Millions Bought Insurance to Cover Retirement Costs. Now They Face An Awful Choice.

BY LESLIE SCISM, WSJ.COM 

Long-term-care insurance was supposed to help pay for nursing homes, assisted living and personal aides for tens of millions of Americans when they became unable to take care of themselves.

Now, though, the industry is in financial turmoil, causing misery for many of the 7.3 million people who own a long-term-care policy, equal to about a fifth of the U.S. population at least 65 years old. Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.

“Never in our wildest imagination did we consider that the company would double the premium,” says Sally Wylie, 67, a retired learning specialist who lives on Vinalhaven Island, Maine.

In the past two years, CNA Financial Corp. has increased the annual long-term-care insurance bill for Ms. Wylie and her husband by more than 90% to $4,831. They bought the policies in 2008, which promise future benefits of as much as $268,275 per person. The Wylies are bracing for more increases.

To make their budget work, she has taken on a part-time landscaping job. The couple has delayed home maintenance, travels less and sometimes rents out their house. “We feel like we are out on a limb here, and these policies are supposed to be our safety net,” she says.

A CNA spokesman says the Chicago insurer understands rate increases “can be challenging,” but “it is important for us to take appropriate actions to ensure we can fulfill our obligations to our policyholders.”

Only a dozen or so insurers still sell the coverage, down from more than 100. General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI.

When sales of long-term-care insurance were ramping up in the 1980s and 1990s, companies thought they had found the perfect product for middle-class families —and that’s how they pitched it.

The annual premium was designed to hold steady until a claim was filed and premiums then halted, though the rates weren’t guaranteed. Many policies paid out benefits for life.

Families flocked to what seemed like affordable peace of mind that would save them from draining their lifetime savings, leaning on children or enrolling in the federal-state Medicaid program for the poor.

Long-term care often costs more than $100,000 a year a person, financial advisers say. The nationwide total exceeds $200 billion, according to analysts at LTCG, a third-party administrator of long-term-care policies.

Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected.

After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.

Long-term-care insurers barreled into the business even though their actuaries didn’t have a long record of data to draw on when setting prices. Looking back now, some executives say marketing policies on a “level premium” basis also left insurers with a disastrously slim margin of error.

“We never should have done it, and the regulators never should have allowed it,” Thomas McInerney, president and chief executive of Genworth Financial Inc. since 2013, says of the pricing strategy. “That’s crazy.”

Mr. McInerney says future policies should be sold based on the assumption that buyers could face modest rate increases as often as every year.

Long-term-care coverage often feels like a godsend to people already drawing benefits. “I would be destitute. I don’t even know if I would be alive,” says Ailene Adkins, 69. She has an autoimmune disorder and resides in an assisted-living facility in northern Virginia at the expense of Manulife Financial Corp.’s John Hancock unit.

She bought the policy in 1993 and paid slightly more than $12,000 in premiums before filing her claim. John Hancock has paid $1.2 million for her care since 2001. In 2017, long-term care insurers spent $9.2 billion on 295,000 policyholders, according to the American Association for Long-Term Care Insurance, a trade group for insurance agents.

Fewer than 100,000 long-term-care insurance policies were sold in the U.S. in 2016, and sales fell to about 34,000 in the first half of 2017, the industry-funded research firm Limra says. Both those totals are the lowest in more than 25 years. The business peaked in 2002 with about 750,000 sales.

The latest policies typically cover less and cost more. According to the insurance agents’ trade group, a 60-year-old couple can expect to spend about $3,490 in combined annual premium for a typical policy that starts out with a maximum payout of $164,050 per person and then grows 3% a year to $333,000 when the couple is 85.

Buyers of so-called hybrid life insurance or annuities can use proceeds for long-term care instead of a death benefit. But such products are often even costlier than traditional long-term care policies.

Few Americans are wealthy enough to foot their own nursing-home bills. The Medicare health insurance program for older people pays for nursing-home stays only for a limited period after hospitalization.

Long-term-care insurance benefits generally start flowing when one of two conditions is met: The policyholder must be unable to perform two out of six basic “activities of daily living,” such as bathing and dressing, or have a cognitive impairment requiring “substantial supervision.” Dementia and Alzheimer’s diseases are especially common causes of policy claims.

Advisers who answer phones at A Place for Mom, a business based in Seattle that provides referrals and is paid by senior-living communities, hear the despair of many families who lack insurance coverage.

“I would listen to families in chaos, families trying to find the money…and all the money is gone or not enough,” says Carole Starr, who worked there from 2013 to 2015. She put down her headset and sobbed after some calls.

Debra Wilber applied for a long-term care policy in November. Her parents didn’t have one because it was too expensive. She helps her father, a retired funeral-home director in New Jersey, care for her mother, a former executive assistant who has Parkinson’s disease and dementia.

Her parents, both 79 years old, “worked hard and live in a nice house in a nice town, and now we are facing the application for Medicaid,” says Ms. Wilber, 55. “I’ll be damned if I will go through what they are having to go through.”

When the business was being launched, actuaries mined data that included the federal government’s National Nursing Home Survey. The information was used to create tables with projections of the rates at which people would become infirm and how long they would require care, says Vincent Bodnar, an actuary in the 1990s at a consulting firm.

The Society of Actuaries, a professional group, ran education sessions about the intricacies of pricing long-term-care policies. Insurance executives recall being prodded by their own sales forces to keep rates low. State regulators have said they didn’t inspect assumptions behind the prices rigorously enough.

It turned out that nearly everyone underestimated how long policyholders would live and claims would last. For example, actuaries, insurers and regulators didn’t anticipate a proliferation of assisted-living facilities. And they assumed families would do whatever they could to avoid moving loved ones into nursing homes, holding down policy claims.

By the late 1990s, assisted-living facilities were widely popular. Especially at well-run ones, staff members looked after policyholders so well that they lived years longer than actuaries had projected.

Residents “are taking their medications; they are not falling,” says Mr. Bodnar, now a senior executive at Genworth.

Another flawed assumption was that about 5% of policies on average would lapse annually. Actual results have been very different. Just 1% or so of policies lapsed in the average year, actuaries and executives say.

Actuaries now say they realize they didn’t bake into their original estimates the possibility that many people buying the policies were unusually meticulous planners who intended to always pay their premiums. Those buyers might also have carefully looked after their health and diet, enhancing the chances they would live long.

The business’s dire condition also is a consequence of lower interest rates, especially since 2008. Many insurers assumed annual earnings of about 7% on customer premiums, which are invested until needed to pay claims. The net yield for U.S. life insurers’ overall portfolios is down more than 20% since 2007 and was an estimated 4.6% last year, according to ratings firm A.M. Best Co.

To overcome such miscalculations, Genworth ’s Mr. McInerney says he spends half his time talking to state regulators in efforts to win approval for rate increases on about 800,000 older policies. Genworth has 1.2 million long-term-care insurance policies outstanding.

“The state capital buildings are all beautiful in their own way,” he says about his visits. In the majority of states so far, cumulative premium increases have ranged from 50% to 150%, and more are needed, according to Genworth.

Credit Suisse analysts tallied more than 4,500 rate-increase requests nationwide from 2009 to early 2017 by 16 once-big sellers of long-term-care insurance. The proposed increases affected hundreds of thousands of policyholders. Many of the approved requests topped 50%.

Harriet Fisher, a former teacher and real-estate agent in Maryland, decided to reduce the maximum payout from her John Hancock policy. After the insurer said it would increase her premium by a double-digit percentage, she “stewed over” what to do but decided she didn’t want to pay more, she says.

She says she doesn’t recall the agent warning her when she was buying the policy about a decade ago that a large increase could occur. John Hancock declined to comment.

Most states reluctantly allow at least some portion of the rate increases sought by insurers to go through. Former Pennsylvania insurance commissioner Teresa Miller says regulators try to balance the financial health of insurers against struggling policyholders who often are “just trying to figure out how to pay their bills every month.”

Last year, a state-court judge in Pennsylvania approved the liquidation of two long-term-care insurance units of Penn Treaty American Corp., based in Allentown, Pa., and known for its relatively low rates.

The judge blasted regulators for not granting rate increases sought by Penn Treaty years before its collapse. The two long-term-care insurance units had a projected gap of $3.4 billion between their assets and claims liabilities.

Penn Treaty has about 67,000 long-term-care policies across the U.S. Statutes in most states limit payments to policyholders of failed long-term-care insurers to $300,000.

Leaton Williams III and his wife, Jane, have paid $90,000 in premiums on the Penn Treaty policies they bought about 20 years ago while in their 50s. The coverage included lifetime benefits.

Now they will get no more than $300,000 a person, the cap by North Carolina’s guaranty association. Mr. Williams, a retired federal employee, says his wife was recently diagnosed with dementia.

Fear of such an illness was “the absolute reason that we went with long-term care, and now we’re kind of stuck,” he says.

