Avoid Common Inheritance Mistakes with These Tips

Contributed by: Sandra Adams, CFP®

If you are like most of our clients, anticipating an inheritance likely means something is happening or has happened to someone you love. This often means dealing with the pain of grief and loss in addition to the potential stress of additional financial opportunities and responsibilities. Combining your past money experience and your relationship with the person you are losing or have lost can cause varying degrees of stress.

Approximately 15% of American adults expect to receive an inheritance in the next decade, according to the New York Life Wealth Watch survey — a shift of wealth being called the "Great Wealth Transfer." The adults who anticipate receiving an inheritance expect it from a parent, spouse, family member, or another individual. On average, adults expecting an inheritance anticipate receiving over $700,000. Only 42% of adults who expect to receive an inheritance feel very comfortable financially handling the new wealth that will be passed down to them - and nearly twice as many women who expect to receive an inheritance (23%) feel uncomfortable managing their inheritance than men who expect to receive an inheritance (12%).

The statistics are not kind. Studies show that roughly 33% of all inheritors have a negative savings balance within two years of receiving an inheritance. After five years, that number jumps to over 70%. Sadly, only about 30% of inheritors take their inheritance seriously and use it to plan for their future. It is important to be aware of and understand the typical habits of inheritors to avoid the risks.

Navigating grief, discomfort with handling finances, and family dynamics can make it hard to know what to do when it comes to anticipating an inheritance. What steps can you take to ensure that you avoid the potential risks that lie ahead and use your possible inheritance to help you make the best use of any funds for your current and future financial goals?

1. Don't Rush to Make Any Big Decisions. Often, when one receives an inheritance, it is hard to resist the urge to splurge on big purchases that you haven't been able to afford in the past (a fancy new car, an exotic international vacation, etc.). A best practice is to avoid major purchases until you can take the time to do some intentional planning. We recommend taking a proactive time out from decision making (we call this a "Decision Free Zone") to process the reality of having a new financial situation and to determine how you would like that to impact your current and future financial plans, including retirement and other financial goals.

This purposeful time-out can help you avoid making promises to do things for others with the new funds. It is important that you inform others who may be expecting your financial help that you will not be ready to make those decisions for some time. This takes the stress and pressure off you and allows you time to plan what you will do with the money at your own pace. You may eventually decide to help others, including family members or charities, with some of the money if it fits in your financial plan, but by avoiding making promises right away, you don't make and/or break commitments that may lead to hurt feelings and broken relationships that could impact future relationships.

2. Set Reasonable Expectations About Timing. Once you have been informed about your inheritance, you may wonder when you will receive it. It is important to find out what types of accounts and assets you might be inheriting to set a clear expectation of how long it takes to get them.

You shouldn't expect to receive funds from an inheritance for at least one to two months following the death of a loved one (if you get them sooner, it is a pleasant surprise!) It could take longer if the assets are not liquid. In some cases, the estate is held up longer for final expenses and/or if legal issues need to be resolved. 

3. Be Aware of Taxes. It is also important to be aware of the types of assets you are inheriting so that you are aware if you might owe taxes on any of the dollars you are receiving. For instance, if you are receiving funds from an IRA or an annuity contract that might have a taxable portion, and you don't have taxes withheld at the time of distribution, you might need to plan to have extra funds at tax time to pay the bill.

Setting aside a portion of the inherited dollars for any possible taxes due is a good idea so you don't get caught blindsided at tax time.

4. Consider the Details. Once you receive the assets, many other questions (besides taxes) will be answered, such as: How should I hold the assets (i.e., in what registration?) Should I hold my inherited assets separately from other assets held with my spouse? Should I hold the same investments as my grandfather/father/etc. held, or should I change the investments? If I inherited IRA assets, how long do I have to distribute the account? Getting the help of a financial adviser to answer these questions is highly recommended.

5. Work with an Advisor. Working with a financial advisor to determine what has changed or could change with your financial picture with the new inheritance is highly advisable. This could include things like:

• Income

• Savings/Emergency Funds

• Spending

• Investments

• Debts/Liabilities

• Health Care

• Home

• Insurance

• Estate/Legal

• Self-Care

• Family/Children

• Gifting/Charity

When your changes have been identified, it makes sense to determine how they can help you identify and meet your financial goals. With the help of your financial advisor, you can design a plan for how to meet your financial goals with your new inheritance. Because it can be overwhelming, we recommend determining what goals must be tackled first and what can wait until later based on a "Now…Soon…Later" schedule. Then, meet regularly with your financial advisor to begin checking off the tasks it takes to meet your goals and make the most of your inheritance.

