Robert M. Slutsky Associates

Elder Law Newsletter

Newsletter19: January 2008

The new year is here. Your house is worth less and your stocks are crashing. Things have to get better. Read on . . .

Finances Today: Hold on To Your Hats and Do Not Panic

As of this writing the Dow Jones Industrial Average has lost about 13% of its value from the high it reached late in 2007. 2007 was first year in 40+ years where overall home prices dropped. 2008 does not look much better for either the real estate market or the stock market

Do not despair. Both markets have performed very well over the last 20 years. While most experts believe the stock market is unlikely to perform as well in the next 20 years as it has in the last 20, most experts still agree that for the best overall long term return investing in equities is the best option. Yes equities have ups and downs but a balanced stock portfolio will likely outperform other investments on a risk adjusted basis.

The housing market is out of balance. There is more supply than there is demand because too many people bought too much house and took out loans that are, you guessed it, too much for them to afford. Equilibrium will be restored. Mortgage rates will drop somewhat (and already have), Fannie Mae and Freddie Mac will be able to write larger loans (lower the cost on them) and the excess inventory will be sold off. It will probably take until 2009 until the market recovers.

But we are not as bad off as the markets and the doom and gloom soothsayers would have you think. Even with the substantial increase in unemployment last month the unemployment rate still stands at an historically very low 5% (remember the 11% unemployment of the 70s and 80s?). Except for the trade deficit (a whopper that needs to be fixed) and the budget deficit (bad but far better than the Reagan years) the economy is pretty decent. No one predicts a massive depression, just a slowdown in growth or a mild contraction. Despite the significant debt load of Americans most are employed and given the lower birth rate, employment is likely to get tighter not looser over the next 20 years.

So sit back, suck it up and do not do anything drastic. If you are very close to retirement this hurts. If you are not so close to retirement you will be able to ride out this bump in the road and may be wiser for it.

Seven Steps to Take at 59½
If you're one of the millions of baby boomers turning 59½ this year, 2008 will be a financial milestone of sorts. This is the year you'll be old enough to start spending, without penalty, the money you've faithfully stashed away in your IRAs and other retirement savings accounts through the years

It is a good time to take stock of savings, pensions, Social Security and all the other financial issues that seemed totally meaningless just a few years ago when retirement was an eon away. Now you are only a handful of years from 65 and those years will go by faster than you think.

Moves to consider:

1. Benefits: Ask the human resource department or the accounting department to figure out what, if any, money or insurance you'll be entitled to when you retire. If part of it is in the form of company stock or options, ask what can be done to ensure that you'll be eligible to sell the stock and pay taxes at the 15 percent capital gains rate instead of regular income tax rates.

2. Missing money: Make a list of all the past employers for which you worked for more than a year. Call the human resource departments and ask if you are entitled to any retirement benefits. If you are, make sure that the employer has your current address and marital status unless you really want your ex spouse to have a claim. If the plan calls for naming a beneficiary, update that information.

If your former employer has gone out of business or for some other reason has ended its defined benefit plan, you still may be entitled to money. The Pension Benefit Guarantee Corp., a federal corporation created by the Employee Retirement Income Security Act of 1974, or ERISA, will help you find it. You can search for missing pensions at Pension Benefit Guaranty Corporation's Web site.

Likewise, if you left your 401(k) plan with a former employer and lost track of its whereabouts, try looking for it at the new National Registry of Unclaimed Retirement Benefits search site.

3. Social Security: Right now, Social Security calculates the amount you'll receive based on earnings over the 35 years in which you earned the most. If you have worked fewer than 35 years, then it will factor in zeros for those years. Working more to wipe out the years in which you made little or nothing can raise your payment significantly.

Each year, a few months before your birthday, Social Security sends you an estimate of benefits. It includes your earnings record. Look this over closely and make sure there are no blank spaces for years in which you know you were employed. If there are, or if there appear to be other errors in the amounts listed, contact Social Security toll free at (800) 325 0778 or through its Web site.