Few companies were hit as hard as Genworth . Long a top seller of long-term-care policies, the company’s life-insurance units were downgraded below investment grade in 2016. Its losses on long-term-care policies total about $2 billion and are a reason why Genworth , of Richmond, Va., agreed in late 2016 to sell itself to a Chinese conglomerate.

Terms of the $2.7 billion acquisition include an additional cash infusion of $1.1 billion by China Oceanwide Holdings Group Co. The Chinese company wants to use Genworth ’s expertise to bring long-term-care insurance to China. The deal is under review by an American national security panel, state regulators and other officials.

As the industry reels from its mistakes, some policyholders complain that it has nothing to lose by denying legitimate long-term-care claims. Last year, Mary “Mollie” White’s family filed a breach-of-contract lawsuit against Senior Health Insurance Co. of Pennsylvania in an Ohio state court.

The insurer, which isn’t selling new policies, had rejected a claim to pay in-home aides for Ms. White, 89, who has memory loss. The company questioned if she was incapacitated enough to draw on the benefits and followed procedures correctly when applying.

In an August settlement, Ms. White received $77,600, or about $10,000 less than she sought but more than four times as large as the company’s offer, court filings show. A lawyer for the company declined to comment.

“It was very stressful,” says Ms. White’s daughter, Ruth White. “I wouldn’t encourage others to buy.”

Interest Rates on Federal Student Loans Set to Increase for 2018-2019

Each spring, interest rates on federal student loans are reset for new loans. For the 2018-2019 academic year, rates are set to increase by more than half a percentage point for new loans made on or after July 1, 2018:

  • Direct Stafford Loans for Undergraduates (subsidized or unsubsidized) -- 5.045% (4.45% for 2017-2018)
  • Direct Stafford Loans for Graduate Students (unsubsidized only) -- 6.595% (6% for 2017-2018)
  • Direct PLUS Loans for Parents and Graduate Students -- 7.595% (7% for 2017-2018 )

With subsidized loans, the federal government (not the borrower) pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. Subsidized loans are based on financial need.

Subsidized vs. unsubsidized

What's the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

 

 

 

For Women, A Pay Gap Could Lead to a Retirement Gap

Women in the workforce generally earn less than men. While the gender pay gap is narrowing, it is still significant. The difference in wages, coupled with other factors, can lead to a shortfall in retirement savings for women.

Statistically speaking

Generally, women work fewer years and contribute less toward their retirement than men, resulting in lower lifetime savings. According to the U.S. Department of Labor:

  • 56.7% of women work at gainful employment, which accounts for 46.8% of the labor force
  • The median annual earnings for women is $39,621 — 21.4% less than the median annual earnings for men
  • Women are more likely to work in part-time jobs that don't qualify for a retirement plan
  • Of the 63 million working women between the ages of 21 and 64, just 44% participate in a retirement plan
  • Working women are more likely than men to interrupt their careers to take care of family members
  • On average, a woman retiring at age 65 can expect to live another 20 years, two years longer than a man of the same age

All else being equal, these factors mean women are more likely than men to face a retirement income shortfall. If you do find yourself facing a potential shortfall, here are some options to consider.

Plan now

Estimate how much income you'll need. Find out how much you can expect to receive from Social Security, pension plans, and other available sources. Then set a retirement savings goal and keep track of your progress.

Save, save, save

Save as much as you can. Take full advantage of IRAs and employer-sponsored retirement plans such as 401(k)s. Any investment earnings in these plans accumulate tax deferred — or tax-free, in the case of Roth accounts. Once you reach age 50, utilize special "catch-up" rules that let you make contributions over and above the normal limits (you can contribute an extra $1,000 to IRAs, and an extra $6,000 to 401(k) plans in 2017). If your employer matches your contributions, try to contribute at least as much as necessary to get the full company match — it's free money. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty.

Delay retirement

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. By doing so, you can continue supporting yourself with a salary rather than dipping into your retirement savings. And if you delay taking Social Security benefits, your monthly payment will increase.

Think about investing more aggressively

It's not uncommon for women to invest more conservatively than men. You may want to revisit your investment choices, particularly if you're still at least 10 to 15 years from retirement. Consider whether it makes sense to be slightly more aggressive. If you're willing to accept more risk, you may be able to increase your potential return. However, there are no guarantees; as you take on more risk, your potential for loss (including the risk of loss of principal) grows as well.

Consider these common factors that can affect retirement income

When planning for your retirement, consider investment risk, inflation, taxes, and health-related expenses — factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you're not depending on your savings as a major source of income. However, these common factors can greatly affect your retirement income, so it's important to plan for them..

The HSA - A Powerful Retirement Savings Option

Over the past few years, the health savings account (HSA) has increasingly been referred to as an exceptional retirement savings option. But what exactly are HSAs, who is eligible to open them, and what makes them so great? 

What Are HSAs?

An HSA is a tax-advantaged account that can be used to pay for specific qualified medical expenses. Unlike flexible spending account (FSA) funds, which are designed to cover current out-of-pocket medical costs, HSA funds never expire and can be used to pay for health care expenses before and during retirement.

Generally, contributions to an HSA are tax deductible, the earnings accumulate tax deferred, and withdrawals are tax free as long as they’re used to pay for qualifiedexpenses. Qualified medical expenses include lab fees, prescription drugs, and dental and vision care, as well as the cost of out-of-pocket health insurance deductibles.

You may also use withdrawals from your HSAs to pay for certain insurance coverage, including:

  • Long-term care insurance (subject to specific limits and guidelines)
  • COBRA health care continuation coverage
  • Health care coverage while receiving unemployment compensation under federal or state law
  • Medicare and other health care coverage if you are 65 or older, excluding premiums for a Medicare supplemental policy such as Medigap

If you withdraw funds from an HSA and do not use the money for qualified medical expenses, the withdrawal will be subject to a 20-percent penalty, in addition to income tax. After age 65, however, distributions not used for qualified medical expenses aren’t subject to the 20-percent penalty.

In 2018, the HSA contribution limits are $6,850 for a family account and $3,450 for an individual account. If you are 55 or older you may make an additional catch-up contribution of $1,000 per tax year. Contributions to an HSA can be made for the current tax year any time prior to the tax-filing deadline of April 15.

What Are the Benefits of HSAs?

In addition to their triple-tax-advantaged status, one of the biggest benefits of HSAs is that there is no time frame during which the funds have to be used. As mentioned previously, money in FSAs must be used to cover current out-of-pocket medical costs, and funds not used in one year may expire. HSA funds, on the other hand, never expire, so they can be used to pay for health care expenses now and during retirement. As such, many financial practitioners recommend that you use current cash flow (or FSA funds) to pay for out-of-pocket expenses while maximizing contributions to an HSA and letting the funds grow tax free.

According to a 2017 study by Fidelity, a 65-year-old couple retiring in 2017 would need $275,000 to cover health care expenses throughout their retirement—a 6-percent increase over the 2016 estimate and a 70-percent increase since the study’s inception in 2002. Because the cost of health care in retirement is growing so significantly, it can be among the largest expenses retirees face. HSAs can be an ideal retirement savingsoption to prepare for those expenditures.

Who Is Eligible to Open an HSA?

In order to establish an HSA, you must be covered by an eligible high-deductible health plan (HDHP). For 2018, this is defined as a plan for which the family’s annual deductible minimum is at least $2,700 ($1,350 for an individual), and the annual out-of-pocket costs are limited to $13,300 for family coverage ($6,650 for an individual). You can confirm with your health care benefit provider whether your plan is considered an HDHP that is eligible for an HSA.

Generally, you are not eligible to contribute to an HSA if:

  • You are enrolled in Medicare.
  • You are claimed as dependents by another taxpayer.

Contributions to an HSA may be made by you or your employers. Employer contributions made through a cafeteria plan are generally not income taxable. Your contributions to an HSA are considered “above-the-line” deductions. They can be claimed without itemizing, which is particularly important given the dramatic increase in the standard deduction under the 2017 Tax Cuts and Jobs Act.

Still unsure if an HSA is right for you? Give us a call and we can help you figure it out. 

Traditional Vs. Linked-Benefit Long-Term Care Insurance: Which is Right for You?

You’ve taken the time to invest for a financially secure retirement, hoping to spend those years doing the things you enjoy most. But have you considered how an unexpected long-term care event could change your financial outlook? Unfortunately, many individuals require extended care in their later years, and the cost of an uncovered long-term care event can be significant—negatively affecting both your finances and your family.

To help protect your retirement income from potential long-term expenses, it makes sound financial sense to consider all of your insurance options. To help you determine which option may be right for you, here we’ll focus on the differences between two types of policies: traditional long-term care insurance (LTCI) and linked-benefit LTCI.

 

Traditional LTCI

·         Traditional LTCI offers a flexible plan design, giving you the ability to customize coverage based on your needs and financial situation.

·         You pay premiums every year until you make a claim or you pass away; they can be paid on a monthly, quarterly, semiannual, or annual basis.

·         These plans do not accumulate cash value.

·         Typically, there is no return-of-premium feature, or if there is, it is extremely expensive.