For many, receiving an inheritance means the loss of a loved one. And the fear of failing with the big responsibility that comes with handling what is being left financially (especially if you don't feel confident handling money) might leave you feeling overwhelmed. By taking your time and using the guidance of a financial advisor who will provide you with education and guidance, you can set yourself up for success to use your inheritance to make the most of your current and future financial goals.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Preparing an Emergency Action Plan

Contributed by: Sandra Adams, CFP®

Unknowns are a part of all of our lives, and the potential for the big "unknowns" becomes more significant as we age.

It is a best practice to have a full aging plan in place as we go into our retirement years. This includes:

• Where we might consider living as we age;

• Where, how, and whom we would consider having care for us as we age if we need care;

• How we will use our money, and whom it will go to once we are gone; and

• Who will help us with all of this if we cannot manage things as we age

An aging plan should also include an Emergency Action Plan. What is this, you may ask? It is the minimum provisions you should have in place in case an unexpected event occurs. Even if you don't have a full aging plan in place, an Emergency Action Plan is crucial. So, what should be part of an Emergency Action Plan?

• Name Advocates. By this, we mean having your Durable Power of Attorney in place for your financial affairs and your Patient Advocate Designation. If you have no one to name or if your family/friends' advocates need assistance, there are ways to have professional advocates in place to serve or assist (talk to your financial planner to discuss these options).

• Document Your Important Information in Advance. This includes your financial and health information so that your advocates are prepared to serve on your behalf without missing a beat. Our Personal Record Keeping Document is an excellent place to start this process.

• Communicate to Your Advocates that they have been named and verbally communicate your wishes. Your advocates can only make the best decisions for you and carry out your wishes if they (1) know they have been named your advocate and (2) are aware of the decisions you'd like to have made on your behalf.

Planning ahead is the best gift you can give yourself and your family. Having a full aging plan in place, but at a minimum, an Emergency Action Plan can put the pieces in place to allow for decisions to be made on your behalf in the way that you want them to. It can also provide resources for your best interests in your most critical time of need. If you need to put an Emergency Action Plan in place, ask your planner for assistance!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Opinions expressed in the attached article are those of Sandra D. Adams and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Advanced Estate Strategies for Surviving Spouses

Contributed by: Matt Trujillo, CFP®

You will need to consider the disposition of your assets at your death and any tax implications. Statistically speaking, women live longer than men. Wives will likely have the last word about the final disposition of all the assets accumulated during marriage. You'll want to consider whether these concepts and strategies apply to your specific circumstances.

Transfer Taxes

When you transfer your property during your lifetime or at your death, your transfers may be subject to federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. (The top estate and gift tax rate is 40%, and the GST tax rate is 40%.) Your transfers may also be subject to state taxes.

Federal Gift Tax

Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $17,000 (in 2023) per recipient. Married couples can effectively make annual tax-free gifts of up to $34,000 (in 2023) per recipient. You can also make tax-free gifts for qualifying expenses paid directly to educational or medical services providers. And you can also make deductible transfers to your spouse and charity. Individuals can transfer $12,920,000 free of estate, gift, and GST tax during their lives or at death in 2023.  

Federal Estate Tax

Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and charity. Again, up to $12,920,000 (in 2023) is protected from taxation.

Portability

The estate of someone who dies in 2011 or later can elect to transfer any unused applicable exclusion amount to their surviving spouse; this is called "portability". The surviving spouse can use this deceased spousal unused exclusion amount (DSUEA) and their own basic exclusion amount for federal gift and estate tax purposes. For example, if someone died in 2011 and the estate elected to transfer $5,000,000 of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of about $17,920,000 ($12,920,000 basic exclusion amount plus $5,000,000 DSUEA) to shelter transfers from federal gift or estate tax in 2023.

Federal Generation-Skipping Transfer (GST) Tax

The federal GST tax generally applies if you transfer property to someone two or more generations younger than you (for example, a grandchild). The GST tax may apply in addition to any gift or estate tax. Similar to the gift tax provisions above, annual exclusions and exclusions for qualifying educational and medical expenses are available for GST tax. You can protect up to $12,920,000 (in 2023) with the GST tax exemption.