The same form shows a calculation of annual benefits once you start collecting. It's worth the trouble to compute your own benefits just to make sure that Uncle Sam didn't get his thumbs crossed. The government offers calculators to help you. Using one of these also will let you figure out how much you'd make if you earned more or worked longer.

4. Maximize your savings. Conventional wisdom has said that people a few years from retirement should move money out of stocks and into something safe, such as bonds. These days, with interest rates averaging less than 4 percent, this advice seems too conservative, increasing the likelihood that you'll run out of money. So for many savers, that means making a new plan.

Calculating the tax bite may require sophisticated advice, but a good place to start is by dividing your savings into three pots: money on which the taxes have been paid, money on which only capital gains will be due, and money on which ordinary income taxes will be owed.

5. Roth or regular? Roth IRAs, and the new Roth 401(k)s, which are now available from some employers, are funded with after tax dollars, but they grow tax free. They also don't require minimum distributions at age 70½. Tax laws let you pay the taxes owed at your current tax rate and convert the assets in a regular IRA to a Roth IRA in a process called a Roth conversion. Generally, converting to a Roth is a good idea if you anticipate that your income won't fall much after you retire.

Until now, many people couldn't have Roth IRAs because of their strict income limits, but Roth 401(k)s allow high earners to escape that limitation.

In 2008, all workers over 50 whose companies offer the plan will be entitled to contribute up to $20,500 to a Roth 401(k). Roth 401(k)s also will be available to self employed individuals. Plenty of financial Web sites help you determine whether a Roth makes sense for you, including one at dinkytown.net.

6. How much will it take? Look hard at your budget and calculate how much you're likely to spend after you're no longer working full time. Bankrate's budgeting calculator can help you figure out your future expenses. Don't forget to add in extra health costs. In 2005, the average 65 year old spent $4,193 annually on health care, according to the Bureau of Labor Statistics.

7. Take complete inventory. Compute the total amount that you're likely to have to fund your retirement. With the time so close, it's not just a wild guess anymore. There are some calculators that will help you do this, including Bankrate.com's 401(k) retirement savings calculator. It not only estimates savings and Social Security, it also allows you to factor into your plan one time windfalls such as inheritances and lump sum pension distributions. And you can calculate how much working at a part time job will extend your retirement savings. If these calculators don't do the job, talk to your employer. Some employers have access to extremely sophisticated planning tools, so ask your personnel department if you can use one.

Being An Executor
Being the executor of an estate is not a task to take lightly. An executor is the person responsible for managing the administration of a deceased individual's estate. Although the time and effort involved will vary with the size of the estate, even if you are the executor of a small estate you will have important duties that must be performed correctly or you may be liable to the estate or the beneficiaries.

The executor is either named in the will or if there is no will, appointed by the court. You do not have to accept the position of executor even if you are named in the will.

The average estate administration takes one year, though you won't need to work full time on it. Following are some of the duties you may have to perform as executor:

Locate documents. If there is a will, but you don't already know where the will is or the will hasn't already been brought to court, you may need to find it among the deceased's belongings. If all you have is a copy of the will, you may need to get the original from the lawyer who drafted it. You will also need to get a copy of the death certificate.

Hire an attorney. You are not required to hire an attorney, but mistakes can cost you money. You may be personally liable if something goes wrong with the estate or the payment of taxes. An attorney can help you make sure all the proper steps are taken and deadlines met.

Apply for probate. If there is a will, the court will grant you letters testamentary. If there is no will, you will receive letters of administration. This will officially begin your work as the executor.

Notify interested parties. Notify the beneficiaries of the will, if there is a will, as well as any potential heirs (such as children, siblings, or parents who may or may not be named in a will). In addition, you will have to place an advertisement for potential creditors in a newspaper near where the deceased lived.

Manage the deceased's property. You will need to prepare a list of the deceased's assets and liabilities, and you may need to collect any property in the hands of other people. One of the executor's jobs is to protect the property from loss, so you will need to assure the property is kept safe. You will also need to hire an appraiser to find out how much any property is worth. In addition, if the estate includes a business, you may have to make sure the business continues to run.