·         Premiums are subject to rate increases and we have seen quite a few lately.

·         The underwriting process is extensive, typically including a phone health interview and the review of medical records. The carrier may also require a face-to-face interview.

 

 Linked-benefit LTCI

·         This type of life insurance policy is also known as hybrid or asset-based LTCI.

·         A single premium is required ($50,000–$100,000 or more per person). A few carriers do offer multi-pay options.

·         Linked-benefit LTCI is designed for those individuals who have access to a large amount of cash OR cash value in an existing life insurance policy they no longer need.

·         Since all policy values are guaranteed, there will NEVER be a rate increase.

·         If long-term care is never needed, your beneficiary will receive a death benefit.

·         This type of policy has a cash value.

·         A return-of-premium feature is available if you decide you no longer need the policy.

·         Underwriting may be simplified to include only a phone health interview, or it could include a full medical review.

It’s important to keep in mind that without a long-term care plan, you will have to pay for extended care out of your existing income and assets, which could have a devastating effect on your financial situation and your ability to transfer wealth to your heirs. The right type of LTCI, on the other hand, will help cover the cost of long-term care events, give you the opportunity to choose where you will receive care (e.g., at home, in an assisted-living facility, or in a private-pay nursing facility), and preserve your assets for their intended purpose.

 

Understanding Long Term Care Insurance

 

It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).

What is long-term care?

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

 

Why you need long-term care insurance (LTCI)

Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.

 

However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

 

  • You are between the ages of 40 and 84
  • You have significant assets that you would like to protect
  • You can afford to pay the premiums now and in the future
  • You are in good health and are insurable

How does LTCI work?

Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.

 

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).

 

Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

 

Comparing LTCI policies

Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody's, and Standard & Poor's to make sure that the company is financially stable.

 

When comparing policies, you'll want to pay close attention to these common features and provisions:

 

  • Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
  • Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
  • Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
  • Optional inflation rider: Protection against inflation.
  • Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
  • Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
  • Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).
  • Premium increases: Whether or not your premiums will increase during the policy period.
  • Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
  • Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
  • Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
  • Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.

When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

 

What's it going to cost?

There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

 

What's New in the World of College Planning

The College Landscape After Tax Reform

College students and their parents dodged a major bullet with the Tax Cuts and Jobs Act of 2017. Initial drafts of the bill included the elimination of Coverdell Education Savings Accounts, the Lifetime Learning Credit, and the student loan interest deduction, along with the taxation of tuition waivers, which are used primarily by graduate students and college employees. In the end, none of these provisions made it into the final legislation. But a few other college-related items did. These changes take effect in 2018.

529 plans expanded

The new law expands the definition of 529 plan "qualified education expenses" to include K-12 tuition. Starting in 2018, annual withdrawals of up to $10,000 per student can be made from a 529 college savings plan for tuition expenses related to enrollment at a K-12 public, private, or religious school (excluding home schooling). Such withdrawals are now tax-free at the federal level.

At the state level, some states automatically update their state 529 legislation to align with federal 529 legislation, but other states will need to take legislative action to include K-12 tuition as a qualified education expense. In addition, 529 plan institutional managers will likely further refine their rules to accommodate the K-12 expansion and communicate these rules to existing account owners. Parents who are interested in making a K-12 contribution or withdrawal should understand their plan's rules and their state's tax rules.

The expansion of 529 plans may impact Coverdell Education Savings Accounts (ESAs). Coverdell ESAs let families save up to $2,000 per year for a child's K-12 or college expenses. Up until now, they were the only option for tax-advantaged K-12 savings. But now the use of Coverdell ESAs may decline as parents are likely to prefer the much higher lifetime contribution limits of 529 plans — generally $350,000 and up — over the $2,000 annual limit for Coverdell accounts. In addition, Coverdell ESA contributions can only be made for children under age 18.

Coverdell ESAs do have one important advantage over 529 plans, though: investment flexibility. Coverdell owners have a wide variety of options in terms of what investments they hold in their accounts, and may generally change investments as often as they wish. By contrast, 529 account owners can invest only in the investment portfolios offered by the plan, and they can change their existing plan investments only twice per year.

In addition, the new tax law allows 529 account owners to roll over (transfer) funds from a 529 account to an ABLE account without federal tax consequences if certain requirements are met. An ABLE account is a tax-advantaged account that can be used to save for disability-related expenses for individuals who become blind or disabled before age 26. Like 529 plans, ABLE plans allow funds to accumulate tax deferred, and withdrawals are tax-free when used for a qualified expense.

New calculation for kiddie tax

The tax reform law changes the way the "kiddie tax" is calculated. Previously, a child's unearned income over a certain amount was taxed at the parents' rate. Under the new law, a child's unearned income over a certain amount ($2,100 in 2018) will be taxed using the compressed trust and estate income tax brackets. This change may make the use of UTMA/UGMA custodial accounts less attractive as a college savings vehicle due to the reduced opportunity for tax savings.

New tax on large college endowments

The tax law creates a new 1.4% tax on the net investment income of large college endowments. Specifically, the tax applies to institutions with at least 500 tuition-paying students and endowment assets of $500,000 or more per student. Approximately 30 colleges are expected to be swept up in this net in 2018, including top-ranked larger universities and smaller elite liberal arts colleges. Some affected colleges have publicly stated that the tax will limit their ability to fund certain programs, including financial aid programs.

Loss of personal exemptions

Starting in 2018, the tax law eliminates personal exemptions, which were $4,050 in 2017 for each individual claimed on a tax return. So on their 2018 tax returns (which will be completed in 2019), parents of college students will lose an exemption for each college student they claim. However, this loss may be at least partially offset by: (1) a larger standard deduction in 2018 of $24,000 for joint filers (up from $12,700 in 2017); $12,000 for single filers (up from $6,350 in 2017); and $18,000 for heads of household (up from $9,350 in 2017); and (2) a new family tax credit of $500 in 2018 for each dependent who is not a qualifying child (i.e., under age 17), which would include a dependent college student. The income thresholds to qualify for this credit (and the child tax credit) are significantly higher: up to $400,000 adjusted gross income for joint filers and up to $200,000 for all other filers.

What happens to our stolen information after a cyber breach?

After a cyber breach, we tend to think in terms of what the victim needs to do next. Can any of the stolen data be protected after the fact? What can the victim do to secure confidential information going forward? But for a change, let’s talk about the crime from the cyber thief’s point of view. What does the crook do with our data once he or she has stolen it? 

 

The going rates on the black market

First, cyber criminals use our stolen information for individual gain, opening lines of credit with our social security numbers or draining our bank accounts. They also look to make still more money by selling our information. In fact, there’s a vast and complex underground marketplace where our stolen information is offered for sale.

The table below shows what crooks can get on the cyber black market for commonly stolen confidential data.                  

 

Type of data stolen & average price:

Social security numbers  - $30 each*

Credit card information (i.e., card numbers, expiration dates, CVV codes) - $4–$8 each*

Bundles of 100 credit cards - $150**

Physical credit cards with strip or chip data -  $12 each*

Health insurance credentials - $20 each*

Bank, PayPal, or other financial account credentials or numbers - Depends on the account balance

*Bankrate

**The Guardian   

 

On their own, stolen pieces of credit card information command relatively low prices. That’s because thieves can’t do much damage, for example, with numbers alone; they also need to have names or billing addresses associated with the numbers. So it’s no wonder that hackers look to make big scores by breaching the websites of major corporations from which they can steal thousands of pieces of information and turn a large profit by selling bundles of credit card numbers and associated data. 

Prepaid cards and gift cards. Hackers also use our account information to purchase prepaid cards. They then sell the cards on the black market—in addition to actual account information—which makes for a bigger hacker payday. Other tactics include using credit card information to buy gift cards. The crooks then purchase expensive electronics or other goods with the cards and sell them at discounted prices to people who don’t care where the products came from because they’re getting “such a great deal.”

Bank and PayPal accounts. As for the going rates on bank account or PayPal credentials, it all depends on the bank account balance. Some hacker marketplaces sell phished PayPal credentials for a price much smaller than the account balance. The buyer purchases the stolen login ID and password from the hacker for a fee and then is free to do what he or she wants with the information.

Medical ID information. Health insurance credentials are worth even more than credit card numbers on the cyber black market because thieves can use the data to wreak greater financial damage. With stolen medical ID information, a criminal can pretend that he or she is someone else and obtain a host of expensive medical services under the real customer’s name. For example, such criminals could spend beyond an actual patient’s benefit limit so that, when the patient needs medical services, he or she would have to pay for those services out of pocket.  

 

The Deep Web—where the stolen information is sold

The Deep Web is the part of the World Wide Web that is undiscoverable through basic search engines like Google or Bing. Usually only accessed through anonymous browsers and operating systems, the Deep Web masks the identity of thieves and those willing to purchase stolen information, putting these crooks completely off the radar of legal authorities. Deep Web underground markets are awash in counterfeit documents, stolen credit card data, hacker software, financial account information, and almost anything else a criminal could dream of.