Indexing for Inflation

The annual gift tax exclusion, the gift tax and estate tax basic exclusion amount, and the GST tax exemption are all indexed for inflation and may increase in future years.

Income Tax Basis

Generally, if you give property during your life, your basis (generally, what you paid for the property, with certain up or down adjustments) in the property for federal income tax purposes is carried over to the person who receives the gift. So, if you give your $1 million home (purchased for $50,000) to your brother, your $50,000 basis carries over to your brother — if he sells the house immediately, income tax will be due on the resulting gain.

In contrast, if you leave property to your heirs at death, they get a "stepped-up" (or "stepped-down") basis in the property equal to the property's fair market value at the time of your death. So, if the home you purchased for $50,000 is worth $1 million when you die, your heirs get the property with a basis of $1 million. If they sell the home for $1 million, they pay no federal income tax.

Lifetime Giving

Making gifts is a common estate planning strategy that can minimize transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion, which lets you give up to $17,000 (in 2023) to as many individuals as you want, gift tax-free. As noted above, you can take advantage of several gift tax exclusions and deductions. In addition, when you gift property expected to appreciate, you remove the future appreciation from your taxable estate. In some cases, it may be beneficial to make taxable gifts to remove the gift tax from your taxable estate.

Trusts

There are a number of trusts used in estate planning. Here is a quick look at a few of them.

• Revocable trust: You retain the right to change or revoke a revocable trust. A revocable trust can allow you to try out a trust, provide for management of your property in case of your incapacity, and avoid probate at your death.

• Marital trusts: A marital trust is designed to qualify for the marital deduction. Typically, one spouse gives the other spouse an income interest for life, the right to access principal in certain circumstances, and the right to designate who receives the trust property at their death. In a QTIP variation, the spouse who created the trust can retain the right to control who ultimately receives the trust property when the other spouse dies. A marital trust is included in the spouse's gross estate with the income interest for life.

• Credit shelter bypass trust: The first spouse to die creates a trust sheltered by their applicable exclusion amount. The surviving spouse may be given interests in the trust, but the interests are limited enough that the trust is not included in their gross estate.

• Grantor retained annuity trust (GRAT): You have rights to a fixed stream of annuity payments for a number of years, after which the remainder passes to your beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

• Charitable remainder unitrust (CRUT): You retain a stream of payments for a number of years (or for life), after which the remainder passes to charity. You receive a current charitable deduction for the gift of the remainder interest.

• Charitable lead annuity trust (CLAT): A fixed stream of annuity payments benefits a charity for a number of years, after which the remainder passes to your noncharitable beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

Life Insurance

Life insurance plays a part in many estate plans. Life insurance may create the estate in a small estate and be the primary financial resource for your surviving family members. Life insurance can also provide liquidity for your estate, for example, by providing the cash to pay final expenses, outstanding debts, and taxes, so that other assets don't have to be liquidated to pay these expenses. Life insurance proceeds can generally be received income tax-free.

Life insurance you own on yourself will generally be included in your gross estate for federal estate tax purposes. However, it is possible to use an irrevocable life insurance trust (ILIT) to keep the life insurance proceeds out of your gross estate.

With an ILIT, you create an irrevocable trust that buys and owns the life insurance policy. You make cash gifts to the trust, which the trust uses to pay the policy premiums. (The trust beneficiaries are offered a limited period to withdraw the cash gifts.) If structured properly, the trust receives the life insurance proceeds when you die, is tax-free, and distributes the funds according to the terms of the trust.

As you can see, this area can get very complicated very quickly, and in many cases, the various approaches have pros and cons. If you are considering employing one of these strategies or want more information on how they work, I encourage you to contact a qualified estate planning attorney for further guidance.

Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

Opinions expressed in the attached article are those of Matt Trujillo, CFP®, and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Have You Prepared Your Advocates?

Contributed by: Sandra Adams, CFP®

Going through the process of completing your estate planning documents is not an easy process. Working with an attorney to determine what documents you need, how you want the language written so that your assets are handled and decisions are made the way YOU want them, and choosing the best advocates to carry out those instructions can be very involved. No wonder it is a task that many people put off doing – it can be overwhelming!

Common Documents With Named Advocates

The most common estate planning documents that individuals have drafted (and that will require advocates to be named) are the following:

Most clients are so relieved when their documents have been drafted; it is a huge weight off their shoulders to have so many important decisions made and in place. It feels satisfying to have the binder of documents drafted by the attorney in hand and completed. 

