Barnes Lipscomb & Stewart PLLC

Read the Fine Print on Continuing Care Retirement Community Agreements

The photos are great: healthy seniors enjoying active lifestyles, playing tennis, chatting in the pool and dining in an upscale restaurant.  However, review the documents with care before signing up.

The concept of continuing care retirement communities, or CCRCs, is an excellent one. Moving into such a facility assures retirees and their children that they’ll be able to transition from the different stages of later years in one location, with a trusted organization providing the care they’ll need. When it works, it’s great.  However, before making such a big financial and emotional commitment, understand how the fee structure works, and what the risks may be.

CNBC’s recent article, “Do your homework before moving into a retirement community,” explains that retirees can frequently pay more than $100,000 as an initial deposit and signing on for additional monthly payments that may change over time, as their need for care increases.

Consider the following, before you decide to live in a continuing care retirement community:

Check out the amenities. The high-demand amenities include fitness centers on-site and multiple dining venues, with cafes and bistros. However, you should also look at their assisted living and nursing care departments before deciding.

Find out about the occupancy level. Lower than 90% occupancy could suggest an issue with being able to fill certain units with new residents. The inability to maintain a high occupancy level could be a sign of problems. Examine the details and work through them with your accountant. This includes the key financial reports from your continuing care center, such as its audited financial statements, data on monthly service fee increases, financial ratios and reserves.

Ask for a look at their financials. When continuing care centers have financial troubles, there’s no guarantee that a resident will get his or her money back. It’s common in that case for another provider to buy out a struggling facility. That may result in a change in services and fees.

CCRCs are regulated by the states where they’re located.  Therefore, the level to which regulators scrutinize these communities will vary. Prospective residents should contact the state agency that oversees CCRCs.

Make sure that you have a clear understanding of what the monthly fee includes and what additional services, like shopping or in-room dining, costs. You’ll want to know how what the additional charges will be if and when you need to move to another facility on the campus for more services, including skilled nursing care.

Reference: CNBC (July 8, 2018) “Do your homework before moving into a retirement community”

Elvis’s Daughter Sues Money Manager, Says She’s Left with $14,000 From Father’s Fortune

The only daughter of the king of rock says that her former money manager was “reckless and negligent” with investments, while paying himself a hefty $700,000 salary. He’s counter-suing.

Lisa Marie Presley says she’s lost the $100 million-dollar trust fund set up for her by her dad, Elvis Presley, as a result of reckless investments and excessive fees by her former money manager, Barry Siegel. The Daily Mail’s recent article, “Lisa Marie Presley claims her ex-money manager lost $100 million trust fund left to her by Elvis with 'reckless and negligent' investments while paying himself a salary of $700,000.”

Instead of telling Lisa Marie the truth about the investments, Siegel covered up the dire straits of her finances, Presley's lawyers say in court pleadings. Siegel is counter-suing, contending that Presley “squandered” away her fortune, because of her “uncontrollable spending habits.” Siegel wants $800,000 in damages.

Presley’s complaint against Siegel and his company, Provident Financial Management, says that Siegel “enriched himself with exorbitant fees.” She claims that he and his firm ran the $100 million trust fund her father set up for her “into the ground.” What’s now left is just $14,000.

Siegel’s largest investment of the trust funds was in American Idol's holding company, which ended up going bankrupt.

Presley says that despite allowing the trust's assets to be run to ruin, Siegel profited richly from his "service" as trustee. She claims that from 2005 and the time of the American Idol bankruptcy, he billed $4.9 million to "manage" the trust, an average annual salary of $701,000 per year. However, had he disclosed the trust's true financial condition to Presley and restricted spending to the trust's "income" rather than its principal assets, she would have lived comfortably on an annual budget of between $1.5 and $2 million per year, after taxes.

On this budget, Lisa Marie says Siegel's lucrative compensation package would have amounted to between 40 to 50% of Presley's post-tax annual budget—"an amount she undoubtedly would not have agreed to, had she been aware of her true financial condition.”

Instead of telling Presley the truth, Siegel covered up the dire straits of her finances, say her lawyers. Siegel repeatedly told Lisa that she was in "good shape" with her finances, the documents state. Her attorneys cited several emails from Siegel responding to inquiries from Presley about how her trust fund was doing:

“We're in good shape on your finances.”

“We're ok.”

“Be assured that we are doing everything on our end to maintain both your current lifestyle and the future of you family.”

These were what Siegel allegedly told Presley. She fired him and Provident in 2015, after discovering that he had kept her in the dark about the trust's true financial condition.

