Over the 25 years or so that I have been practicing and serving families, one of the crucial points that has surfaced time and again with clients is one that tends to occur after a spouse or family member has passed away, and they seek out our help. Quite understandably, most people have little or no experience in settling an estate and essentially do not know what needs to be done. There are a myriad of actions to be accomplished, each one of them important, and no one knows in what order tasks need to be completed, let alone how to weave through the legal dynamics. So what can we do to help?
About 10 years ago, I finally grew so frustrated with not being able to help several of my client families settle estate matters after a death that I decided I was going to solve the matter myself. I went back through all of my estate planning books to seek out as many action items as I could locate. In addition, I went through dozens of other legal and financial websites to gain as much knowledge as I could. The problem was not in locating information on estate settling but rather not to drown in the vastness of it. Ultimately, I realized that my task was to consolidate and distill as much information as possible into a short and clear format that we could share. The result was a composition of knowledge written in simple English that went through peer review multiple times to create a master end-of-life checklist.
The “Checklist: After a Death Occurs” was constructed to assist our clients and their families so they could understand most of the basic estate settling matters that must be pursued after a loved one has passed. The document is arranged in a priority-driven format, so from top to bottom, front to back, the most important estate marshalling activities are listed first. The current iteration is about six pages long and contains an additional short checklist at the end for a surviving spouse.
There is also a third checklist that we created in addition to these main two. The third list is a pre-mortem checklist for someone who is ailing or terminally ill, designed to assist family members with estate matter topics while the individual is still alive. We hope these tools will be useful to you and your family, and we would love to hear back if they help.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.
At Merriman, we partner with our clients to ensure no stone goes unturned with respect to their complete Wealth Management plan. One of the more complicated issues clients face is crafting and updating their estate plans.
This is not surprising as estate planning preparation and upkeep come with difficult questions—both qualitative and quantitative. The burden of these questions can often drive folks to put off the discussion and leave their plan vulnerable. The purpose of this brief post is to let you know that it does not have to be so difficult.
This article serves as a starting point to initiate the estate planning discussion. It is a discussion of the various estate planning roles you need to fulfill. Like most things, having a process and a plan will lead to peace of mind and planned success.
Let’s start with the various roles that need to be filled:
Financial Power of Attorney (POA)
One commonality for all these roles is proximity. If you can find someone close, that is a prudent solution. For example, in selecting a guardian for your children, it is best they are local to avoid changing schools, establishing new friends, etc. Similarly, if there is property to sell in your estate, it is best to have a local executor, as opposed to having someone across the country who is unfamiliar with the local scene and would have to travel extensively to manage the estate.
A Guardian is someone who looks after and is legally responsible for your children until they are adults. This person should embody all the traits you would want in someone who will take care of your kids in the event you are no longer around. Often, this is a family member with close proximity (as outlined above). Keeping your kids in their current environment is so important, especially when they are already trying to deal with your absence.
A Trustee is the person who has control or powers of administration over the trust assets in your estate. The trust assets do NOT belong to the Trustee. Rather, the Trustee is safeguarding the assets per the terms of the trust and for the trust benefactors.
The role of Executor “triggers” if one or both spouses pass away. This person’s job is to fulfill all of the requests and wishes as outlined in your will. This person should have high financial competence and a good understanding of what you own and how you want your assets distributed. Technically, they will follow the wishes as outlined in your estate plan. However, we advise clients to draft a less formal letter of instruction to confirm your wishes are carried out as precisely as possible.
The next two items are in effect during your lifetime. A Financial POA grants that person the ability to make financial decisions on your behalf if/when you no longer have the ability to do so of your own accord. A Medical POA functions the same but is related to medical decisions. Both of these roles should be set up with your initial estate plan.
If you have already crafted your estate plan, take a few minutes to consider who is currently filling these roles. Are they still the right person for the job? If not, who is better suited? If changes are required, let your estate planning attorney know and get to work on updating your documents. If you have yet to complete your estate plan, consider who would best serve in the aforementioned roles. If you already have an estate planning attorney, get to work on crafting your plan. If not, let us know, and we can connect you with one.