Perhaps if you are even more “on the ball,” you follow through and get copies of your documents to your financial advisor and update your asset titling and beneficiaries according to the funding instructions provided by the attorney. If you have done that, you are ahead of the majority of clients, most of whom take the big binder home and file it away in a safe place and consider their estate planning completed! But is it?

Have you taken the final step and communicated to those you have chosen as your advocates that you have named them in your documents? 

The Importance of Communicating With Your Advocates

It is not uncommon for people to name others as future advocates for them in their legal documents, but not to communicate to them that they have been named. If you’ve ever been in the shoes of being that named advocate, and getting that “surprise” call that you suddenly need to make a life and death decision about someone’s health treatment when you had no idea you were named as their health care advocate and had not had conversations with them regarding their wishes around end of life treatment, you might think differently about having those proactive conversations.

It is extremely important to take this last step, and not only communicate with your advocates that they have been named in your documents but also give them the key information that they will need to fulfill your wishes.

Here is the key information you need to share:

Patient Advocate/Health Care Advocate:

• Drug allergies

• Current medications (or where to find your medications list)

• Your primary providers, your wishes on Code Status (i.e. DNR or full Code), and where your estate planning documents are located

• Your past surgical history

• Whether or not there is metal anywhere on your body

• What your wishes are for end-of-life care and treatments (i.e. aggressive vs. comfort treatment)

• Plans for future care and any professional relationships and resources that can be used to assist the advocate in their role (social workers, Geriatric Care Managers, etc.)

Durable Power of Attorney/Successor Trustee:

• Contact information for your professional advisors and, if possible, an introduction to those professionals.

• Instructions on where to find an “open me first” document (ex. Personal Financial Record System) that details your financial life (bank accounts, investment accounts, insurance policies, government benefits, employer benefits, etc.)

• Where to find your estate planning documents and a review of your Trust (especially for your successor Trustee, so they have a heads-up on how they might be managing your assets)

• An overview/general conversation about your wishes regarding handling your assets for future care and your values around money.

Executor/Advocate:

• Contact information for your professional advisors and, if possible, an introduction to those professionals.

• Instructions on where to find an “open me first” document (ex. Personal Financial Record System) that details your financial life (bank accounts, investment accounts, insurance policies, government benefits, employer benefits, etc.)

• Instructions on where to find your Letter of Last Instruction document outlining your wishes for after death.

• Where to find your estate planning documents, especially your Last Will & Testament, which will be the guiding document for your Executor.

• An overview/general conversation about your wishes regarding after-death arrangements, about your Will, and how you would like your assets handled post-death, especially if there is no Trust for assets to flow to.

The more information you can share with your future advocates, the better prepared they will be to make the decisions you would want them to make on your behalf should they ever need to serve. An advocate’s job is to be your fiduciary, which means to make decisions in your best interest; without the benefit of having full information on you and your situation, you make it almost impossible for them to do their job to the best of their ability.

If you have taken the time to draft your estate planning documents, our best advice is to complete the process by fully preparing your advocates to serve in your best interest – they’ll be glad you did!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Opinions expressed in the attached article are those of Sandra D. Adams, CFP® and are not necessarily those of Raymond James. Securities Offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc., is not a registered broker/dealer and is independent of Raymond James Financial Services.

How Having an Estate Plan Can Avoid a Major Headache for Heirs

Contributed by: Josh Bitel, CFP®

With the majority of 2023 already in the books, some procrastinators may have seen their New Year's resolutions come and go. Perhaps one of the most common areas of financial planning that clients drag their feet on is getting those pesky estate planning documents drafted. So let's talk about what happens if you don't have a valid will or trust in place when you pass away.

What Is Intestacy?

You are said to have died intestate if you pass without a valid will. Intestacy laws govern the property distribution of someone who dies intestate. Each of the 50 states has adopted intestate succession laws that spell out how this distribution is to occur, and although each state's laws vary, there are some common general principles. The laws are designed to transfer legal ownership of property that the recently deceased owned or controlled to the people the state considers their heirs. These laws also control how these individuals receive this property and when the property is to be distributed.

Example:

John is a Michigan resident and is married with two minor children. He keeps meaning to write his will but has yet to get around to it. One day, John gets hit by a truck while crossing Telegraph and passes away instantly. Because he has no will, the intestate succession laws of Michigan govern how his property is distributed. Under Michigan law, 50 percent of John's property passes to his wife, and 50 percent passes to John's two minor children (25 percent each). Had John had a will, he could have left everything to his wife.

