the care they need. Studies show that 69% of adults age 65+ will likely need in-home, assisted living or nursing home care. An aging spouse and family members can only do so much. While it is not a pleasant consideration, early planning is critical based on the stringent 5-year look back rules imposed by Medicaid, and the need to get long term care insurance before you receive a critical diagnosis. Failure to plan for this type of care can destroy even the best laid retirement plans, and rob you and those you love of your life savings.

8. I can do a DocuSign, right?

FALSE: As technology has slowly taken over our daily lives with our smartphones, smart TVs, smart thermostats, and even smart cars, there is still one field where old-fashioned pen and paper is still required: Trust and Estates.  Most jurisdictions will not accept electronic signatures on customary estate planning documents like trusts, wills, and codicils. The Federal E-Sign Act and the Uniform Electronic Transactions Act (‘UETA’) also prohibits using electronic signatures to sign wills or testamentary trusts.

9. It’s good to name your Estate as an IRA beneficiary.

FALSE: You are allowed to name anyone, including non-persons, as the beneficiary of your IRA. Examples of non-persons include charities, a trust, or your estate. Although possible, it is not recommended to name your estate as the beneficiary of your IRA because this may create a greater tax liability upon your passing. Another downside to naming your estate as the beneficiary is that, under the IRS rules, your estate is not a “designated beneficiary” which means it has no life expectancy and can’t take advantage of the “stretch IRA” concept. It is best to name your spouse as the beneficiary as he/she will be able to rollover the IRA to his/her own name. You may also want to name your children as contingent beneficiaries, so long as your children are competent adults. On the other hand, naming a trust as the beneficiary of an IRA may be a better fit if you are looking to protect the assets, and ensure they are used appropriately and not squandered. If the trust is not drafted properly and carefully, the IRA might be paid out on an accelerated schedule rather than letting each heir have the option to draw it out over a period of years.

10. Grandma's word is her bond.

FALSE: When it comes to inheritance, only written bequests carry weight. While Grandma may have had the best of intentions, she may have promised the same real or personal property to multiple people in an effort to make everyone happy. Moreover, Grandma’s actions during her lifetime supersede her promises. If Grandma gave away her property during her lifetime, there may be nothing left for her to give upon her passing, despite her “promises”. In addition to having an appropriately executed will or trust, we regularly advise clients to leave written instructions for the executor or trustee regarding how tangible personal property (that is furniture, cars, and jewelry) should be distributed. Without instructions, the executor alone can decide how to distribute furniture, jewelry and other family heirlooms.

11. Marriages are for life.

FALSE: Failure to consider the effects of divorce in estate planning can result in a former spouse being the beneficiary of certain assets upon your death, if not updated after the divorce is final. Although in most states an ex-spouse will be automatically disinherited, not updating your documents may result in them managing your grandchild’s inheritance or owning a property jointly with your family members. An example of this situation happening can occur if you die intestate while your son/daughter is going through a divorce, if before the divorce has been finalized, he/she dies intestate. This would likely result in their former spouse now being both a part owner of your summer vacation home and trustee of your grandchild’s inheritance.

12. Trusts are only for rich people.

FALSE: There are numerous benefits for choosing a trust (revocable or irrevocable) over a will. Trusts are much easier and faster to administer than wills, given that trusts avoid probate altogether, and they may even provide you with tax savings and other advantages in the long run. Additionally, a trust may be more cost-effective depending on your family situation, and may help you protect assets from long term care expenses and other creditors. Lastly, trusts allow for nearly seamless transfers of power over assets between the grantor, the trust, and the beneficiaries. Though they initially cost more to draft, they can save significant time, taxes and money in the long run.

 

January 7, 2022

Tax Savings, Asset Protection

How to Take Care of Your Pot of Gold

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Like any mischievous Leprechaun, we all want to hang onto our hard-earned pots of gold. Here at Donohue, O'Connell & Riley, we treat the tax season with just as much vigilance. As our names suggest, the Irish blood runs deep, and we're not about to let anyone whisk away your wealth — especially not some pesky little green man or the old guy with long white hair and whiskers!

So, to celebrate St. Patrick's Day, here are three tax traps that a properly structured trust can help you avoid:

  1. State Income Tax 

Forty-three states impose some form of income tax. In the Northeast, the top state income tax rates range from 3.07% in Pennsylvania to 12.7% in New York City. But certain jurisdictions exempt trusts from state-level income tax. New Hampshire trusts are exempt from all state-level income tax: capital gains, interest and dividends are not taxed while assets remain in the trust.

  1. State-Level Estate, Inheritance and Gift Tax

The majority of Northeast states impose a state-level estate tax on assets that exceed a certain threshold. Also, Connecticut has a gift tax and in New Jersey and Pennsylvania estates may be subject to inheritance taxes. New Hampshire is the only state in the Northeast without a state-level estate, gift or inheritance tax, meaning that your wealth will not face state-level penalties as it transfers to the next generation.

  1. Federal Estate Tax

The 2017 Tax Cuts and Jobs Act doubled the federal estate and gift tax exemption, and further adjustments for inflation mean that in 2020 a married couple will not pay federal estate taxes on assets less than $23.16 million (the exemption threshold is $11.58 million for individuals). You can leverage this opportunity to fund a New Hampshire-based trust. In addition, assets held in New Hampshire "dynasty" trusts minimize taxes paid on amounts transferred to the next generation. This allows trusts to continue in perpetuity, saving families significant expenses as well as time in court. With this provision "sunsetting" in 2026, now is the time to leverage this law's ability to fund a New Hampshire-based trust.

So if you have a pot of gold that you want to preserve as your legacy, contact us today,  (Toll Free)1.844.50.TRUST or info@docrlaw.com.

“Lá Fhéile Pádraig sona duit!” ("Happy St. Patrick's Day!")

March 17, 2020