 

Protecting yourself

Although anyone can be a victim of a major data breach—which makes it difficult for you to stop your information from getting out there—following some cyber security best practices can help keep your information secure even if it is stolen: 

  • Enable multifactor authentication (MFA) on your online accounts. With MFA, you’re prompted to enter an additional piece of identifying information—typically a passcode sent to your smartphone—after you submit your username and password. That way, if your password is compromised, a hacker still won’t be able to access your account without your phone and the code. (Password managers come in handy here, helping you keep all your passwords organized, so you won’t have to worry about remembering them.)
  • Enroll in identity protection services and keep close tabs on your credit reports.
  • Audit your medical and insurance statements regularly. By doing so, you at least can keep tabs of any changes. If something isn’t right, you can contact your health insurer and perhaps at least minimize any misuse of your information. 

 

Questions?

If you have any questions about the information shared here, please feel free to contact us.

How to Protect Yourself Against Identity Theft

Massive computer hacks and data breaches are now common occurrences — an unfortunate consequence of living in a digital world. Once identity thieves have your information, they can use it to gain access to your bank and credit card accounts, make unauthorized transactions in your name, and subsequently ruin your credit.

Now more than ever, it's important to safeguard yourself against identity theft. Here are some steps you can take to protect your personal and financial information.

 

Check yourself out

It's important to review your credit report at least once a year and make sure that all the information in it is correct. Every consumer is entitled to a free credit report every 12 months from each of the three reporting agencies: Equifax, Experian, and TransUnion. Besides the annual report, you may be entitled to an additional free report under certain circumstances. Visit annualcreditreport.com for more information.

If you find an error in your credit report, contact the appropriate credit reporting agency to let it know that you are disputing information on your report. The agency usually must investigate the dispute within 30 days of receiving it. Once the investigation is complete, the agency must provide you with a written result of its investigation and remove/correct any errors. You can generally file your dispute with the agency either online or by mail. However, it may be more helpful to dispute the error in writing with supportive documents, preferably by certified mail. That way you'll have a paper trail to rely on if the investigation does not resolve the disputed error. If you believe that the error is the result of identity theft, you can also file a complaint with the Federal Trade Commission at identitytheft.gov.

In addition to checking out your credit report, you should regularly review your bank and debit/credit card accounts for suspicious charges or account activity. If you discover signs of unauthorized transactions, contact the appropriate financial institution as soon as possible — early notification not only can stop the identity thief but may limit your financial liability.

As you monitor your credit report and financial accounts, keep an eye out for the following possible signs of identity theft:

  • Incorrect personal and account information on your credit report, including suspicious credit inquiries
  • Money that is missing from your bank account, no matter how small the amount
  • Missing bills or other mail from financial institutions and credit card companies

 

Consider a fraud alert and/or security freeze if necessary

If you discover that your personal and/or financial information has been exposed to identity theft, you should consider placing a fraud alert and/or security freeze on your credit report.

A fraud alert requires creditors to take extra steps to verify your identity before extending any existing credit or issuing new credit in your name. A fraud alert lasts for 90 days and can be renewed once it expires (an extended fraud alert that lasts for seven years is also available). To request a fraud alert, you only have to contact one of the three major credit reporting agencies, and the information will be passed along to the other two.

A security freeze prevents new credit and accounts from being opened in your name. Once you obtain a security freeze, creditors won't be allowed to access your credit report and therefore cannot offer new credit. This helps prevent identity thieves from applying for credit or opening fraudulent accounts in your name. Keep in mind that if you want to apply for credit with a new financial institution in the future, open a new bank account, and even apply for a job or rent an apartment, you will need to "unlock" or "thaw" the security freeze. In addition, you must contact each credit reporting agency separately to place a security freeze on your credit report.

 

Maintain strong passwords

Most of us have a large amount of personal and financial information that's readily accessible through the Internet, in most cases protected by nothing more than a username and password.

A strong password should be at least eight characters long, using a combination of lower-case letters, upper-case letters, numbers, and symbols or a random phrase. Avoid dictionary words and personal information such as your name and address. Also create a separate and unique password for each account or website you use, and try to change passwords frequently.

If you have trouble keeping track of all your password information or you want an extra level of password protection, consider using password management software. Password manager programs generate strong, unique passwords that you control through a single master password.

 

Stay one step ahead

The best way to avoid becoming the victim of identity theft is to stay one step ahead of the identity thieves. Here are some extra precautions you can take to help protect your sensitive data:

  • Consider using two-step authentication. Two-step authentication, which involves using a text or email code along with your password, provides another layer of protection for your information.
  • Think twice before clicking. Beware of emails containing links or asking for personal information. Never click on a link in an email or text unless you know the sender and have a clear idea where the link will take you.
  • Search with purpose. Typing one word into a search engine to reach a particular website is easy, but it sometimes isn't enough to reach the site you are actually looking for. Scam websites may look nearly identical to the one you are searching for. Pay attention to the URL, which will be intentionally misspelled or shortened to trick you.

  • Be careful when you shop. When shopping online, look for the secure lock symbol in the address bar and the letters https: (as opposed to http:) in the URL. Avoid using public Wi-Fi networks for shopping, as they lack secure connections.

  • Beware of robocalls. Criminals often use robocalls to collect consumers' personal information and/or conduct various scams. Newer "spoofing" technology displays fake numbers to make it look as though calls are local, rather than coming from overseas. Don't answer calls when you don't recognize the phone number. If you mistakenly pick up an unwanted robocall, just hang up.
  • Be on the lookout for tax-related identity theft. Tax-related identity theft occurs when someone uses your Social Security number to claim a fraudulent tax refund. You may not even realize you've been the victim of identity theft until you file your tax return and discover that a return has already been filed using your Social Security number, or the IRS sends you a letter indicating it has identified a suspicious return using your Social Security number. If you believe that you are the victim of tax-related identity theft, contact the Internal Revenue Service at irs.gov.

 

Because of the amount of paperwork and steps involved, fixing a credit report error can be a time-consuming and emotionally draining process. If at any time you believe your credit reporting rights have been violated, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov.

Remember that the IRS will never contact you by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media. If you get an email claiming to be from the IRS, don't respond or click any links; instead, forward it to phishing@irs.gov

Can I Refinance my Student Loans?

 

No, you can't refinance student loans.

However, if you have multiple federal student loans, federal consolidation of your loans may make your debt more manageable.

To be eligible for federal loan consolidation, you must have at least one federal student loan in grace, repayment, deferment, or default status. Once you consolidate your loans, you will have a single lender--the U.S. Department of Education--and a single monthly payment. The interest rate on a federal consolidation loan is fixed for the life of the loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next highest one-eighth of 1% and can't exceed 8.25%.

Borrowers who opt for federal loan consolidation can choose from various repayment plans to repay their new consolidation loan, including income-driven repayment plans, extended repayment, and graduated repayment. With income-driven repayment, a borrower's monthly payment is tied to his or her discretionary income and family size, with all debt being forgiven after a certain period of years. An extended repayment option allows the term for repayment to be as long as 30 years. Although this can dramatically lower your monthly payment, it can also dramatically increase the total cost of the loan. A graduated repayment option starts off with lower monthly payments but then over time, payments increase as your income hopefully increases and you are better able to afford the higher payments.

Of course, you are always free to explore other refinancing options, such as a home equity loan or a loan against a retirement plan. However, you should explore carefully the advantages and disadvantages of these options before pursuing any one of them.

Don't Wait to Ask Aging Parents These Important Questions!

It's human nature to put off complicated or emotionally heavy tasks. Talking with aging parents about their finances, health, and overall well-being might fall in this category. Many adult children would rather avoid this task, as it can create feelings of fear and loss on both sides. But this conversation — what could be the first of many — is too important to put off for long. The best time to start is when your parents are relatively healthy. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis without a roadmap.

Here are some questions to ask them that might help you get started.

Finances

  • What institutions hold your financial assets? Ask your parents to create a list of their bank, brokerage, and retirement accounts, including account numbers, name(s) on accounts, and online user names and passwords, if any. You should also know where to find their insurance policies (life, home, auto, disability, long-term care), Social Security cards, titles to their house and vehicles, outstanding loan documents, and past tax returns. If your parents have a safe-deposit box or home safe, make sure you can access the key or combination.
  • Do you need help paying monthly bills or reviewing items like credit card statements, medical receipts, or property tax bills? Do you use online bill pay for any accounts?
  • Do you currently work with any financial, legal, or tax professionals? If so, ask your parents if they want to share contact information and whether they would find it helpful if you attended meetings with them.
  • Do you have a durable power of attorney? A durable power of attorney is a legal document that allows a named individual (such as an adult child) to manage all aspects of a parent's financial life if the parent becomes disabled or incompetent.
  • Do you have a will? If so, find out where it is and who is named as executor. If the will is more than five years old, your parents may want to review it to make sure their current wishes are represented. Ask if they have any specific personal property disposition requests that they want to discuss now.
  • Are your beneficiary designations up-to-date? Beneficiary designations on your parents' insurance policies, pensions, IRAs, and investment accounts will trump any instructions in their will.
  • Do you have an overall estate plan? A trust? A living trust can be used to help manage an estate while your parents are still living. If you'd like to learn more, consult an estate planning attorney.