Papers filed in court by Presley’s attorney claims that Siegel’s 2005 decision to sell 85% of her trust’s stock in Elvis Presley Enterprises (EPE) was blamed for a big part of the loss. Presley lost big when an investment in American Idol’s holding company went bankrupt after the show’s last season.

She also claimed that Siegel ran her trust’s real estate portfolio into the ground. The trust owned two houses in Hawaii and California and both had mortgages worth more than the properties were worth. Siegel agreed that she could afford to purchase an estate in England, with a transaction structured so poorly that the trust could not make a balloon payment and the mortgage on the estate defaulted.

Reference: Daily Mail (June 19, 2018) “Lisa Marie Presley claims her ex-money manager lost $100 million trust fund left to her by Elvis with 'reckless and negligent' investments while paying himself a salary of $700,000”

Retirement Planning is a Process, With a Long-Range Outcome

If your retirement planning includes being glued to the television, watching markets rise and fall, minute by minute, you’re doing it wrong. What’s happening inside your portfolio today, has little or no bearing in your retirement.

Many investors have tools for investing, retirement calculators and charts and spreadsheets as they track their portfolio, but that’s not a retirement plan, notes Kiplinger in a recent article, “Is Your Retirement Plan Completely Backward?” You want a roadmap more than a calculator.

1. Goals. You may want to retire at a certain age and/or with a certain income to maintain your lifestyle. You may want to achieve the financial freedom and flexibility to do what you want, when you want, with your money. Some others want to leave some kind of legacy behind for their children. It may be both. It’s critical to understand your objective, before you set out to achieve it.
2. Strategies. Part of your strategy should be an income strategy that will reliably cover your expenses for the rest of your life. You’ll need to have an idea of what your expenses are. You’ll also need to understand how you can maximize your Social Security benefits, plan for inflation, know how a surviving spouse will adjust to any changes in income and expenses and help guard your assets against longevity risk, with a retirement that can now last 30 years or longer. You don’t want to outlive your income.

Your financial strategy should help protect and preserve the assets you don’t draw from month to month. Your tax strategy should also legally keep more money for your family. Your health care strategy needs to address rising medical costs and look at long-term care options, in the event of a chronic illness.

Your legacy strategy must ensure that your money is passed on to your beneficiaries in the most tax-efficient way, and your estate doesn’t wind up in probate. Talk to an estate planning attorney about trusts and other protections to prevent your IRA from becoming fully taxable to your beneficiaries upon your death.

3. Your Financial House. Consider your finances like a house. The foundation is the money you want to protect from market risks. The walls are money that’s in the market, but is income focused with low volatility. The roof is focused on growth over income and might be exposed to more risk, depending on your comfort level. Make sure that all aspects of your financial house are built the way you want and remember you may will be living in that house for thirty years.

Reference: Kiplinger (June 26, 2018) “Is Your Retirement Plan Completely Backward?”

What Happens When the Beneficiary Doesn’t Want a Payout

There should always be a contingent beneficiary on a life insurance policy. There are times when someone simply does not want the proceeds from a life insurance policy.

It sounds like an unlikely scenario: someone gets a call that an uncle named them in his life insurance policy and now they are being sent a check for hundreds of thousands of tax-free dollars. However, if the primary beneficiary does not want the money, for whatever reason, what happens?

A recent nj.com article asks “Who would get this life insurance payout?” The article explains that an individual who’s designated as a beneficiary of a life insurance policy, has a right to disclaim the proceeds.

In effect, the beneficiary is telling the life insurance company “Thanks, but no thanks. I don't want to accept the money.”

However, when the primary beneficiary disclaims the proceeds, he or she doesn’t have the right to decide who should be paid instead. If you waive your rights to the money, the life insurance company will treat the circumstances as if you were a beneficiary who died before the insured. You don’t have a say in the matter because you’re dead—for purposes of this insurance policy.

The insurance company will then pay the proceeds to the contingent beneficiary.

The way to disclaim insurance proceeds will vary among insurance companies. However, a person must contact the life insurance company and make it aware of their desire not to receive the proceeds.

Some insurance companies may want to see a letter from the primary beneficiary, while others will request that the primary beneficiary fill out their own form.

 However, if you’re waiving the life insurance proceeds because you’re concerned about taxes, remember that life insurance benefits are not taxable.

While you’re at it, make sure your own beneficiary designations are up-to-date on all of your own life insurance policies.

Like most insurance policies, a life insurance policy is a contract and the terms of the contract override the content of a will. If you want to make a change in beneficiaries of your policy, you’ll need to contact the insurance company and follow their procedures for making changes. You cannot make this change simply by changing your will. An estate planning attorney can help you make sure that all of your assets with beneficiaries are aligned.

