Congress has afforded all of us an unprecedented—and probably never to be seen again—opportunity to make significant gifts to our children (and grandchildren), thereby reducing the estate taxes which could hit our families when we die. For the remainder of 2012, each of us is permitted to make gifts totaling up to $5.0 million to our offspring without any federal gift taxes.  That amount will fall to $1.0 million for each of us on January 1, 2013.  On paper, it appears that making significant gifts this year makes sense, if we are concerned that our estates will exceed $1.0 million in 2013 and thereafter.  However, does such a strategy make sense for you and your family?

First, it is important to remember that you must keep enough assets in your name so that you can provide for yourself as you age.  In doing that, remember that a change in your health could dramatically increase your cost of living.  Relying on children to take care of you if you run out of money carries with it great risk.  Some children can barely afford their own living expenses; others simply don’t care about their parents.

Secondly, any gift can also affect your ability to have your nursing home costs paid by the state in which you live if you run out of money.  Ohio has a 5-year “look-back”rule, which provides that you are not eligible for Medicaid (the State funds which pay the nursing home costs for those who run out of money) if you make a gift within five years of applying for Medicaid.  The period of your ineligibility depends upon the size of the gift.  So, while making gifts to reduce your estate may seem like the right thing to do, it could have bad consequences for you if you end up in a nursing home.

The conclusion:  it is really important to get competent advice from an Estate Planning and Elderlaw attorney before beginning any type of gifting strategy.

Jack N. Alpern, Esq.

The Alpern Law Firm

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

COMPLIMENTS OF THE ALPERN LAW FIRM

By The American Academy of Estate Planning Attorneys
www.aaepa.com • blog.aaepa.com

You and your spouse have worked hard to save for your golden years. But have you planned for a long, secure retirement if one of you outlives the other? Study after study shows that women tend to fall behind men when it comes to planning for retirement, and there are a great number of reasons for this situation.

During their pre-retirement years, women traditionally have not earned as much as men, and mothers have often curtailed their career plans in order to raise children. This translates into less opportunity to save for retirement needs. Just as significantly, women statistically live longer than men, meaning that retirement tends to last longer for women. Further, women are more likely to need long-term care and other services as they join the ranks of the more substantially elderly.

As a married couple, it’s essential to approach retirement planning with the goal of ensuring that the spouse with greater longevity, usually the wife, is set up to enjoy a secure, worry-free retirement. This goal can be accomplis hed by paying special attention to certain key financial areas.
     •    Social Security. Did you know that when you choose to start receiving Social Security benefits can make quite a difference in your retirement income? Delaying retirement can increase your Social Security benefit by as much as 8% per year. This is especially significant when one spouse was formerly the higher wage earner. If, for example, the husband earned more during his working years, his widow could claim his higher Social Security payment when he passes away instead of relying on her own lower monthly benefit. So, the longer the higher wage earner waits to retire (ideally until age 70), the more retirement income the surviving spouse will have ultimately.
     •      Life Insurance. Life insurance isn’t just for families with young children. If you qualify for a policy, the death benefit can be a lifesaver to your surviving spouse, who will be free to put the funds toward household expenses, medical costs, or reducing debt.

     •      Annuities. If you are considering purchasing an annuity to provide an additional income stream during retirement, you may want to look into one that carries a “joint life” benefit. Under this arrangement, annuity payouts continue as long as either one of you is living.

     •      Long-Term Care Coverage. Women not only tend to outlive their husbands, but their longevity means that they are also more likely to need long-term care at some point during their retirement years. Whether it’s a nursing home, an assisted living facility, or a home health care arrangement, long-term care is expensive. If you qualify, a well-chosen policy of long-term care insurance can help protect your family’s assets and pay for care.

Aside from seeking reliable advice from a qualified professional advisor, perhaps the most effective way to ensure that both you and your spouse have the best possible retirement plan in place is to make planning a joint effort. Both of you should have a good grasp of your family’s finances, and you should work together to make the major decisions that will affect both of your lives during retirement.

About Our Law Firm
The Alpern Law Firm is devoted exclusively to estate planning. We are members of the American Academy of Estate Planning Attorneys and offer guidance and advice to our clients in every area of estate planning. We offer comprehensive and personalized estate planning consultations. For more information, to attend an upcoming FREE seminar, schedule an appointment or obtain a FREE on-line report, please contact us at 1-(800) 307-5544, and ask for extension 115, or visit us online at www.alpernlaw.com.

About the American Academy of Estate Planning Attorneys
This article is taken from one written by the American Academy of Estate Planning Attorneys. The Academy regularly publishes articles on various estate planning topics as a free resource to consumers. These articles are intended as an overview of basic estate planning topics and issues, and not legal advice. We recommend that you consult with a qualified estate planning attorney to review your goals.