Another tool you can use to begin to formulate your plan is our “After Death Occurs” checklist. While this outlines a post-mortem list, it also serves as a great tool to get you thinking about the roles described above.
At Merriman, our goal is to ensure clients’ plans are buttoned up from top to bottom. While we emphasize financial planning and investment portfolio management, we also partner with our clients to ensure they are covered in the areas of estate planning, taxes, and insurance. Ensuring your estate plan is taken care of will provide peace of mind on your journey to Investing Wisely to Live Fully.
For additional reading on this topic, check out our ebook The Transparent Legacy for advice on conversations you must have with your loved ones before it’s too late.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.”
It’s true what people say about having kids: the days are long, but the years are short. Sometimes our busy, ever-changing lives leave us wondering: “Where did the time go?” When it’s time to send your child off to college, you may feel sentimental, but there’s no need to feel unprepared. With so many options to save for your child’s future, you’ll be able to find the one for you.
Invest in a 529 Plan
When saving for your child’s future, 529 Plans are a popular choice. These savings accounts offer tax advantages similar to a Roth IRA. When your child is ready to go to college, you can make tax-free withdrawals to pay for qualified education expenses.
You can open a 529 plan as soon as your child is born. This allows the money to grow over a longer period of time.
The funds apply to both undergraduate and graduate programs at any two- or four-year institution.
They allow up to $300,000 in lifetime contributions.
If your child doesn’t go to college, you can change the beneficiary.
Some K–12 expenses may qualify under the 529 plan, such as tuition and fees.
Any funds not spent on qualifying expenses are subject to income tax and a 10% tax penalty.
You are required to report withdrawals on the FAFSA if the account is owned by someone other than the parent. This could negatively impact the student’s eligibility for financial aid.
Consider a Roth IRA
Roth IRAs are typically used for retirement savings, but you can also use them to save for your child’s future. You can’t take distributions on Roth IRAs penalty free before 59½. However, any account open for at least five years can be used for education, so make sure you open the account no later than your child’s 8th grade year.
Distributions are tax free and penalty free as long as they are used for qualifying education expenses.
After graduation, the account can still be repurposed as your retirement account.
The value of the retirement account is not included in a FAFSA application.
Roth IRAs have annual contribution limits of $6,000. An average year at a university can cost upwards of $20,000. So, it would be difficult to save enough money with a Roth IRA account unless you start early.
Remember, any withdrawals from a Roth IRA are considered income, which will be reported on a future FAFSA. This might impact your child’s chances for financial aid.
Savings can be used for primary and secondary education as well as college.
There is more flexibility in what is considered a “qualifying expense.” Parents can use the funds to pay for school uniforms, tutoring, and other K–12 programs.
Annual contribution limits are set at $2,000 per person, per year.
You also cannot make contributions after age 18. All funds must be spent before the beneficiary turns 30.
There are also income limits on who can contribute to a Coverdell ESA account.
Custodial accounts are another great way to save for your child’s future. With a Custodial UGMA/UTMA, you have the ability to transfer assets to your minor children and enjoy tax breaks.
When the assets are transferred, a portion of the value of the assets is taxed at the child’s tax rate, and the rest is taxed at the parent’s tax rate.
Since this is only a transfer of assets, there are no restrictions on how the money should be spent, other than the benefit of the child.
A custodial account allows any asset (not just cash), such as stocks, bonds, art, and real estate, to be transferred to a minor.
Since the assets are owned by the child, parents have less control over how the money is spent.
These accounts will have to be reported on a FAFSA, so there is a chance for them to negatively impact financial aid.
Savings bonds are issued by the US government and can be purchased from a financial broker or directly from the US Treasury. They may be a good option for more conservative investors, at least for a portion of your investment strategy.
Bonds are low-/no-risk investments since they are backed by the federal government.
If you invest in Series EE or Series I bonds, interest earned is tax free when funds are used for qualified education expenses.
Incredibly low rate of return. You’ll need a backup savings plan.
When it comes to financial planning, you’ll also want to consider making sure you have your retirement accounts set up first. A certified financial planner will help you decide which account is the best option when saving for your child’s future. He or she can monitor all of your accounts and suggest any changes needed to secure a bright financial future for you and your family.