Technical Note:
Real property is distributed under the intestacy laws of the state in which it is located. Personal property is distributed under the state's intestacy laws in which you are domiciled at the time of your death.

Why Should You Avoid Intestacy?

• Cost

  • Intestacy can be more costly than drafting and probating a will. In most states, an administrator must furnish a bond, where you can often waive this requirement in your will. Also, an administrator's powers are limited, and they must get permission from the court to do many things. The cost of these proceedings is paid by your estate.

• You can't decide who gets your property

  • State intestacy laws will determine who receives your property. These laws divide your property among your heirs, and if you have no heirs, the state will claim your property.

  • Unlike beneficiaries under your will, who can be anyone to whom you wish to leave the property, heirs are defined as your legal spouse and specific relatives in your family. If the state can find no heirs, it could claim the property for itself (the property escheats to (goes to) the state). The laws of your state determine the order in which heirs will receive your property, the percentage that each will receive, and in what form they will receive it, whether in cash, property, lump sum, annuity, or other form.

• Special needs are not met

  • State intestacy laws are inflexible. They do not consider the special needs of your heirs. For example, minor children will receive their share with no strings attached, whether they are competent to manage it or not.

• Heirs may be short-changed

  • The predetermined distribution pattern set out by state law can end up giving a larger portion of your estate to an heir than you intended for them to have. It may also leave one of your heirs with too little.

• You can't decide who administers your estate

  • If you die intestate, the probate court will name an administrator to manage your estate. You will have no say in who settles your estate.

• You have no say in who becomes a guardian for your minor children

  • A court will appoint personal and property guardians for your minor children since you didn't specify otherwise. You will also expose the assets you leave your child to the management skills of someone you may not approve of.

• Relations take priority over friends and others

  • State intestacy laws will distribute your property to family members in a preset pattern. These laws do not consider your relationship with your family when dividing up your estate. As a result, that brother you may not have spoken to in 20 years may end up with a portion of your assets that you'd rather he not have.

• Tax planning options are eliminated

  • Without a will or some other means of disposing of your property, you can't plan to minimize or provide payment of income or estate taxes.

How Is Property Distributed Under Intestacy?

The pattern of distribution varies immensely from state to state. You must check with your state to find out what its intestate's will looks like. Generally, the rules are as follows:

• If you leave a spouse but no children, the spouse takes the entire estate.

• If you leave a spouse and children, each takes a share.

• If you leave children and no spouse, the children take the entire estate in equal shares.

• If you leave no spouse or children, the entire estate goes to your parents.

• If you leave no spouse, children, or parents, the entire estate goes to your siblings (or your siblings' descendants).

• If you leave none of the above, the entire estate goes to your grandparents and their descendants (your aunts, uncles, and cousins).

• If you leave no heirs, the next takers are your deceased spouse's heirs.

• If there are no heirs on either side, the next to take is your next of kin, those who are most nearly related to you by blood.

• If there are no next of kin, your estate escheats to the state

So as you can see, it pays to have your estate planning documents drafted. Not only can they provide you with peace of mind, but they can also save your heirs time and headaches when dealing with your estate. Talk to your advisor today to see whether or not you are properly covered!

Josh Bitel, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. While we are familiar with the legal and tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on legal or tax matters. These matters should be discussed with the appropriate professional.

Widowed Too Soon

Contributed by: Sandra Adams, CFP®

When we hear the term widow or widower, we picture someone older – someone deep into their retirement years. The reality is, according to the U.S. Census Bureau, the average age of a widow or widower in the U.S. is currently 59-years-old. In my recent experience with clients, I have seen the statistics become reality. Clients becoming widowed well before their retirement years has, unfortunately, become increasingly common. The issues involved with this major, and often unexpected, life transition are not simple and are hard to go through alone.

If you are one that is left behind, there are several action steps that should be taken to get back on your feet and feel financially confident. In most cases, this is the woman (according to the U.S. Census Bureau, 32% of women over age 65 are widowed compared to 11% of men). There is no timetable for when these steps should be taken – everyone grieves in their own time and everyone is ready in their own time to move on and make sound financial decisions at different times. No one should be pushed into making financial decisions for their new normal until they are ready.