Health

  • What doctors do you currently see? Are you happy with the care you're getting? If your parents begin to need multiple medical specialists and/or home health services, you might consider hiring a geriatric care manager, especially if you don't live close by.
  • What medications are you currently taking? Are you able to manage various dosage instructions? Do you have any notable side effects? At what pharmacy do you get your prescriptions filled?
  • What health insurance do you have? In addition to Medicare, which starts at age 65, find out if your parents have or should consider Medigap insurance — a private policy that covers many costs not covered by Medicare. You may also want to discuss the need for long-term care insurance, which helps pay for extended custodial or nursing home care.
  • Do you have an advance medical directive? This document expresses your parents' wishes regarding life-support measures, if needed, and designates someone who will communicate with health-care professionals on their behalf. If your parents do not want heroic life-saving measures to be undertaken for them, this document is a must.

Living situation

  • Do you plan to stay in your current home for the foreseeable future, or are you considering downsizing?
  • Is there anything I can do now to make your home more comfortable and safe? This might include smaller projects such as installing hand rails and night lights in the bathroom, to larger projects such as moving the washing machine out of the basement, installing a stair lift, or moving a bedroom to the first floor.
  • Could you benefit from a weekly or monthly cleaning service?
  • Do you employ certain people or companies for home maintenance projects (e.g., heating contractor, plumber, electrician, fall cleanup)?

Memorial wishes

  • Do you want to be buried or cremated? Do you have a burial plot picked out?
  • Do you have any specific requests or wishes for your memorial service?

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act legislation has been passed by Congress and awaits the president's signature. The Act makes extensive changes that affect both individuals and businesses. Some key provisions of the Act are discussed below. Most provisions are effective for 2018. Many individual tax provisions sunset and revert to pre-existing law after 2025; the corporate tax rates provision is made permanent. Comparisons below are generally for 2018.

Individual income tax rates

Pre-existing law. There were seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

New law. There are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions sunset and revert to pre-existing law after 2025.

Income Bracket.JPG

Standard deduction, itemized deductions, and personal exemptions

Pre-existing law. In general, personal (and dependency) exemptions were available for you, your spouse, and your dependents. Personal exemptions were phased out for those with higher adjusted gross incomes.

You could generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts were available if you were blind or age 65 or older.

Itemized deductions included deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions. There was an overall limitation on itemized deductions based on the amount of your adjusted gross income.

New law. The standard deduction is significantly increased, and the additional standard deduction amounts for those over age 65 or blind are still available. The personal and dependency exemptions are no longer available.

Many itemized deductions are eliminated or restricted. The overall limitation on itemized deductions based on the amount of your adjusted gross income is eliminated.

  • The 10% of AGI floor for the deduction of medical expenses is reduced to 7.5% in 2017 and 2018 (for regular tax and alternative minimum tax).
  • The deduction for state and local taxes is limited to $10,000. An individual cannot prepay 2018 income taxes in 2017 in order to avoid the dollar limitation in 2018.
  • The deduction for mortgage interest is still available, but the benefit is reduced for some individuals, and interest on home equity loans is no longer deductible.
  • The charitable deduction is still available but modified.
  • The deduction for personal casualty losses is eliminated unless the loss is incurred in a federally declared disaster.

These provisions sunset and revert to pre-existing law after 2025.

Standard deduction, itemized deductions, and personal exemptions

Capture.JPG

Child tax credit

Pre-existing law. The maximum child tax credit was $1,000. The child tax credit was phased out if modified adjusted gross income exceeded certain amounts. If the credit exceeded the tax liability, the child tax credit was refundable up to 15% of the amount of earned income in excess of $3,000 (the earned income threshold).

New law. The maximum child tax credit is increased to $2,000. A nonrefundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of the credit is $1,400, indexed for inflation. The amount at which the credit begins to phase out is increased, and the earned income threshold is lowered to $2,500. The changes to the credit sunset and revert to pre-existing law after 2025.

child credit.JPG

Alternative minimum tax (AMT)

Under the Act, the alternative minimum tax exemptions and exemption phaseout thresholds are increased. The AMT changes sunset and revert to pre-existing law after 2025.

AMT.JPG

Kiddie tax

Instead of taxing most unearned income of children at their parents' tax rates (as under pre-existing law), the Act taxes children's unearned income using the trust and estate income tax brackets. This provision sunsets and reverts to pre-existing law after 2025.

Corporate tax rates

Under the Act, corporate income is taxed at a 21% rate. The corporate alternative minimum tax is repealed.

Special provisions for business income of individuals

Under the Act, an individual taxpayer can deduct 20% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly). The deduction is limited to the greater of (1) 50% of the W-2 wages of the taxpayer, or (2) the sum of (a) 25% of the W-2 wages of the taxpayer, plus (b) 2.5% of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $157,500 ($315,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds. This provision sunsets and reverts to pre-existing law after 2025.

Retirement plans

Under the Act, the contribution levels for retirement plans remain the same. However, the Act repeals the special rule permitting a recharacterization to unwind a Roth conversion.

Estate, gift, and generation-skipping transfer tax

The Act doubles the gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption to about $11,200,000 in 2018. This provision sunsets and reverts to pre-existing law after 2025.

Health insurance individual mandate

The Act eliminates the requirement that individuals must be covered by a health care plan that provides at least minimum essential coverage or pay a penalty tax (the individual shared responsibility payment) for failure to maintain the coverage. The provision is effective for months beginning after December 31, 2018.

Women and Money: Taking Control of Your Finances

As a woman, you have financial needs that are unique to your situation in life. Perhaps you would like to buy your first home. Maybe you need to start saving for your child's college education. Or you might be concerned about planning for retirement. Whatever your circumstances may be, it's important to have a clear understanding of your overall financial position.

That means constructing and implementing a plan. With a financial plan in place, you'll be better able to focus on your financial goals and understand what it will take to reach them. The three main steps in creating and implementing an effective financial plan involve.

  • Developing a clear picture of your current financial situation
  • Setting and prioritizing financial goals and time frames
  • Implementing appropriate saving and investment strategies

 Developing a clear picture of your current financial situation

The first step to creating and implementing a financial plan is to develop a clear picture of your current financial situation. If you don't already have one, consider establishing a budget or a spending plan. Creating a budget requires you to:

  • Identify your current monthly income and expenses
  •  Evaluate your spending habits
  • Monitor your overall spending

To develop a budget, you'll need to identify your current monthly income and expenses. Start out by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support.

Next, add up all of your expenses. If it makes it easier, you can divide your expenses into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as housing, food, transportation, and clothing. Discretionary expenses include things like entertainment, vacations, and hobbies. You'll want to be sure to include out-of-pattern expenses (e.g., holiday gifts, car maintenance) in your budget as well.

To help you stay on track with your budget:

  • Get in the habit of saving--try to make budgeting a part of your daily routine
  • Build occasional rewards into your budget
  • Examine your budget regularly and adjust/make changes as needed

Setting and prioritizing financial goals

The second step to creating and implementing a financial plan is to set and prioritize financial goals. Start out by making a list of things that you would like to achieve. It may help to separate the list into two parts: short-term financial goals and long-term financial goals.

Short-term goals may include making sure that your cash reserve is adequately funded or paying off outstanding credit card debt. As for long-term goals, you can ask yourself: Would you like to purchase a new home? Do you want to retire early? Would you like to start saving for your child's college education?

Once you have established your financial goals, you'll want to prioritize them. Setting priorities is important, since it may not be possible for you to pursue all of your goals at once. You will have to decide which of your financial goals are most important to you (e.g., sending your child to college) and which goals you may have to place on the back burner (e.g., the beachfront vacation home you've always wanted).

 

Implementing saving and investment strategies

After you have determined your financial goals, you'll want to know how much it will take to fund each goal. And if you've already started saving towards a goal, you'll want to know how much further you'll need to go.

Next, you can focus on implementing appropriate investment strategies. To help determine which investments are suitable for your financial goals, you should ask yourself the following questions:

  • What is my time horizon?
  • What is my emotional and financial tolerance for investment risk?
  • What are my liquidity needs? 

Once you've answered these questions, you'll be able to tailor your investments to help you target specific financial goals, such as retirement, education, a large purchase (e.g., home or car), starting a business, or increasing your net worth.

Managing your debt and credit

Whether it is debt from student loans, a mortgage, or credit cards, it is important to avoid the financial pitfalls that can sometimes go hand in hand with borrowing. Any sound financial plan should effectively manage both debt and credit. The following are some tips to help you manage your debt/credit:

  • Make sure that you know exactly how much you owe by keeping track of balances and interest rates
  • Develop a short-term plan to manage your payments and avoid late fees
  • Optimize your repayments by paying off high-interest debt first or take advantage of debt consolidation/refinancing

Understanding what's on your credit report

An important part of managing debt and credit is to understand the information contained in your credit report. Not only does a credit report contain information about past and present credit transactions, but it is also used by potential lenders to evaluate your creditworthiness.