Written Exclusively for Merriman.com by Lyle Solomon
Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of theState Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for theOak View Law Group in Los Altos, California.
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and it is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. . Facts presented have been obtained from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.
One of the great things I get to experience as a financial advisor is that many of my clients have achieved such good financial security that they are able to help their relatives financially. One of the best examples is grandparents wanting to help their grandchildren. The usual starting place for grandparents is helping to build an education nest egg, usually in a 529 plan.
When their grandchildren get older, my clients will often pose the question of how to help them out without just giving them money directly. Below is a typical conversation. Loving parents can be interchanged with loving grandparents with the same effect.
Client: Eric, our wonderful 20-year-old granddaughter just finished her second year of college and is doing very well. We are so proud of her. We want to help put her in a better financial position for after college, but her parents do not want us to spoil her. Is there anything we can do for her?
Eric: Does she have a summer job or work while at school?
Client: Yes, she is working at a local nursery tending the plants over the summer. She loves the job as she is a biology major.
Eric: Great! One way you could help her is to fund a Roth IRA for her.
Client: Really?! She can have a Roth IRA?
Eric: Yes. Since she has earned income, she can contribute to a Roth IRA.
Client: How much can she contribute?
Eric: She can contribute up to the amount of income she makes with a maximum of $6,000. Let’s say she makes $2,500 over the summer; she could contribute that amount to a Roth IRA.
Client: That is very interesting. Why would she want a Roth IRA?
Eric: There are a lot of reasons, but the big one is that she will have an account that will grow tax free; and by starting at such a young age, she will have extra years for it to grow until her retirement.
Client: I don’t think many 20-year-old kids these days are really that interested in retirement accounts.
Eric: That’s true, but I like to show the miracle that is compound interest and how small deposits made now can turn into large amounts of money in 45 years at retirement. If your granddaughter were to invest $3,000 for the next five years and earn 7% interest until age 65, she would have over $387,000.
Client: That’s amazing! But still, thinking about retirement is a difficult concept for young people.
Eric: True. Another great aspect of a Roth IRA is that it can help with a first-time purchase of a home. There are certain rules in place to allow contributions, including up to an additional $10,000 of a Roth, to be used for the first-time purchase of a home. A Roth account has a great amount of flexibility.
Client: That is wonderful!
Eric: I have helped many grandparents with making contributions to their grandchildren’s Roth IRAs. Some grandparents will match the contributions their grandchild makes to their Roth IRA to incentivize them to save money. Others will just make the entire contribution as a reward for working a part-time job. Either way, the grandchild will benefit. It ends up being a wonderful legacy that can be used by the grandchild to further their financial situation. Also, it can teach them the benefits of saving money. When they start careers down the road and can fund their 401k, they will have already experienced the benefits, and the education and experience can put them on a great path to financial security. I have received rave reviews from people who have put one of these plans into motion and have seen the benefits.
Client: What about her brother who is 16 years old and working at a grocery store?
Eric: Even better—more time to grow, although an adult will have to act as custodian on the Roth IRA until the age of majority.
Client: How do we get started?
Talk to your Merriman Wealth Advisor if you are interested in looking at Roth IRA options for your children or grandchildren. We can help with the custodial set up and investment recommendations.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.
As a dad and a financial advisor, I find myself constantly trying to explain how money works. In my opinion; budgeting, investing, and creating income are topics that should be equally important to my 8-year-old daughter as they are to a 50-year-old client. Unfortunately, for whatever reason, access to financial literacy tools for money management are not a mainstream part of our educational system. With more and more resources available at our fingertips, it is my hope that the next generation will grow up already knowing how to save and plan for retirement way before they get their first job.
Take my daughter for example. Last summer, my then 7-year-old asked me what I do for work (I’m a financial planner). It turns out, her friends were all talking about what their parents did for a living, so naturally my daughter wanted to join in on the conversation. Up until this point I had always told her that I helped people get ready for retirement, which I summed up as a “summer vacation that never ends”. She didn’t give it much thought until other kids started talking about how their parents owned a restaurant, helped people get better as a doctor, or worked on getting packages delivered faster as an engineer at Amazon. When my daughter told her friends that her dad helped people get ready for a never-ending summer break, she got a lot of “Huh?” faces.