Reference: nj.com (June 22, 2018) “Who would get this life insurance payout?”

A Collaborative Approach from Wise County, Virginia, Against Elder Abuse

A new emphasis on seeking justice for victims is being put into action in southwestern Virginia, where law enforcement is drawing parallels between elder abuse and child abuse.

One in ten Americans over age 60 has been subject to some kind of elder abuse, according to The National Council on Aging. In Wise County, Virginia, a multi-disciplinary team, known as MDT, has gathered to bring together different members of the community to get justice for elder abuse victims.

WJHL.com’s recent article, “Fighting elder abuse with collaboration, new 'MDT team' meets in Wise County, VA,” reports that the new MDT is made up of law enforcement, prosecutors, victim advocates, social workers and prosecutors in Wise County.

Wise County Commonwealth's Attorney Chuck Slemp said this team is the type of collaboration already used in child abuse cases.

"Well, why can't we do that same thing for elder abuse cases. We have the same difficulties in prosecuting them, they're under reported, they're under prosecuted and the victims have a hard time testifying, " Slemp said.

Elder abuse cases, like child abuse cases, are often hard to prosecute.

Elder abuse includes physical abuse, emotional abuse, sexual abuse, exploitation, neglect and abandonment. The perpetrators of this abuse can be children, other family members, spouses, and staff at nursing homes, assisted living and other facilities.

Slemp said he sees extensive credit card fraud, with people opening up credit cards in the name of the other person and charging those up. The elderly or incapacitated person is then responsible for the credit card debt. He also confirmed what the National Council on Aging found:  it’s frequently a family member or caretaker who's doing the abuse. In many instances, the victim doesn’t want that person prosecuted.

In one month alone, Wise County Department of Social Services received approximately 40 reports of adult abuse, neglect and exploitation, of which 85 to 90% are 60 or older.

This is a first step in a larger movement, says Slemp, who says that the MDT team will meet monthly to collaborate and review elder abuse cases. He hopes that his new team will continue to spur change and be effective in safeguarding seniors.

Reference: WJHL.com (June 28, 2018) “Fighting elder abuse with collaboration, new 'MDT team' meets in Wise County, VA”

Why is the Queen Smiling? Maybe Because Meghan Markle Signed a Prenup

With a prenup in place to protect Prince Harry’s $500 million fortune, Queen Elizabeth’s demand was granted, with no hesitation. Maybe that’s why she has been able to relax and enjoy her new granddaughter.

Millions watched with delight, when America’s Meghan Markle wed Prince Harry in what seemed every bit of a storybook wedding at Windsor Castle on May 19^th. The crowds cheered, and the festivities were joyful.

Everyone acknowledges that it was the wedding of the year, but now word is out that the groom’s grandmother, Queen Elizabeth was thinking about estate planning, as well as how the bride would look on her special day.

Yahoo’s report, “The Queen 'asked Meghan to sign a $500m prenup' before marrying Prince Harry,” noted that according to palace insiders, Queen Elizabeth insisted that the 36-year-old Duchess of Sussex sign a prenuptial agreement, before she married Prince Harry. This was to protect his $500 million fortune.

Meghan starred on the USA Network series, Suits, for many years, before falling in love with the 33-year-old Prince. She’s said to have been “only too happy” to sign the prenuptial agreement.

Meghan’s only request was that she didn’t want the Queen to discuss it with any other senior royals, like Charles and William. She wanted it confidential.

A prenuptial agreement (or "prenup" for short) is a written contract signed by the bride and groom before they’re married. This agreement typically lists all of the property each person owns (as well as any debts) and details what each person's property rights will be, if the marriage ends in divorce.

“She doesn’t want anyone thinking that she’s entered into the marriage with bad intentions, especially the Queen,” the insider told New Idea.

According to a royal insider, when the couple moved into the antechamber at St. George’s Church just before the wedding ceremony, they signed the prenup and the marriage registry.

Reference: Yahoo (June 18, 2018) “The Queen 'asked Meghan to sign a $500m prenup' before marrying Prince Harry”

Estate Planning for Federal Employees

Estate planning is not just for wealthy people. In fact, it’s even more important for those who are not rich, but want to prepare for their family’s future.

Estate planning could be difference between a person getting the end of life care you want or being resuscitated against their wishes and ending their days in a nursing home bed. It’s just as much about what happens when people are alive, as it is after they have passed. It’s not just for people with  a lot of money.