Pay valid claims by creditors. Once the creditors are determined, you will need to pay the deceased's debts from the estate's funds. The executor is not personally liable for deceased's debts. The estate usually pays any reasonable funeral expenses first. Other debts include probate and administration fees and taxes as well as any valid claims filed by creditors.

File tax returns. You need to make sure the tax forms are filed within the time frame set under the law. Taxes will include estate taxes and income taxes.

Distribute the assets to the beneficiaries. Once the creditors' claims are clear, the executor is responsible for making sure the beneficiaries get what they are entitled to under the will or under the law, if there is no will. You may be required to sell property in order to fulfill legacies in a will. In addition, you may have to set up any trusts required by the will.

Keep accurate records. It is very important to keep accurate records of everything you do. You will need to create a final accounting, which the beneficiaries must review before the distribution of the estate can be finalized. The accounting should include any distributions and expenses as well as any income earned by the estate since the deceased died.

File the final accounting with the court. Once the final accounting is approved by the beneficiaries and the court, the court will close the estate. File a final report with the court and close the estate.

All this can be a lot of work, but remember that the executor is entitled to compensation, subject to approval by the court. Keep in mind that the compensation is counted as income, so you will need to declare it on your income taxes.

Should Your Parents Move In?

More and more families are trying "multigenerational living." Could you make it work?

Today, there are approximately 4 million so called multigenerational American households, a number that has jumped 38% since 1990, according to the most recent analysis by the U.S. Census Bureau.

“The national trend is for families to stay connected or reconnect instead of dispersing all over the country," says John L. Graham, co author with sister Sharon Niederhaus of Together Again: A Creative Guide to Successful Multigenerational Living. Why the surge? Among the factors, Graham says, is a combination of rising life expectancies and dwindling pensions.

Although some may blanch at the idea of living with parents or in laws many are finding that living in tandem has it pluses, financially and emotionally. Older and younger generations can help care for one another, family relationships can be strengthened, and living costs can be shared.

Still, it's not for everyone. Many people can't spend a weekend with their families, let alone the latter part of their lives. Positive family dynamics are key to making it work. Before you make any move, here are some guidelines for living under the same roof, or as neighbors:

Vacation together first to see if close proximity drives you crazy or fuels your excitement about a permanent arrangement.

Address legal and financial issues upfront, and put everything in writing. Call a professional if you foresee obstacles: for example, whether Grandma's new guesthouse should be part of your siblings' inheritance.

Create ground rules early on. If Grandma lives next door, decide if she will call first or just knock when visiting. And lay out acceptable guidelines when it comes to the kids. Junk food was fine when she visited a few times a year, but it's not OK every day. And don't assume that grandparents are built in babysitters or that adult children will be on call taxi drivers. Communicate clearly and often.

Finally, discuss when to stop living together. Eventually, aging grandparents may need more assistance than you're capable of providing. Talk about what you will do if that time comes. Consider these housing tips before inviting your parents to move in:

Do your homework. If you want to build a separate house on your property, research your city's regulations. In some communities, you must designate a second house as a guesthouse so that your property isn't considered a neighborhood.

Think ahead. Consider what you want your home to look like in 10 years. When making changes to accommodate your expanded family, incorporate universal designs that could work for a wheelchair or a baby carriage.

Be creative. Often, you can close off a hallway with a door, transform a basement into a livable apartment with a kitchen, make a bedroom out of a living room, or convert a ground floor window into an entryway.

Divide to unite. If possible, create separate entrances and kitchens.

Real Estate and Mortgages

The good news in early January, 2008 when the stock market was in freefall someone with good credit could get a 30 year conventional mortgage with no points at 5.5%. The bad news is that rate lasted for about 2 days. The almost as good news is that rates are still low (around 6% for the same borrower and the same loan).

People with adjustable rates should still try to refinance into fixed rate products if they can

Do not sell your house now unless you have to.

In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.

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Robert Slutsky, Esq. has been practicing Elder Law for 15 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsky@comcast.net or the website at www.slutskyelderlaw.com.

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