I then decided to have a more in-depth dialogue with my daughter around what I actually did. The basics of how investing works seemed like a good place to start. So, using the tools we had at our disposal (crayons, blank paper and a 7-year-old’s imagination) I set out to explain what a financial advisor does. It started with a simplistic explanation of what the stock market is, and by the end of our first conversation, my daughter had learned the rhyme: “Stocks make you an owner, and bonds make you a loaner.”
This was progress! After a few more arts-and-crafts sessions, we had created a story explaining how investing in the stock market works, and it was starting to resemble a book. At this moment, I told my daughter we should try to publish our book so other children could learn about investing, and she turned to me and said, “Dad, you can’t just publish a book. Only authors can do that!” Challenge accepted!
Fast-forward six months, and our rough draft was polished into a finished book. Today, you can find “Eddie and Hoppers Explain Investing in the Sock Market” on Amazon! As a dad and a co-author, I’m very proud of my daughter for helping me create this story and for helping me make the book a reality.
After the book came out, I figured my daughter would stay interested in financial literacy, but I should have known asset allocation and risk management weren’t exactly the most exciting topics for an 8-year-old. I had to find a way to introduce financial topics into everyday life.
Money management for a second-grader is pretty simple. My daughter’s main income sources are: A monthly allowance, gifts from relatives for birthdays/holidays, plus she had a lemonade stand last summer that netted a respectable profit. The problem wasn’t earning the money, the problem was keeping track of it and then remembering how much she had when she wanted to buy something.
So, as a dad/financial advisor, I did what comes natural… I created a spreadsheet to track everything. Turns out, spreadsheets are also pretty low on the list of things that my daughter finds interesting. This is when I had my a-ha moment. I did a quick internet search and found a lot of options for tracking how much a kid earns, spends and saves. Last summer when I was trying to teach my daughter what I did for a living, I did a similar search for children’s books that discuss financial topics and found very little. That’s what inspired me to write our book. Thankfully, this time I was able to find what I was looking for when searching for an app that could help me teach my daughter about budgeting.
Ultimately, I decided to use Guardian Savings with my daughter because it has the right balance of simplicity and effectiveness. Guardian Savings allows my wife and I to be ‘The Bank of Mom and Dad’. My daughter finally got organized, and she consolidated all her savings from the half-dozen wallets, piggy banks and secret hiding spots, so she could make her first deposit. More importantly, when we’re at the store or shopping online and my daughter finds something that she must have, we’re able to open the app and let her see the impact of making an impulsive purchase. Plus, as the parent, I get to decide what interest rate my daughter will earn in her account. Not only do I get to have a conversation about what interest is, but she gets to experience the power of compound interest by seeing her savings grow each month. Talk about a powerful motivational tool!
In this day and age, the idea of teaching your child how to balance a checkbook is outdated. The next generation will live in an entirely digital world. Apps are the new checkbook, and it may be a good idea to teach your children personal finance in the same environment they will be in as adults. Already a digital native, my daughter impressed me by how fast she learned how to use the app, not to mention the principals of saving and smart spending that are encouraged throughout the interface. In a few years, I’ll be able to discuss what asset allocation is and how a Roth IRA works, but for now I’m happy that my daughter can get practice making budgeting decisions and building a strong understanding of the basics. Financial literacy has to start somewhere and the sooner that foundation can be made, the more confident a child will be when it comes to managing money as an adult.
Starting Monday, January 11 through Friday, January 29, eligible City of Tacoma employees have an opportunity to buy affordable additional long-term disability insurance coverage through the City. While this benefit may not sound too exciting, it represents essential insurance coverage that can protect your income in the unfortunate event that you become disabled.
City of Tacoma employees should sign-up and take advantage of this benefit.
Who am I? My name is Geoff, and I am a financial planner with Puget Sound-based Merriman Wealth Management, LLC. I got excited after seeing the special benefits notice my wife received as a City of Tacoma employee. I do not work for the City or the vendor, and I do not receive any personal benefit from you enrolling in this extra disability coverage. I am just passionate about helping families make the best financial decisions possible and wanted to provide additional information on a topic that can seem overly complicated or may often be overlooked.
