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Retirement Tips and Answers to Tough Questions

Bigstock-Senior-couple-standing-togethe-12052331In a recent article, "When the 5-Year Clock Starts on a Roth IRA," The Wall Street Journal provides some great information about Roth IRAs and moving when you retire.

Let's first look at the "five year" rule for withdrawing funds tax-free from a Roth IRA. We need to distinguish between contributions to a Roth individual retirement account and the earnings on those contributions. For instance, if you deposit $1,000 in a Roth IRA, you can withdraw that same $1,000 at any time, tax-free and penalty-free.

However, you can't take a tax-free and penalty-free distribution of earnings on your funds until the account is at least five years old and until you have reached age 59½. There are some exceptions to the age rule.

The five-year clock starts when the account is first opened. The clock doesn't reset with each additional deposit, and the clock starts on January 1 of the year in which you opened the account.

Moving and Estate Planning Documents

What happens with your estate-planning documents when you move during retirement? Questions arise when this happens, and people wonder if they need to throw away their wills and powers of attorney and draw up new ones.

Yes, it is worth your time and money to have new estate planning documents prepared for your new address.

Many times, this is overlooked in the disruption of a move. A will that is valid in your current state (one that was created and signed in accordance with that state's laws) will still be valid in a different state. However, the laws involving probate, property, trusts and estate taxes are different in each state. For example, the individual you selected as the executor of your will in your current state might not qualify as the executor in your new state. You might also be moving to a community-property state from a state that wasn't in that system. These types of differences support drafting a new will.

Also, a power of attorney, which gives the authority to the person you have selected to act for you in various legal and financial dealings, may face issues. Some states have their own forms and wording for creating a power of attorney—forms with which local banks and institutions are familiar. Why take the chance that a power of attorney in one state might not pass muster in another?

At the very least—even if your estate-planning documents are relatively new and you don't want to go through the hassles and cost of starting all over again, you should speak with an experienced estate planning lawyer in your new locale and have him or her review your paperwork.

Reference: The Wall Street Journal (February 7, 2016) "When the 5-Year Clock Starts on a Roth IRA"

What You Need to Know About Donor-Advised Funds

MP900400337Americans are always very charitable. This year you may hear about the boom in donor-advised funds, which are charitable giving tools that allow you to take tax advantages now but wait with disbursements.

A recent report from CNN Money, "Everything You Need to Know about Giving to Charity Through a Donor-Advised Fund," says that assets in donor-advised funds increased 25% in 2014 to $70.7 billion. Charitable gifts from the funds grew 27% to $12.5 billion.

Is this right for you? It depends on a few key issues to consider before you decide how to give.

How Do They Work: Donor-advised funds are philanthropic vehicles that are created by a public charity. The funds are promoted to donors as tax management strategies that allow large, immediate tax deductions in good times and then disburse the money later. The funds are managed by nonprofit entities, typically a charitable organization under a financial services company or a local community foundation. This money grows tax-free while it's in the fund, but you will have to pay administrative fees in addition to any investment costs. Usually, the more money you have in the fund, the lower the fees.

Who Should Utilize Them: The upfront tax deduction makes these funds especially interesting if you see a bump in your income, such as an inheritance or business sale proceeds. Since this type of contribution is deemed a gift to a 501(c)(3) public charity, you are permitted to deduct up to 50% of your adjusted gross income (AGI) for cash gifts—and 30% for donated appreciated securities—to maximize your tax benefit. This can also be a wise move for those interested in donating assets other than cash to a charity. Giving the appreciated assets of stock or complex holdings like real estate or small business shares to a donor-advised fund lets you avoid capital gains tax. Another potential advantage is that if you prefer to remain unnamed, donor-advised funds often allow gifts to be anonymous.

When to Not to Use: This type of strategy is best suited for wealthier donors. If you donate less than a few thousand dollars each year, you may want to just contribute directly to your favorite charities. It won't be worth paying the administrative fees, and most funds require a higher minimum contribution and restrictions on follow-on donations and grant size.