FedSmith’s article, “Estate Planning for Federal Employees,” says that at the very least, you should understand what estate planning is, so you can make a decision regarding the legal documents you need. You don’t want to create a stressful problem for your family and loved ones. We also want our wishes carried out, when we pass away. Take a look at these important estate planning documents:

Last Will and Testament. This document states your wishes for distributing assets after death. Everyone needs a will, even if you’re a person of modest means. If you don’t have a will and die (this is known as dying “intestate”), a judge may determine who gets property that does not have a surviving joint owner or designated beneficiary. Your will can also designate who you want to care for your minor children, if you pass away. You can also name who will manage your assets for the children.

Living Trust. A living trust avoids probate and is private. The reason it’s called “living” is because you create it while you’re alive. The creator of the trust transfers ownership of assets to the trust, but still controls the assets in the trust during his or her lifetime. The creator and manager of the trust is technically no longer the owner of the assets. At death, the trust assets are transferred to the designated beneficiaries. In addition, if your living trust is “irrevocable,” then it may protect your assets from creditors. Work with a qualified estate planning attorney to set it up correctly.

Healthcare Power of Attorney. This is also known as a durable power of attorney for healthcare. It’s a legal document that gives a person of your selection the authority to make healthcare decisions, if you are incapacitated.

Living Will. A living will is a legal document that details how you want your end-of-life decisions to be handled.

Financial Power of Attorney. This allows a trusted agent to act on your behalf, if you’re incapacitated.

What many people don’t understand is that estate planning documents are different, depending on what state you live in. If you own property in multiple states, you’ll need to ensure that any documents are valid and follow the laws of those states. Work with an experienced estate planning attorney in your state, so your plan is prepared properly.

Reference: FedSmith (June 27, 2018) “Estate Planning for Federal Employees”

Late to the Retirement Party? You Can Still Catch Up

It will take discipline and serious belt-tightening, but if you haven’t saved for retirement, you can still recover.

More than 30% of workers in America ages 45-54 report having saved less than $25,000 for retirement, according to the Employee Benefit Research Institute. It gets more dramatic: more than 25% of those who are 55+, say they have even less than $25,000 saved. If you fit into any of these categories, you are not alone.  However, you do have some significant work ahead of you.

CNN’s recent story, “3 ways to recover from a late start on retirement planning,” says that your situation isn't hopeless. You still have time to significantly improve your retirement prospects, if you begin taking serious steps now. Consider the three most important things you need to do:

1. Start saving! You need to make a major course correction in your finances that will mean major lifestyle adjustments. If you do make the commitment to save, you can still put together a pretty sizeable nest egg in the later part of your career. Look at doing most of your saving in an employer-sponsored plan like a 401(k). It has tax advantages, generous contribution limits ($18,500 this year, plus a $6,000 catch-up contribution for people 50 and older) and makes saving easier by automatically transferring money from your paycheck to your account. If you don't have access to a 401(k), you can start an IRA, which allows you to deposit $5,500 a year, plus an extra $1,000 for people 50 and older. The sooner you start and the more you put away, the better your odds of having a secure retirement.
2. Keep working. In a recent study titled "The Power of Working Longer," retirement researchers found that delaying retirement and continuing to work can be one of the most effective ways of raise your post-career standard of living—and can be better than increasing your savings rate. Staying in the workforce lets you delay claiming Social Security. You can then qualify for a bigger monthly Social Security check in the future. You’ll also have more years to save for retirement, and your nest egg has more time to grow before you use it.
3. Be open to new ways of building security. Depending on how far behind you are, it is possible that you simply may not be able to work more years or to save enough to catch up. If that is the case, you’ll need to be flexible and resourceful. You may need to sell your home and move to a smaller place, or to move to a region of the country with a lower cost of living. You might need to take out a reverse mortgage or get a part-time job that won’t be too physically taxing.

Reference: CNN (June 21, 2018) “3 ways to recover from a late start on retirement planning”

The Challenge—and Benefits—of Long Term Care

If long-term care insurance seems expensive, do the math and figure out how much it would cost, if you do not have long-term care insurance. It won’t look so expensive.

Boomers are concerned about rising premiums, but the longer you live, the more likely that you will need long-term care insurance to protect your retirement savings from the impact of needing long term care. Whether you find yourself or your spouse needing to stay in a nursing home for an extended period of time or to have in-home care for a chronic illness, long-term care is designed to protect the family and its assets.

Kiplinger’s recent story, “The Long-Term-Care Insurance Dilemma,” reports that the median cost of one year in a private room in a nursing home was $97,500 in 2017, according to Genworth's Cost of Care Study. A year of assisted living was $45,000, and 44 hours per week of home care–which most people prefer–was $49,000. Care costs have been rising by 3-4% per year over the past five years.