The first step is identifying sources of income. For young widows or widowers, you may still be working, but may have lost a source of income when your spouse passed away. Looking at where income might come from now and into the future is important. For young widows, life insurance is likely the source of the replacement for lost income. If you are closer to retirement, you may also have Veteran’s benefits, employer pension benefits, savings plans, home equity, income from investments, and Social Security.

The second step is to get your financial plan organized. Get all of your documents and statements put together and review your estate documents (update them, if needed). A big part of this is to update your expenses and budget. This may take some time, as your life without your spouse may not look exactly the same as it did with him/her. Determining what your new normal looks like and what it will cost may take some time to figure out. And it won’t be half the cost (even if you don’t have children), but it won’t be 100% or more either – it will likely be somewhere in between. Figuring out how much it costs you to live goes a long way toward knowing what you will need and how you will make it all work going forward. Your financial planner can be a huge help in this area.

The third step is to evaluate your insurances (health and long-term care). These costs can be significant as you get older, and it is important to make sure you have good coverage. For younger widows, those that are still working may have health insurance from their employer. If not, it is important to make sure you work with an agent to get counseling on the best coverage for you through the exchange until you are eligible for Medicare at age 65. And for long-term care, if you haven’t already worked with a financial planner to plan coverage and are now widowed – now is the time. Single folks are even more likely to need long-term care insurance than those with a partner.

The fourth step is to work on planning your future retirement income. Many widows don’t think enough about planning for their own financial future. What kinds of things should you be talking to your adviser about?

• Income needs going into retirement

• The things you would like to do in retirement/their retirement goals (travel/hobbies, etc.)

• What financial resources you have now (assets, income sources, etc.)

• Risk tolerance

• Charitable goals, family gifting goals, etc.

You can work with the adviser to design a tax-efficient retirement income plan to meet your goals with appropriate tools based on tax considerations and risk tolerances, etc.

And the fifth step is to evaluate housing options. We often tell new widows not to make big decisions, like changing homes, within the first year or two. However, many decide that they want or need to move because the house they are in is too big or they just need to make a move. Housing is roughly 40 – 45% of the average household budget – decisions need to be made with care.

For all widows, going it alone can be difficult with a lot of decisions and time spent alone. For many, it is going through the process of redesigning retirement all over again, now alone, when it was meant to be with your long-time partner. And learning to live a new normal and planning the next phase of life that looks entirely different than the one you had planned. With the help of a professional financial adviser, the financial side of things can be easier – the living part just takes time.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc., is not a registered broker/dealer and is independent of Raymond James Financial Services.

The information contained in this blog has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The Challenges of Living Alone in Retirement

Contributed by: Sandra Adams, CFP®

Recently, an article in The New York Times titled "As Gen X and Boomers Age, They Confront Living Alone" has gained widespread attention. As a financial adviser, I have noticed a trend of more clients entering and living in retirement alone over the past five to ten years. This is a topic worth considering, as the number of people living alone in retirement is increasing.

The statistics speak for themselves. According to the U.S. Census Bureau, 36% of American households are currently occupied by single individuals aged 50 and older, a total of nearly 26 million people. This group has traditionally been more likely to live alone, and now that age group, including baby boomers and Gen Xers, makes up a larger share of the population than ever before. Additionally, changing attitudes towards gender and marriage have caused individuals aged 50 and older to be more likely to be divorced, separated, or never married. One in six Americans aged 55 and older do not have children, and because women tend to live longer than men, over 60% of older adults living alone are female.

The challenges of living alone in retirement are real. Here are the top 5 challenges and how to plan for them:

1. Living alone can lead to social isolation

According to the Census Bureau, a higher proportion of older women live alone in retirement. However, men are more vulnerable to the negative effects of solitary living, such as social isolation, which can increase the risk of health issues and a higher mortality rate. Those living alone and not engaging socially may be at risk for general, mental, and cognitive health problems. 

To combat the challenges of social isolation that come with living alone, it is important to make intentional plans. This is especially crucial for those who may not have children or many family members. Finding social groups to be a part of, whether in the community, through hobbies or volunteering, or with current or former colleagues, can keep you connected and engaged with the outside world.

2. Managing the home can become a challenge over time

According to a 2021 AARP study, over 90% of older adults want to continue living in their own homes during retirement. While this desire for comfort and privacy is entirely understandable, managing a home can be financially and physically overwhelming for single individuals as they age. If the home is not designed for "aging in place," it may become difficult to manage if the individual experiences health or mobility issues. To address these challenges, many single individuals may choose to:·

• Pay off their home before retirement. 