The Academy is a national organization dedicated to promoting excellence in estate planning by providing its exclusive membership of attorneys with up-to-date research on estate and tax planning, educational materials, and other important resources to empower them to provide superior estate planning services to families in their communities. The Academy expects members to have at least 36 hours of legal education each year, specifically in estate, tax, probate, and/or elder law subjects. Since 1993, the Academy has been a highly-regarded and sought-after resource for attorneys and consumers alike, and has been recognized by Consumer Reports, Suze Orman in her book, 9 Steps to Financial Freedom and numerous times by Money Magazine.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

The 7th annual Retirement Plan Survey found that 30% of employers are planning to reinstate previously eliminated or reduced matching contributions in 2011.  But the bad news – over 40% of those responding to this survey did not have plans to reinstate the eliminated or reduced company matches.

This news makes retirement planning and estate planning that much more important.  Gone are the days of company pensions and with people living longing, planning for later years must be done sooner, rather than later, in order to achieve your goals.

Even during an economic downturn, saving for retirement is still important.  Worried about the market?  Nine in 10 of the popular retirement plans are at least back to where they were in October 2007, the peak of the stock market. Many investors who kept their nerve and continued putting some of their paycheck into a 401(k) during the market’s worst months are now ahead.  Don’t let the economy be your excuse.

Just like estate planning, retirement planning is an ongoing process.  If your ‘nest egg’ took a hit and has not yet recovered, you need to reevaluate and regroup.  Don’t ignore it, don’t simply stop contributing.

These days estate planning is not just about planning for your death, it has come to mean planning for life as well, and retirement plans need to coordinate with your estate plan to provide a comprehensive plan for later years.  Working with an estate planning attorney allows you to put together a plan to meet your specific goals and needs, and to get the guidance you need for your plans during difficult times.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

Many people use retirement plans that are provided by their employers, but how do you plan for retirement when you are self-employed?  There are several retirement plans that are geared for the self-employed or small business owner, and often they allow you to tuck away more tax-deferred cash for retirement.

SEP IRA

Simplified employee pension retirement accounts are designed specifically to appeal to small businesses.  SEP IRA’s are much easier to create and administer than a cumbersome 401(K) plan, and the self-employed can contribute up to 20% of their business income annually (25% if their business is incorporated).  The annual contribution is capped at $49,000 for 2009/2010, much more than the $16,500 annual contribution limit for a 401(K).  You can open a SEP IRA at just about any brokerage firm, and have plenty of investment options available to you.

Roth IRA’s

The self-employed or small business owner may also contribute to a Roth IRA.  With a Roth IRA , you don’t receive the tax savings for your contribution, but the money grows tax free once it is in the plan, so when you take the money out in retirement, you don’t owe any federal income taxes.  It functions  the exact opposite of a traditional IRA, which provides you with an income tax deduction for your contribution, but then taxes the money when distributed.  The income limitations can be restrictive for a Roth IRA, as if you are married and making over $167,000, your ability to contribute to a Roth is reduced and then completely phased out once your income is above $177,000. 

Solo 401(k)s

A solo 401(k) provides opportunities for large retirement plan contributions, but are not widely used by small businesses and the self-employed as they are the relative newcomer to retirement plans.   A solo 401(k) plan can be created by those who are self-employed, such as consultants, but you must not have any employees besides yourself and a spouse.  If you meet the criteria, this retirement plan allows you to make a contribution of $16,500 (2009/2010 limit) or $22,000 if age 50 or older, of your self-employment income each year.  In addition, you may make a profit sharing contribution to your plan, bringing the maximum contribution up to $49,000 for the year.

Retirement planning is an important aspect of comprehensive estate planning; that is, planning to manage your assets in your later years as well as planning to distribute the assets after your death.  An estate planning attorney can advise you how to coordinate all your plans to meet your financial and personal goals.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

During your twenties, retirement may seem too distant for attention.  Even so, the best time to begin planning for retirement is during your early years in the work force.

Why should you begin planning at this stage of the game?

• People are living longer, and you need savings to last up to 20 to 30 years or more.
• Early planning and savings increase your chance of achieving your retirement goals.
• Accidents or other unforeseen circumstances may interrupt your future earnings and savings.
• Investments need time to grow through compounding, which generates earnings on the reinvestment of interest or dividends.

There are four main tasks for retirement planning in your twenties:

• Evaluate your desired retirement living situation and goals:  If you plan to travel the world when you retire, your needs will vary significantly from those who would like to retire to live a quiet life in the country.  Your retirement plans aren’t set in stone; they evolve over the years as you mature, but having a direction is first and foremost.
• Determine your financial needs:  Have an idea of how much money you need to retire comfortably based on your goals.
• Create a plan to reach these goals.  Gone are the days of hefty company pensions and large inheritances. Retirement planning is a surefire way to reach your goals.
• Set a budget:  Make it realistic and  include retirement savings.  If you have access to an employer sponsored 401K plan, put it to good use – not only does it defer taxes on savings, but employers often provide a percentage match to your investment.