What information are lenders typically looking for in a credit report? For the most part, a lender will assume that you can be trusted to make timely monthly payments against your debts in the future if you have always done so in the past. As a result, a history of late payments or bad debts will hurt your credit. Based on your track record, if your credit report indicates that you are a poor risk, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate. In addition, too many inquiries on your credit report in a short time period can make lenders suspicious.

Today, good credit is even sometimes viewed by potential employers as a prerequisite for employment--something to think about if you're in the market for a new job or plan on changing jobs in the near future.

Because a credit report affects so many different aspects of one's financial situation, it's important to establish and maintain a good credit history in your own name. You should review your credit report regularly and be sure to correct any errors on it. You're entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months. You can go to www.annualcreditreport.com for more information. 

Working with a financial professional

Although you can certainly do it alone, you may find it helpful to work with a financial professional to assist you in creating and implementing a financial plan.

A financial professional can help you accomplish the following:

  • Determine the state of your current affairs by reviewing income, assets, and liabilities
  • Develop a plan and help you identify your financial goals
  • Make recommendations about specific products/services
  • Monitor your plan
  • Adjust your plan as needed

Tip: Keep in mind that unless you authorize a financial professional to make investment choices for you, a financial professional is solely there to make financial recommendations to you. Ultimately, you have responsibility for your finances and the decisions surrounding them. There is no assurance that working with a financial professional will improve investment results.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced. 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

Being a Financial Caregiver for your Parents

What It Means to Be a Financial Caregiver for Your Parents

If you are the adult child of aging parents, you may find yourself in the position of someday having to assist them with handling their finances. Whether that time is in the near future or sometime further down the road, there are some steps you can take now to make the process a bit easier.

Mom and Dad, can we talk?

Your first step should be to get a handle on your parents' finances so you fully understand their current financial situation. The best time to do so is when your parents are relatively healthy and active. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis.

You can start by asking them some basic questions:

  • What financial institutions hold their assets (e.g., bank, brokerage, and retirement accounts)?
  • Do they work with any financial, legal, or tax advisors? If so, how often do they meet with them?
  • Do they need help paying monthly bills or assistance reviewing items like credit-card statements, medical receipts, or property tax bills?

Make sure your parents have the necessary legal documents

In order to help your parents manage their finances in the future, you'll need the legal authority to do so. This requires a durable power of attorney, which is a legal document that allows a named individual (such as an adult child) to manage all aspects of a person's financial life if he or she becomes disabled or incompetent. A durable power of attorney will allow you to handle day-to-day finances for your parents, such as signing checks, paying bills, and making financial decisions for them.

In addition to a durable power of attorney, you'll want to make sure that your parents have an advance health-care directive, also known as a health-care power of attorney or health-care proxy. An advance health-care directive will allow you to make medical decisions according to their wishes (e.g., life-support measures and who will communicate with health-care professionals on their behalf).

You'll also want to find out if your parents have a will. If so, find out where it's located and who is named as personal representative or executor. If the will was drafted a long time ago, your parents may want to review it to make sure their current wishes are represented. You should also ask if they made any dispositions or gifts of specific personal property (e.g., a family heirloom to be given to a specific individual).

Prepare a personal data record

Once you've opened the lines of communication, your next step is to prepare a personal data record that lists information you might need in the event that your parents become incapacitated or die. Here's some information that should be included:

  • Financial information: Bank, brokerage, and retirement accounts (including account numbers and online user names and passwords, if applicable); real estate holdings
  • Legal information: Wills, durable powers of attorney, advance health-care directives
  • Medical information: Health-care providers, medication, medical history
  • Insurance information: Policy numbers, company names
  • Advisor information: Names and phone numbers of any professional service providers
  • Location of other important records: Social Security cards, home and vehicle records, outstanding loan documents, past tax returns
  • Funeral and burial plans: Prepayment information, final wishes

If your parents keep some or all of these items in a safe-deposit box or home safe, make sure you can gain access. It's also a good idea to make copies of all the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.

Don't be afraid to get support and ask for advice

If you're feeling overwhelmed with the task of handling your parents' finances, don't be afraid to seek out support and advice. A variety of local and national organizations are designed to assist caregivers. If your parents' needs are significant enough, you may want to consider hiring a geriatric care manager who can help you oversee your parents' care and direct you to the right community resources. Finally, consider discussing the specifics of your situation with a professional, such as an estate planning attorney, accountant, and/or financial advisor.

A large majority of caregivers provide care for a relative (85%), with 49% caring for a parent or parent-in-law.

 

Source: Caregiving in the U.S. 2015, National Alliance for Caregiving

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

What You Can Do with a Will

A will is often the cornerstone of an estate plan. Here are five things you can do with a will.

Distribute property as you wish

Wills enable you to leave your property at your death to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose. There are some limits, however, on how you can distribute property using a will. For instance, your spouse may have certain rights with respect to your property, regardless of the provisions of your will.

Transfers through your will take the form of specific bequests (e.g., an heirloom, jewelry, furniture, or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what's left after your other transfers. It is generally a good practice to name backup beneficiaries just in case they are needed.

Note that certain property is not transferred by a will. For example, property you hold in joint tenancy or tenancy by the entirety passes to the surviving joint owner(s) at your death. Also, certain property in which you have already named a beneficiary passes to the beneficiary (e.g., life insurance, pension plans, IRAs).

Nominate a guardian for your minor children

In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children's assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.

Nominate an executor

A will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate, and distributing any remaining assets to your beneficiaries. As with naming a guardian, the probate court has final approval but will usually approve whomever you nominate.

Specify how to pay estate taxes and other expenses

The way in which estate taxes and other expenses are divided among your heirs is generally determined by state law unless you direct otherwise in your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.

Create a testamentary trust or fund a living trust

You can create a trust in your will, known as a testamentary trust, that comes into being when your will is probated. Your will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made, and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.

A living trust is a trust that you create during your lifetime. If you have a living trust, your will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pourover will because the will "pours over" your estate to your living trust.

Caveat

Generally, a will is a written document that must be executed with appropriate formalities. These may include, for example, signing the document in front of at least two witnesses. Though it is not a legal requirement, a will should generally be drafted by an attorney.

There may be costs or expenses involved with the creation of a will or trust, the probate of a will, and the operation of a trust.

The Newest Way to Beat the Password Paradox

It’s time to refresh your sense of what makes a password safe. Some of the old standards for passwords are changing, and rules you have been following for years may not be keeping your accounts secure any more. Learn the new password rules now, before the hackers break in.

Do all of your passwords contain special numbers and characters? Do you change them every 90 days? Chances are you’ve been following this password advice for many years—but it may not be keeping your accounts safe anymore.

In 2003, engineer Bill Burr authored what came to be known as the official guidance on password security published by the U.S. National Institute of Standards and Technology (NIST). In it, he suggested that users strengthen passwords by incorporating uppercase letters, numbers, and characters. Burr also recommended changing passwords frequently.

Quickly, Burr’s recommendations became the gold standard on password security. But now Bill Burr regrets the password advice in his original guide. In a recent interview with the Wall Street Journal, Burr acknowledged that his suggestions may actually have led people to use less secure passwords.

Asking people to change a password every 90 days typically results in users making a minor change, such as adding a number to the end of the existing password. That change does little to increase password security. And all the characters, numbers, uppercase letters and lowercase letters make it harder for people to remember their passwords without offering much increase in security value. Once masses of people adopted this trend, the hackers caught on and they can now break these types of passwords in a couple of days.

So what can you do to create hard-to-hack but easy-to-remember passwords?

The new password creation method

As we mention in Hack-Proof Your Life Now!, Security experts and the NIST now say stringing five random words together is the best method for password creation. Believe it or not, the password “Twins July Motor Buckle Add” would most likely take longer to hack compared to the password “C0mpu+3r45.”

Why? For one, five-word passwords tend to be longer than our old passwords. Also, choosing five words tends to create more random passwords, which add security. Password strength is determined by a factor called entropy—the amount of randomness or uncertainty your password contains.

But to truly create a strong five-word password, you shouldn’t choose the words yourself. Studies have shown that even when we think we are choosing random words, we are strongly influenced by how often that word occurs in regular conversation, as well as grammatical rules.

Security experts recommend the Diceware method to create your strong passwords.

Here, you roll a die five times to create a random number. For example, say you roll a 2, 6, 3, 1, 1. Then you do that five more times so you have five five-digit numbers, such as:

26311

14563

44452

12556

22215

Then use the 7,776-word Diceware list to match each 5-digit number to the corresponding word on the list. Using the numbers above, your password would be Frame Booth Orr Assort Cutlet—and leaving those spaces increases security.