• Make home modifications in advance to accommodate future needs. 

• Build flexibility into their financial plan to pay for help with managing their home once they are unable to do so themselves.

3. Single retirees living alone have no built-in partner to be their advocate for estate planning purposes

Deciding on a power of attorney for financial affairs, patient advocate, successor trustee for a trust, and executor for a will can be difficult for single older adults, especially those with no children or family. Those with no family or close friends to ask for these roles may struggle with the decision. 

There are now professional advocates who can fill these roles, such as attorneys for financial power of attorney and successor trustee (or third-party financial and bank Trust departments that can serve as successor trustees), attorneys or geriatric care managers/social workers as patient advocates, and attorneys as executors. However, it is important to note that hiring professionals to serve in these roles requires advanced planning and incurs a cost.

4. Single retirees living alone have no built-in partner to care for them

According to the Department of Health and Human Services, someone turning 65 today has nearly a 70% chance of needing such long-term care in their remaining years. On average, women need care longer (3.7 years) than men (2.2 years). 

For those older adults who are part of a couple, they can avoid paying for professional care longer by caring for each other for some time. Single individuals living alone will likely need to pay for care needs from day one of their needs. One way to address this challenge is to prepare well in advance for this potential need by planning for long-term care needs. 

While you are still working, make sure that you have long-term disability insurance that covers the expense of potential care needs. For the costs that may occur in your retirement years, consider long-term care insurance and/or carve out a portion of your retirement savings earmarked for long-term care expenses. Have a plan for what you will do if you ever have a long-term care event, and have your plan in written form for your advocates. If you aren't able to live in your own home due to your future health, have a plan for where you might consider going and how that will be paid for.

5. From a financial aspect, single retirees rely only on one set of resources and assets

Single individuals living alone are in a unique financial situation. They have only themselves to rely on for the remainder of their lives. There is no spousal Social Security or pension to be a backstop on the income side. It is only their savings and assets that they have to rely on — no one else has anything to leave them. 

Financial planning needs to be very intentional to ensure they can support themselves for the remainder of their lives first and foremost. Planning for the goals of what they want to do and accomplish during their retirement years and for their potential long-term care needs is crucial.

Living single and alone in retirement is a choice, not without challenges. It is especially important for single individuals approaching retirement to work with the appropriate professionals to plan for their second stage in life. With proper planning, living alone and single and alone in retirement can be done successfully.

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A rising number of senior citizens live alone. Sandra Adams, CFP® offers ways to cope with the social and financial aspects of solo living. Watch the video version of the blog HERE!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Raymond James is not affiliated with and does not endorse the opinions or services of Karen Kurson or Retirement Daily.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services. 24800 Denso Drive, Ste 300 // Southfield, MI 48033 // (248) 948-7900

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

The Results Are In…The Top Five Blogs of 2022

Contributed by: Center for Financial Planning, Inc.®

Over the course of 2022, Center team members have written an astounding 59 blogs on topics including retirement planning, market volatility, eldercare, and investment planning - just to name a few. The results are in, and here are our Five Most Popular Blogs to close out the year. Check out our list below to see how many you have read!

1. Is My Pension Subject to Michigan Income Tax?

In 2012, Michigan joined the majority of states in taxing pension and retirement account income. Nick Defenthaler, CFP®, RICP® reviews how these taxes can play a role in one's overall retirement income planning strategy.

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2. The “10-Year Rule” Update You Need to Know About

One of the details of the SECURE Act that many of us call the "10-year rule" may be changing slightly. Jeanette LoPiccolo, CFP® shares what you need to know.

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3. Strategies for Retirees: Understanding Your Tax Bracket

Michael Brocavich, CFP® describes the two simple strategies that could potentially help reduce the amount of tax due in retirement.

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4. The Basics of Series I Savings Bonds

With the inflation increase, Series I savings bonds have become an attractive investment. Kelsey Arvai, MBA shares what to consider before adding them to your portfolio.

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5. What is Retirees’ Biggest Fear?

It's not the fear of running out of money. Not the stock market either. Nor loneliness. Sandy Adams, CFP® tells you what it truly is.

An IRS Penalty Waiver to the "10-Year Rule" for 2021 and 2022

Contributed by: Jeanette LoPiccolo, CFP®

In our blog ‘The “10-year Rule” Update You Need to Know About’, we shared that, for some IRA beneficiaries, RMDs will be due annually, and the entire account must be withdrawn by the end of the 10th year.

