Robert M. Slutsky Associates
Newsletter
Newsletter11: February 2007
We are now getting pay back for those 70 degree temperature days in January. Much like Elder Law Mother Nature grants no free lunches and you have to pay the piper. Read on. . .
New Healthcare POA Law in Pennsylvania
Ed Rendel signed a new law regarding healthcare decisionmaking in Pennsylvania late in 2006. It became effective in late January 2007. We will do a full analysis in the next newsletter but the law is intended to codify and clarify what has been law in the past as well as provide more options for healthcare decisionmaking in the event no healthcare POA has been executed.
Revisit Your Beneficiary Designations
Many people periodically update their wills or other estate plans, but don't remember to update who will receive distributions from their retirement plans (such as IRAs and 401(k)s) upon their deaths. The following are some tips for naming a retirement plan beneficiary:
It is important to name a beneficiary. Do not assume that your retirement plan will be distributed according to your will. If you don't name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan. Some plans automatically distribute money to a spouse or children. While others may leave it to the retirement plan holder's estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary.
You may want to designate a trust as your beneficiary. If your estate is more than the current estate tax exclusion ($2 million for 2007 and 2008) and a large portion of it consists of retirement plans, it may make sense to direct that the plans be payable to a trust rather than to the surviving spouse. The trust must be properly drafted to avoid tax consequences, so consult with an attorney before doing this. If you want your money to go into a trust for your children, be sure to designate the trust as the beneficiary. If you name your children, the money will go directly to them.
If you have major life changes, be sure to keep your retirement plan updated. If you get married or have children, you may want to change your beneficiary. Also, if your spouse was your beneficiary and you get divorced, your former spouse will still be the beneficiary -- divorce does not automatically remove an ex-spouse as beneficiary. If you wish to remove a former spouse from the plan, you will have to fill out a new beneficiary designation form.
Even if you don't have big changes, you should review your beneficiary designation periodically. Your beneficiary may not be who you remembered it to be or it may be outdated. For example, if you named a charity as beneficiary, you will want to make sure the charity still exists. A Change of Beneficiary form can often be downloaded from the Web site of the firm holding the plan assets.
Are You Saving Too Much For Retirement?
Some economists are contending that many Americans could (should?) be saving less for retirement than the financial services industry's online calculators are advising them to set aside. Americans saving too much? This is a very unusual position.
In an article in The New York Times, these economists say that the ostensibly objective online calculators of firms like Fidelity and Vanguard overstate how much money someone will need in retirement by as much as double the amount actually needed.
Reports the Times: "For a middle-income couple, that could mean trading $400,000 in retirement money for about $3,000 a year more during prime working years to spend on education or home improvement."
"For a middle-class household, that’s a lot of money,” said Laurence J. Kotlikoff, a Boston University economics professor who is on the forefront of this research and is selling his own retirement calculator.
The dispute revolves around "rules of thumb" used by the financial institutions' calculators, such as what percentage of current income someone will need in retirement and what fraction of assets a retiree should spend each year. Kotlikoff says that calculators need to take into account how people actually spend their income while working to determine how much they will need when retired.
“There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.” “Even the most casual reading of the popular press will have you convinced that Americans are heading like lemmings over a cliff,” said John Karl Scholz, an economics professor at the University of Wisconsin at Madison. “Going into this, I had no idea that we’d find any results anything like this.”
Some economists point out that financial firms have an interest in persuading people to save much more than they need because the companies earn fees on managing their money. But there are others who believe it is dangerous to suggest to Americans who have a negative national savings rate -- that they may be able to get by with saving less. John Rother, policy director with AARP, says the economists are “not doing anyone a service because of the tremendous amount of effort it takes to get people to save.”
With a negative national savings rate, increasing debt problems for the average American and huge potential risks as more and more Baby Boomers retire, this argument seems a bit off the wall. What it does is provide another issue to think about in their savings plans: What is important to you? Is the money you are spending now and the pleasure you get from it worth working another 10 years to make up for the lost savings and nest egg in retirement (or as a fall back if there is a health or life change)? Do you want to leave a legacy to your children or are you OK saving enough to live in retirement with possibly less comfort and the likelihood that the children will get no money but great memories? All are important considerations when planning your retirement and ones the other retirement calculators omit.
Updates on Reverse Mortgages
Reverse mortgages are gaining in popularity, but if you are considering getting one, you might want to wait a little while. Better deals may soon be available as competition between companies entering the market heats up.
A reverse mortgage is exactly what it sounds like—instead of paying the bank money to build up equity, you use the equity in your home to take out a loan. You must be 62 years or older to qualify for a reverse mortgage, and the loan does not have to be paid back until you sell the house or die. The loan can be used for anything, including providing money for retirement or to fix your home.
Costs for reverse mortgages have traditionally been high, but more companies are beginning to offer reverse mortgages, and the competition is driving down costs, according to an article in the Chicago Tribune. In addition, companies are offering more options, such as flexibility in payment and higher loan amounts. All the changes mean that soon there will be more options for consumers. If possible, experts suggest waiting until late 2007 or early 2008 before getting a reverse mortgage.
They Are At It Again!
Included in the more than $70 billion in Medicare and Medicaid cuts called for in President Bush’s 2008 Budget Proposal is a provision that would bar Medicaid coverage to anyone with a home valued at more than $500,000 and do away with the states' option to increase that limit.
The Deficit Reduction Act of 2005 (DRA) amended a federal law making individuals with home equity exceeding $500,000 ineligible for Medicaid (the limit does not apply to applicants who have a spouse or a minor or disabled child living in the home.) However, the DRA allowed states to increase that limit to $750,000 at their discretion, and several states, including New York and Maine, have so far chosen the upper limit. Bush’s 2008 Budget Proposal seeks to remove the state’s right to increase the home equity limit and proposes that the limit be fixed at $500,000 nationwide.
Interest Rates and the Housing Market
Rates have stabilized in the low 6% range for a 30 year no point loan.
The housing market continues to moderate. Prices have dropped more than any time in US history. In this area properties are staying on the market longer and sellers (especially new home builders) are making accommodations to move inventory.
The Federal Reserve Bank has paused raising short term interest rates. However indications that the job market is tight and other structural inflation (despite the recent drop in fuel prices) indicates there may be one or two more rate hikes in the near future and certainly little indication of a rate drop in the near future. This may be good or bad for mortgage rates depending if the markets perceive the rate hikes as stamping out inflation or as a harbinger of stronger inflation ahead.
Remember that most Home Equity Lines of Credit have an adjustable rate. You may have taken them out when rates were lower but they can skyrocket (and may already have) as rates rise. Refinancing into a fixed rate mortgage may be advisable at this time.
People who have seen their adjustable rate and negative amortization loans adjust upwards should consider refinancing NOW.
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.
And finally . . . . .
5 Reasons Not to Plan Your Estate
- You are so pleased with state and federal governments that you want them to be a significant beneficiary of your estate;
- You want to keep your heirs from wasting the money that could have been saved by planning to avoid nursing home and unnecessary estate costs;
- You enjoy the prospect of your children fighting over a vastly reduced estate that is left over because of your failure to plan;
- You want to support the legal profession by giving lawyers extra fees because you did not plan ahead;
- You hate peace of mind; who needs restful sleep anyway.
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Robert Slutsky, Esq. has been practicing Elder Law for 14 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.netor the website at www.slutskyelderlaw.com.
DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.