Beginning to plan for retirement is just one step in establishing a comprehensive estate and retirement plan and builds a solid foundation that will serve you well in your later years.  An estate planning attorney can assist you with many aspects of these plans, including drafting a will, disability planning, inheritance planning, incapacity planning and more.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

Individual Retirement Accounts, IRAs, have been an important retirement planning tool for the past 35 years.  Originally intended for small business owners, self- employed workers and workers not covered by an employer’s pension plan, IRA’s can now be used regardless of the coverage under another plan. 

The traditional IRA allows contributions that are initially tax deductible from your gross income.  Both the contributions and their earnings grow tax-deferred, meaning taxes are not levied until the funds are accessed.  Normally the funds aren’t accessed until after retirement, and the tax savings are recognized under the assumption that a worker’s retirement income will be lower than that of the ‘working’ years.

For example, if you contribute $2,000 to an IRA and you are in the 28% tax bracket, you will save $560 on taxes that year.  When you begin taking distributions, if you are in the 15% tax bracket, you will be taxed $300 on that same $2,000 – meaning your tax savings are ultimately $260.   

While anyone under the age of 70-1/2 may contribute to an IRA, you must have earned wages, self-employment income, social security income or tips to participate.  Income from a partnership business, pension, rental income or interest income is not eligible for traditional IRA contributions.  The limits for annual contributions are relatively low when compared to an employee sponsored plan such as a 401K, only $5,000 annually, with an additional $1,000 allowed for people who are 50 or older, known as a ‘catch up’ contribution. 

The deductibility for a traditional IRA is also somewhat limited and depends on both annual income and whether you or your spouse participates in an employee sponsored plan.  When you reach the age of 70 ½, you are required to begin drawing distributions from your IRA account, but there are methods to spread the distributions to your advantage. 

An IRA, or any retirement plan for that matter, should be addressed within an estate plan.  Discuss options with a knowledgeable estate planning professional to not only maximize the savings in your IRA account, but to minimize any potential tax liability.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

It is estimated that more wealth will be passed on to the baby boomers over the next 10 years than has been passed on during any other time in U.S. history.  While estate planning may have helped reduce the tax and gift implications, another aspect to consider is inheritance planning, particularly in the case of family owned businesses.

Family business owners face the challenge of coordinating both the business and family estate plans while ensuring family harmony, the ongoing health of the business and creating the proper strategy to keep the wealth intact while reducing the burden on beneficiaries.  Creating a business succession strategy and inheritance plan is going to involve asking and answering some tough questions for all parties.  These questions include:

• Will the beneficiaries want to run the family business?
• What is the current financial condition of the company and what is its anticipated financial condition should ownership change?
• Is there enough liquidity in the business to run it during the time of transition?
• Is the ownership and management structure set up to facilitate the transfer of ownership?
• Do the beneficiaries have the work ethic and experience to run the business?
• Will there be any ‘sibling rivalry’ that will adversely affect the business?

It is important to plan properly to protect inheritance assets, particularly in the case of family businesses, from the factors that can reduce the asset, such as capital gains taxes, income taxes, probate costs and fees.  An “inheritance plan” should be a major part of a family’s estate plan, when there’s a family business involved, make sure this plan involves business succession strategy.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

Many people count on social security to be part of their retirement income, but often don’t know the details or how much to expect.  Following are several frequently asked questions regarding this program:

What determines how much social security I’ll receive when I retire?

There are two main factors that determine the monthly benefit that you will receive:  you’re earnings throughout your working career and the age you begin receiving your benefits.  You are eligible to receive benefits at the age of 62, but they will be reduced according to your retirement age, which is based on your birth year, the earlier you begin to take retirement, the lower your benefit will be.

What is the best age to begin receiving social security benefits?

This is a decision that should be based on your personal situation.  It should be weighed carefully whether it would be better to receive benefits early with a smaller monthly amount or wait for the larger monthly benefit payment at a later date.  Some of the factors to consider in this decision are:

Other retirement income sources;

• Whether or not you plan to work part time or full time during your retirement.
• Your health;
• Your financial needs; and
• The amount of your benefits.

What is the difference between the monthly benefit at 62 and the monthly benefit at full retirement age?

The earliest you may begin collecting benefits is age 62.  If your estimated full benefit amount is $1,000, you would receive approximately $750 at age 62, $1,000 at your full retirement age (which differs based on the year of your birth) and approximately $1,300 at age 70.  These benefit amounts would not normally change throughout your retirement years, unless you are working during retirement.  In that case, after you reach full retirement age, social security reevaluates your benefit amount to give you credit for any months in which you did not receive your full benefit because of your earnings.

How can I find out how much my monthly benefits would be from social security when I retire?

The Social Security Administration mails this information annually.  In your Social Security statement is the estimated monthly benefit amounts you and your family may qualify for now and in the future.  This information is based on your earnings and years worked, and changes during your lifetime.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.