We received some good news! The IRS has waived the 50% penalty for beneficiaries subject to the 10-year rule under the SECURE Act who have not taken 2021 or 2022 required minimum distributions (RMDs) from an inherited IRA (Notice 2022-53). This regulation was issued on October 7, 2022, and impacts only Beneficiary IRA accounts, also called Inherited IRA accounts. It does not include beneficiary Roth accounts. 

We will continue to notify our impacted clients of their RMDs in 2023 and onwards. Our help with identifying and calculating RMDs is one of the many great benefits of working with The Center. If you have any questions about how the rule could affect you or your family, we are always here to help!

Jeanette LoPiccolo, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.

The RJFS Outstanding Branch Professional Award is designed to recognize support professionals in RJFS branches who contribute to the success of their advisors and teams. Each year, three winners are selected and recognized during this year's National Conference for Professional Development. To be considered for this award, Branch Professionals must have been affiliated with Raymond James for at least one year and could not have won the award in the past.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Celebrities That Didn't Have Proper Planning

Contributed by: Matt Trujillo, CFP®

The importance of proper estate planning cannot be overstated, regardless of the size of your estate or your stage of life. Nevertheless, it's surprising how many American adults haven't implemented a plan. You might think that those who are rich and famous would be way ahead of the curve when it comes to planning their estates properly. Yet plenty of celebrities and people of note have passed away with inadequate or nonexistent estate plans.

Michael Jackson

The king of pop died in June 2009 with an estimated $600 million estate. Jackson had prepared an estate plan that included a trust. However, he failed to fund the trust with assets prior to his death — a common misstep when including a trust as part of an estate plan. While a properly created and funded trust generally avoids probate, an unfunded trust almost always requires probate. In this case, Jackson's trust beneficiaries had to make numerous filings with the probate court in order to have the judge transfer assets to the trust. This process added significant costs and delays and opened what should have been a private matter to the public.

Trusts incur upfront costs and often have ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.

James Gandolfini

When the famous Sopranos actor died in 2013, his estate was worth an estimated $70 million. He had a will, which provided for various members of his family. However, his estate plan didn't include proper tax planning. As a result, the Gandolfini estate ended up paying federal and state estate taxes at a rate of 55%. This situation illustrates that a carefully crafted estate plan addresses more than just the distribution of assets. With proper planning, taxes and other expenses could be reduced if not eliminated altogether.

Source: 2022 Wills and Estate Planning Study, Caring.com

Prince

Prince Rogers Nelson, better known as Prince, died in 2016. He was 57 years old, still making incredible music and entertaining millions of fans worldwide. The first filing in the Probate Court for Carver County, Minnesota, was by a woman claiming to be his sister, asking the court to appoint a special administrator because no will or other testamentary documents were filed. Since Prince died without a will, the distribution of his over $150 million estate was determined by state law. In this case, a Minnesota judge was tasked with culling through hundreds of court filings from prospective heirs, creditors, and other "interested parties." The proceeding was open and available to the public for scrutiny.

Barry White

Barry White, the deep-voiced soulful singer, died in 2003 without a will or estate plan. He died while legally married, although he'd been separated from his second wife for many years and was living with a long-time girlfriend. He had nine children, but because he had not divorced his wife, she inherited everything, leaving nothing for his girlfriend or his children. As a result, a legal battle ensued.

Heath Ledger

Formulating and executing an estate plan is important. It's equally important to review your documents periodically to be sure they're up to date. Not doing so could result in problems like those that befell the estate of actor Heath Ledger. Although Ledger had prepared a will years before his death, several changes in his life transpired after the will was written, not the least of which was his relationship with actress Michelle Williams and the birth of their daughter Matilda Rose. The will left nothing to Michelle or Matilda Rose. Fortunately, Ledger's family later gave all the money to his daughter, but not without some family disharmony.

Florence Griffith Joyner

An updated estate plan works only if the people responsible for carrying out your wishes know where to find these important documents. When Olympic medalist Florence Griffith Joyner died in 1998 at 38, her family couldn't locate her will. This led to a bitter dispute between her husband, Al Joyner, and Flo Jo's mother, who claimed her daughter had promised that she could live in the Joyner home for the rest of her life.

Feel free to contact your team at The Center with any questions about properly planning your estate. We're always happy to help!

Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Examples used are for illustrative purposes only.