Now you may be thinking, “I won’t remember a bunch of random words strung together—especially for multiple passwords!” It’s nearly impossible to remember unique passwords for the ever-growing number of online accounts we accumulate.

The key to remembering

That’s why you must also use a password manager. A password manager is a digital device that stores all of your username and passwords in an encrypted file on your computer and/or in “the cloud.” Your passwords are protected by one master password—the only one you need to remember.

Once you are signed into your manager with your master password, the program will autofill the username and password fields for any known website. If you visit a new site that is not yet stored, you can easily save your login credentials to your password vault. You can also easily update passwords in the manager so you can update all of your passwords usingthe Diceware method.

Some people may question the security of password managers, but those fears are unfounded. Password managers use strong encryption to secure your password files. Your passwords are so secure that if you forget your master password, not even the company can retrieve your passwords. Password managers typically cost $10-$30 annually and most allow you to access your manager and sync your passwords across your various devices, including your smartphone and tablet. Free versions exist, but typically those only work for one device and have limited features. There are many password managers to choose from and it’s best todo some research to see which program best fits your needs. Some options you may consider are Dashlane, LastPass,1Password, and KeePass.

Boost your security, relax your brain

The combination of the Diceware method and a password manager will significantly boost your account security across the Internet. Your multi-word passphrases would take millions of years for hackers to guess. And adding a password manager takes away the issue of having to remember these long passwords for your hundreds of accounts. Instead, enter your new passwords and protect them with one strong password—the only one you have to commit to memory.

© 2017 Horsesmouth, LLC. All Rights Reserved.

Medicare Open Enrollment Begins October 15th

What is the Medicare open enrollment period?

The Medicare open enrollment period is the time during which people with Medicare can make new choices and pick plans that work best for them. Each year, Medicare plans typically change what the plans cost and cover. In addition, your health-care needs may have changed over the past year. The open enrollment period is your opportunity to switch Medicare health and prescription drug plans to better suit your needs.

When does the open enrollment period start?

The Medicare open enrollment period begins on October 15 and runs through December 7. Any changes made during open enrollment are effective as of January 1, 2018.

During the open enrollment period, you can:

  •  Join a Medicare Prescription Drug (Part D) Plan
  • Switch from one Part D plan to another Part D plan
  • Drop your Part D coverage altogether
  • Switch from Original Medicare to a Medicare Advantage Plan
  • Switch from a Medicare Advantage Plan to Original Medicare
  • Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
  • Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn't offer prescription drug coverage
  • Switch from a Medicare Advantage Plan that doesn't offer prescription drug coverage to a Medicare Advantage Plan that does offer prescription drug coverage

What should you do?

Now is a good time to review your current Medicare plan. As part of the evaluation, you may want to consider several factors. For instance, are you satisfied with the coverage and level of care you're receiving with your current plan? Are your premium costs or out-of-pocket expenses too high? Has your health changed, or do you anticipate needing medical care or treatment?

Open enrollment period is the time to determine whether your current plan will cover your treatment and what your potential out-of-pocket costs may be. If your current plan doesn't meet your health-care needs or fit within your budget, you can switch to a plan that may work better for you.

What's new in 2018?

The initial deductible for Part D prescription drug plans increases by $5 to $405 in 2018. Also, most Part D plans have a temporary limit on what a particular plan will cover for prescription drugs. In 2018, this gap in coverage (also called the "donut hole") begins after you and your drug plan have spent $3,750 on covered drugs — a $50 increase over the 2017 initial coverage limit. It ends after you have spent $5,000 out-of-pocket, after which catastrophic coverage begins. However, part of the Affordable Care Act gradually closes this gap by reducing your out-of-pocket costs for prescriptions purchased in the coverage gap. In 2018, you'll pay 35% of the cost for brand-name drugs in the coverage gap (65% discount) and 44% (56% discount) of the cost for generic drugs in the coverage gap. Each succeeding year, out-of-pocket prescription drug costs in the coverage gap continue to decrease until 2020, when you'll pay 25% for covered brand-name and generic drugs in the gap.

Medicare beneficiaries who file individual tax returns with income that is greater than $85,000, and beneficiaries who file joint tax returns with income that is greater than $170,000, pay an additional monthly premium or Income-Related Monthly Adjustment Amount (IRMAA) for their Medicare Part D prescription drug plan coverage. In 2018, some of these beneficiaries will see their IRMAA increase by as much as 58%, while other beneficiaries may actually see their IRMAA drop. For more information, visit the Centers for Medicare & Medicaid Services website, CMS.gov.

Where can you get more information?

Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated. Pay attention to notices you receive from Medicare and from your plan, and take advantage of help available by calling 1-800-MEDICARE or by visiting the Medicare website, medicare.gov.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

 

Student Loan Debt: It Isn't Just for Millennials

It's no secret that today's college graduates face record amounts of debt. Approximately 68% of the graduating class of 2015 had student loan debt, with an average debt of $30,100 per borrower — a 4% increase from 2014 graduates.

A student loan debt clock at finaid.org estimates current outstanding student loan debt — including both federal and private student loans — at over $1.4 trillion. But it's not just millennials who are racking up this debt. According to the Consumer Financial Protection Bureau (CFPB), although most student loan borrowers are young adults between the ages of 18 and 39, consumers age 60 and older are the fastest-growing segment of the student loan market.2

Rise of student debt among older Americans

Between 2005 and 2015, the number of individuals age 60 and older with student loan debt quadrupled from about 700,000 to 2.8 million. The average amount of student loan debt owed by these older borrowers also increased from $12,100 to $23,500 over this period.3

The reason for this trend is twofold: Borrowers are carrying their own student loan debt later in life (27% of cases), and they are taking out loans to finance their children's and grandchildren's college education (73% of cases), either directly or by co-signing a loan with the student as the primary borrower.4 Under the federal government's Direct Stafford Loan program, the maximum amount that undergraduate students can borrow over four years is $27,000 — an amount that is often inadequate to meet the full cost of college. This limit causes many parents to turn to private student loans, which generally require a co-signer or co-borrower, who is then held responsible for repaying the loan along with the student, who is the primary borrower. The CFPB estimates that 57% of all individuals who are co-signers are age 55 and older.5

What's at stake

The increasing student loan debt burden of older Americans has serious implications for their financial security. In 2015, 37% of federal student loan borrowers age 65 and older were in default on their loans.6 Unfortunately for these individuals, federal student loans generally cannot be discharged in bankruptcy, and Uncle Sam can and will get its money — the government is authorized to withhold a portion of a borrower's tax refund or Social Security benefits to collect on the debt. (By contrast, private student loan lenders cannot intercept tax refunds or Social Security benefits to collect any amounts owed to them.)

The CFPB also found that older Americans with student loans (federal or private) have saved less for retirement and often forgo necessary medical care at a higher rate than individuals without student loans.7 It all adds up to a tough situation for older Americans, whose income stream is typically ramping down, not up, unlike their younger counterparts.

Think before you borrow

Since the majority of older Americans are incurring student loan debt to finance a child's or grandchild's college education, how much is too much to borrow? It's different for every family, but one general guideline is that a student's overall debt shouldn't be more than his or her projected annual starting salary, which in turn often depends on the student's major and job prospects. But this is just a guideline. Many variables can impact a borrower's ability to pay back loans, and many families have been burned by borrowing amounts that may have seemed reasonable at first glance but now, in reality, are not.

A recent survey found that 57% of millennials regret how much they borrowed for college.8 This doesn't mean they regretted going to college or borrowing at all, but it suggests that it would be wise to carefully consider the amount of any loans you or your child take out for college. Establish a conservative borrowing amount, and then try to borrow even less.

If the numbers don't add up, students can reduce the cost of college by choosing a less expensive school, living at home or becoming a resident assistant (RA) to save on room costs, or graduating in three years instead of four.

1 The Institute for College Access & Success, Student Debt and the Class of 2015, October 2016

2-7 Consumer Financial Protection Bureau, Snapshot of Older Consumers and Student Loan Debt, January 2017

8Journal of Financial Planning, September 2016

Why You Need an Estate Plan for Your Digital Assets

According to the Pew Research Center, 87 percent of Americans use the Internet. This means most of us maintain at least some personal and financial information online. We pay bills online, keep contact records digitally, and rarely print a photo—because it's in our online photo album. Although this digitizing of information makes it easier to store and recall, it also presents some concerns when it comes to accounting for all of these "assets" in your estate.

What are digital assets?

First, let's define digital assets. These include your online financial accounts, your personal e-mail accounts, and your Facebook, Twitter, and LinkedIn accounts. The assets may or may not have a value. For example, you might own a domain name for your small business, which would have value, but the photos you uploaded to Shutterfly have sentimental value only.

The problem with digital assets in estate planning

With traditional estate planning, you take steps to ensure that your executor or personal representative can access the information needed to gather and safeguard your assets, contact creditors, and, if necessary, oversee your business after your passing. This can be especially challenging with digital assets, however, if you do not arrange the proper authorization ahead of time.