The FAQ below illustrates just how important this additional long-term disability coverage is, whether or not you have dependents:
What is disability insurance?
This type of insurance is used to protect your income and financial livelihood in the event of an untimely illness or injury.
There are two types of disability insurance: short-term and long-term. Long-term disability coverage is the most valuable because it replaces a portion of your income starting 90 days after your disability until recovery or age 65, whichever is sooner.
Don’t I already have long-term disability coverage through the City of Tacoma?
You do. However, for most employees this basic employer-paid benefit only protects 60% of the first $1,500 in monthly pre-disability earnings. This means that if you earn $6,250 a month or $75,000 a year, you will only receive $900 a month in benefits. Will $900 a month cover your bills?
How much extra income protection will this additional benefit provide me?
Up to $4,100 of extra income per month of pre-disability earnings. Combined with the basic employer-provided benefit described above, you could receive up to $5,000 of income replacement (i.e., a total of 60% of $8,333 pre-disability earnings). The employee from question two above, earning $6,250 a month or $75,000 a year, would receive $3,750 a month in benefits, which would go much farther toward being able to cover bills.
Note:Employees earning $100,000 or more would receive the maximum benefit of $5,000 a month.
What is the difference between the 90-day and 180-day waiting period options?
This waiting period, otherwise called the elimination period, is how long you have to wait to start receiving long-term disability payments from the insurance carrier. Premiums are naturally higher for the 90-day waiting period option as you will start receiving benefits earlier. The difference in premium for choosing the 90-day waiting period over the 180-day waiting period is offset by starting to receive income 3 months earlier.
How much does this benefit cost and how is it paid?
The benefit costs 0.303% of pre-disability earnings up to the pre-disability earnings cap for the 90-day waiting period option. This means the employee earning $75,000 would pay an extra $18.94 per month or $227.28 a year (i.e., 0.303% X $6,250 pre-disability earnings). Employees earning $100,000 or more a year would pay an extra $25.25 per month or $303 a year. This extra benefit far outweighs the additional premium cost.
Note: This premium cost would be deducted via payroll as a post-tax cost.
What happens if I stop working at the City of Tacoma?
Generally, you cannot keep group disability benefits like this one offered through the City of Tacoma if you leave (i.e., not portable).
If I do become disabled, how does the benefit work? How long would the benefit last?
In the unfortunate event of an illness or injury that qualifies for disability insurance benefits, you would file a claim with the disability insurance carrier that includes medical evidence of your disability. If approved, you would start receiving the above-described benefits after the waiting period until recovering from the disability or age 65, whichever comes first.
Would the benefits received from this extra policy be taxable?
Because the premium is paid post-tax rather than pre-tax where you receive a tax deduction for the premium cost, the disability payment you would receive would be tax-free. SAID AGAIN: All of the income received from this extra long-term disability coverage would not be subject to taxation. The tax-free nature of the payments further helps replace your pre-disability income (as your pre-disability income is gross income or otherwise subject to taxes).
Note: Income received from the employer-paid basic long-term disability coverage (i.e., 60% of the first $1,500 in monthly pre-disability income) would be subject to taxation. This is because your employer pays the premiums for this benefit.
What if I earn more than $100,000 a year? Do I need additional income protection beyond this extra benefit offered by the City?
Maybe. Start by asking these questions:
Does my contribution to covering household expenses exceed $5,000 a month?
Do I expect these expenses above $5,000 a month to continue for at least another year?
Do I expect my income and expenses to increase in the future?
If you answered YES to these questions (and be conservative on this), then it makes sense to consider buying an additional individual disability policy outside of your City benefits. This is especially important for households with a single earner.
An advisor can get quotes through an insurance broker to help you make an informed decision. It is also important to evaluate this decision through the lens of your overall financial plan, taking into account all of your goals and resources.
If you have questions about how much disability insurance coverage you need to protect your income or any other financial planning topics, like whether you are on track to achieve your financial goals, feel free to contact me directly at email@example.com.
Disclosure: The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; past performance is no guarantee of future performance. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman Wealth Management unless a client service agreement is in place.