Rising costs have put pressure on long-term-care insurers, and the rates have spiked by at least 50% for most policies purchased between the mid-1970s and 2005. Some price increases are more than 100%. Almost every long-term-care insurer has raised rates at least once, and more rate increases are coming.

Insurers say they made major mistakes when pricing these policies: they thought more people would drop coverage, they overestimated the interest rates they'd earn on their investments and they underestimated the size and length of claims.

But there are ways to make long-term-care insurance more affordable.

First, don't drop your policy if you're hit with an increase. This is because a new policy will cost much more. If you can't afford the higher premiums, your insurer will generally give you several options. If you haven't bought a policy yet, you can still find coverage that protects a significant part of your retirement savings with affordable premiums.

You can reduce your premiums by purchasing a policy with less inflation protection and by getting a shorter benefit period.

Insurance companies are wiser about past pricing mistakes and hopefully increases in the future will not be as dramatic as they have been in the past. Regardless, your insurance budget should include a 20% increase every decade. In the worst-case scenario, you’ll have extra money on hand, if long-term insurance policies don’t increase at that rate.

Reference: Kiplinger (April 4, 2018) “The Long-Term-Care Insurance Dilemma”

Yes, You Have to Pay Taxes, But You Can Pay Less

There are a number of savvy strategies to minimize your tax liability, but some are better known than others. Here are two more to add to your tax toolbox.

A Spousal IRA and a Backdoor Roth IRA Contribution are two additional ways that Investopedia recommends as ways to reduce your tax burden and accumulate more tax-free retirement assets, as reported in the article “2 Ways to Reduce Taxes and Save More for Retirement.”

Spousal IRA. Under the usual situations, a person who wants to contribute to an IRA has to earn income.  However, there’s an exception, if you’re a non-working spouse. Your working spouse can establish a “spousal IRA” on your behalf. With a spousal IRA, the working spouse can contribute up to $5,500 on an annual basis to the spousal IRA (or $6,500 if the nonworking spouse is over the age of 50), in addition to their contributions in their own retirement accounts. A married couple must file a joint tax return to qualify.

It’s important to consider whether the spousal IRA should be a traditional IRA or Roth IRA. With a traditional IRA, you’re able to deduct the contributions to the spousal IRA from your income, which will decrease your taxes. You then pay taxes when you withdraw money out of your account during retirement (and when you are presumably in a lower tax bracket). With a Roth IRA, you pay taxes prior to making the contributions, so you don’t get an up-front deduction on your income, but you’re able to make tax-free withdrawals from your account once you reach 59½ and have had your account open for a minimum of five years. You can withdraw your contributions from your Roth IRA whenever you want. It’s only when you withdraw the earnings or interest your account has earned, that you must reach the age and five-year account establishment requirements.

If the working spouse earns more than $199,000, direct contributions into a Roth IRA for his or her spouse are not allowed, so a traditional IRA is the only option (but see the backdoor option below). If the working spouse has access to a 401(k) plan at work, contributions to traditional IRA accounts are still allowable, but the working spouse can’t take a tax deduction, if his or her income is more than $121,000, and the non-working spouse loses the deduction, when household income is more than $199,000. Contributions can still be made to traditional IRA accounts, regardless of a household’s income, and when withdrawals are made, the couple is only liable for taxes on the earnings accrued on the non-deductible contribution.

Backdoor Roth IRA Contribution. The IRS doesn’t allow individuals who earn more than $135,000, or couples who earn more than $199,000, to contribute directly to a Roth IRA. But you can still contribute to a traditional IRA, then convert the money to a Roth IRA. Since you already paid taxes on the traditional IRA contribution, the only tax you owe is on the appreciation the money earns prior to the conversion to the Roth IRA. So, you need to make certain that you do the conversion quickly to limit the amount of time your money can grow and the amount of tax you owe on that growth once the conversion takes place.

Before you do anything with a Backdoor Roth IRA Contribution, be mindful of this: conversions become complex, if you own other IRAs. The IRS does not permit people who have traditional IRAs (with pre- and post-tax money) from converting only the post-tax money. You do have the option to roll all of your pre-tax money into your current company’s 401(k) plan and leave a post-tax contribution of $5,500 in your IRA. Then you can convert that to your Roth IRA. You will want to work with an experienced estate planning attorney to make sure this is handled correctly.

Reference: Investopedia (April 9, 2018) “2 Ways to Reduce Taxes and Save More for Retirement”