Your executor should be able to access information on your computer's hard drive relatively easily with the help of a technician. But this may not be the case for online accounts and data stored remotely. Even if you give your usernames and passwords to your executor or a family member, he or she may run up against service-agreement limitations that deny him or her the ability to access, manage, distribute, copy, delete, or even close accounts. Further, "unauthorized use" laws can lead to legal issues for your representatives if they are deemed to have exceeded permissible access levels.

New legal statute may ease access concerns

Fortunately, lawmakers are starting to pay attention. A new statute, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), addresses whether and how a family member, executor, attorney-in-fact, or trustee can access digital assets. Sixteen states have already adopted RUFADAA: Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Indiana, Maryland, Michigan, Minnesota, Nebraska, Oregon, Tennessee, Washington, Wisconsin, and Wyoming. The hope is that more will soon follow.

RUFADAA is different from state laws governing estate administration, powers of attorney, and trusts. It does not presume that family members and fiduciaries can access digital assets because of their relationship with the account owner. Instead, the statute requires express authorization before anyone—family member or fiduciary—may access the content of a digital asset.

So what can you do now to start organizing your digital assets?

  • Decide how you want your online life handled after your death. Facebook, for example, allows a personal administrator or immediate family member to close the account or "memorialize" it. This may help ease your loved ones' pain during a time of grief. Consider creating instructions for a family member to do this, or something similar, on your social media accounts. You may assign different roles to different people. For example, you may decide to appoint one person as your executor and another to have access to certain social media accounts.
  • Create a comprehensive inventory of your digital assets. Be sure to store this inventory somewhere other than an e-mail account. Some e-mail providers, like Yahoo!, will close an account that has been inactive for several months and delete the e-mail history. Even if an executor promptly contacts the e-mail provider, he or she may not be able to copy important e-mails or contact lists before the account is deactivated. Back up important information elsewhere and update it regularly.
  • Don't assume your digital estate has no value. Some frequent flyer points are transferable after your death. Credit cards with cash-back feature stores are generally redeemable after your death, but only if they are claimed. Internet domain names are potentially sellable, and blogs are a form of intellectual property.
  • Consider investing in a password manager. Sites such as LastPass and Dashlane maintain a record of your online accounts and passwords in a digital safe. You can set them up to transfer the passwords to your representative at a specific event, such as your death or incapacity.

How can you ensure that fiduciaries and family members have access to your assets?  

  • Ask your attorney about inserting provisions into your will that grant your executor the authority to access your non-financial digital assets and accounts.
  • Talk to your attorney about adding language to grant your power-of-attorney agent authority to act on your behalf with your digital accounts and assets.
  • If you have assets in a trust, ask your attorney about the possibility of amending the trust agreement with language that will allow the trustee access to digital assets and accounts.
  • Check online service providers' policies on death or disability. Each provider has its own access-authorization tools, and the terms vary, so be sure you understand who can and can't access information. If the provider allows access to your executor, trustee, or power-of-attorney agent, inform these individuals where important information is stored.

One final note: Be careful if you include provisions covering digital assets in your estate planning documents and complete a provider's access-authorization tool. The provisions in the documents should match the information you give in the provider's access-authorization tool. If they don't, the provider likely will follow the instructions you gave in its access tool and not your estate plan.

© 2017 Commonwealth Financial Network®

Marriage and Money: 6 Tips for Same Sex Couples

U.S. Supreme Court decisions have given same-sex married couples the same rights and privileges as opposite-sex married couples. If you're married or on your way to the altar, you'll want to sort through the financial implications and potential opportunities you have.

1. Evaluate your employee benefits

Once you're married, you may want to coordinate workplace benefits with your spouse. Start by contacting your employer's human resource department in order to evaluate the benefits that are available to you. For example, you may want to enroll your spouse in your health and dental plans, or cancel your own coverage if you opt for coverage under your spouse's plan. If your employer offers voluntary group life insurance coverage for your spouse, you may now want to consider purchasing it. You may also be able to help cover your spouse's health insurance expenses through contributions to a flexible spending account or health savings account.

Normally you can make benefit changes only during your employer's annual open enrollment period, but under IRS guidelines there's an exception for certain qualifying events, including marriage. However, you have a limited window (30 days) to make eligible coverage changes. If you don't make these changes within this period, you'll need to wait until the next open enrollment season.

Your company's human resource department can provide guidance about other information you'll need to update. For example, you may need to report name and address changes, and update contact information and beneficiary designations for your life insurance, retirement plan, and other benefit plans.

2. Take a look at your income taxes

Since tax year 2013 (after the Supreme Court's Windsor decision), all same-sex married couples have been required to choose either "married filing jointly" or "married filing separately" when filing their federal income tax returns. But until the Obergefell decision in June 2015, states that did not recognize the marriages of same-sex couples did not allow them to file their state income tax returns jointly. As of tax year 2015, all married couples must file both their federal and state income tax returns as married (jointly or separately).

If you were legally married before the Windsor decision and thus had to file your taxes as single, you might consider amending your tax returns to see if doing so would be advantageous. You generally have three years from the date you filed your federal tax return or two years after the date you paid the tax due (whichever is later) to amend your return. This means you may be able to amend 2012 returns until as late as October 17, 2016, depending on when you filed your 2012 return. If you lived in a state that did not recognize your marriage until Obergefell, you may also be able to amend state income tax returns for prior years if the time period for doing so has not expired--check your state's laws.

If you and your spouse both work, keep in mind that you may need to adjust your income tax withholding to account for circumstances that may affect your overall tax liability. For example, now that you're married, you may be eligible for new tax deductions or credits, or you may end up in a higher tax bracket based on your combined income. You can make any necessary adjustments by completing updated tax forms, such as a new Form W-4.

Talk to a tax professional for help with your particular situation. For more information about withholding and other tax issues, visit irs.gov.

3. Consider your life and disability insurance needs

Take a new look at your insurance needs to make sure that you have the right types and amounts of coverage. Once you're married, you may find that you and your spouse are financially dependent on each other. Having adequate life and disability insurance can help ensure that your family's financial needs will be taken care of if something should happen to you.

4. Revisit your retirement plans

Marriage will affect your retirement goals and income needs, so it's a good idea to have an honest discussion about your finances and expectations for the future. Do you and your spouse share the same retirement vision? Do you have a target retirement date in mind? How much have you saved? You may have been planning separately, but now you may need to make joint decisions about retirement.

You may need to re-evaluate your retirement savings options. Are either of you covered by a defined benefit pension plan? If so, make sure you understand any additional benefits and payment options available to married taxpayers. If you're covered by an employer-sponsored defined contribution plan such as a 401(k) or 403(b) plan, does it make sense to direct more of your money to one plan, based on your retirement goals, investing options, and the availability of an employer match?

You may also need to make adjustments if you're contributing to an IRA, because different rules and limits apply to married couples. For example, if you've been contributing to a Roth IRA, you'll need to determine whether you're still eligible to make contributions. This will depend on the combined income of you and your spouse. Or if you're filing a joint tax return, you may now have the opportunity to contribute to a spousal IRA, even if one spouse isn't working. Similarly, if you've been contributing to a traditional IRA, your ability to deduct those contributions may be limited, depending on your combined income and whether either of you is covered by an employer retirement plan.

You'll also want to review beneficiary designations for all of your retirement plans to make sure they reflect your marital status. Keep in mind that your spouse will generally be eligible for survivor benefits from a defined benefit plan or defined contribution plan and must consent in writing if you plan to name someone else as beneficiary.

5. Learn more about Social Security

Social Security is an important source of income for most individuals. When you're single, you're only eligible for certain benefits based on your own Social Security record, but after you marry you may also be eligible for Social Security benefits based on your spouse's earnings record. These include survivor benefits and spousal retirement and disability benefits.

If you're still deciding when to marry, keep in mind that these eligibility requirements include a length of marriage requirement. For example, you generally need to be legally married for at least nine months for your spouse to qualify for survivor benefits (unless an exception applies) and twelve months for your spouse to qualify for spousal retirement and disability benefits.

The Social Security Administration (SSA) has announced that it will treat same-sex married couples the same as opposite-sex married couples when determining eligibility for benefits. This means that all couples (even those who were living in former nonrecognition states) may apply for Social Security spousal and survivor benefits. If you were previously denied benefits, you should contact the SSA as soon as possible for further guidance.

For more information, visit the Social Security Administration's website, ssa.gov. If you have questions about how marriage may affect your claim call (800) 772-1213, or contact your local Social Security office.

6. Rethink your estate plan

Consider reviewing your estate planning goals, strategies, and documents with an estate planning attorney to determine whether changes are needed.

Using the unlimited marital deduction, married couples can leave an unlimited amount of assets to the surviving spouse, if the spouse is a U.S. citizen. This means the surviving spouse may inherit assets without owing federal estate taxes. Spouses may also make gifts or transfer property to each other without paying federal gift or income taxes, and generally pass any unused estate tax exemption to the surviving spouse. If you previously purchased life insurance to cover estate taxes, you should determine if it is still needed.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.