There are other limitations, such not receiving goods or services in exchange for your donation. That creates issues with the IRS since you've already received a tax deduction on the full amount of your donation. Taking advantage of donor perks, which reduce your charitable donation by what it costs the organization to offer such rewards, would be like cheating on your taxes. If you want to keep the money in the fund for several years, remember that your investment choices are usually limited to those offered by the company with which you opened your account. In addition, donor-advised funds can only make grants to other public charities that are in good standing with the IRS, so you can't make gifts to split-interest trusts like a charitable remainder or charitable lead trust.

Lastly, donors should know that donor-advised fund operators aren't legally required to follow the donor's wishes about how to invest the money or where grants should be made. Although many do, you don't have absolute control over the fund.

Reference: CNN Money (December 22, 2015) "Everything You Need to Know About Giving to Charity through a Donor-Advised Fund"

The Cost of Caregiving

Th (1)Over a recent 12-month period, more than 43 million adults provided care for a vulnerable family member or friend—the contribution to family and society is staggering. One report puts the annual value of unpaid caregiving just for the elderly at $522 billion. That's more money than it would take to retire the 2015 federal deficit.

Kiplinger's recent article, "How to Support a Caregiver," reports that not only do caregivers provide mostly free care, but they also frequently sacrifice their own financial security in the process. The majority of care­givers are women, and for them, the total cost of caregiving amounts to an average of $324,040, according to a MetLife study: $142,690 in forgone wages, $131,350 in lost Social Security benefits, and $50,000 in reduced pension benefits. It doesn't reflect forfeited career opportunities or the expenses caregivers cover out of pocket—several thousand dollars or more a year.

For all their efforts, most people don't think of themselves as caregivers. Rather, they think it's just something you do as family. They don't know there are resources for them. It doesn't have to be done as a solo enterprise. Here's how to find help.

The job of caregiving often falls on the child who lives closest to the parent or on the child who is single. Daughters are more likely to provide basic care, according to the MetLife study, and sons tend to contribute financial support. Discuss roles with your siblings as soon as you realize that your parent or elderly relative needs help. Set up a family meeting—by Skype, FaceTime, or via conference call and have a social worker, mediator, or care manager facilitate the discussion. He or she, as a neutral party, can identify assignments for each of you and help the family navigate emotions that often arise when ailing parents are involved. Also discuss how caregiving and related expenses will be covered and look at it as a business proposition. If you're the primary caregiver, your family might agree to pay you as an independent contractor. If so, it's good to have a formal contract, known as a personal care agreement, to detail the terms of the arrangement. Or your parent might pay you—either from income and savings or by adjusting his or her estate plan to give you a bigger piece of the pie. Whatever the plan, get buy-in from your siblings right away.

Even with your siblings' help, you may need somebody to stop by your parent's place to fix meals or to provide transportation. A local area agency can provide direct support to caregivers, including respite care (usually on a limited basis), counseling and emergency assistance. They can also connect you with local providers for such services as home-delivered meals, transportation, and help with chores. Some of these services may be free, but if a volunteer isn't available, check out caregiving agencies. If you need a supervised setting for your relative while you're at work or so you can take a break, look at adult day care. They offer meals, supervised outings, and sometimes health services. Consider hiring a geriatric care manager if your parent has complicated needs or lives out of state.

Remember that Medicare doesn't pay for personal or homemaking care, but it does cover home health care for people who are homebound and intermittently need skilled nursing or physical or occupational therapy. The services must be part of a plan that is established and reviewed by a doctor, and they must be provided through a Medicare-certified home health agency. Medicaid has specific income eligibility rules, which vary by state.

Long-term care insurance also pays for in-home care, but you may have to wait up to 120 days, depending on the policy, before coverage starts.

Your ability to balance caregiving and your day job may depend on your boss. Recently, some employers have begun programs that educate employees on elder-care resources and create a more receptive atmosphere for discussing work accommodations like job sharing.

The stress of working a full-time job while caring for an elderly relative can be overwhelming, and if you're considering quitting your job, try to work at least long enough to vest in your pension or 401(k) plan (which may require vesting for employer contributions) or to accumulate enough credits to qualify for Social Security. Prepare a budget for paying expenses after you leave your job. Rather than quit altogether, see if you can switch to part-time status, and be sure to find out how this would impact your benefits.

Talk to your parents while they are still healthy about their expectations for later care and how they plan to pay for it. If you do this before someone's ill, it's easier and you make better decisions.

Reference: Kiplinger (January 2016) "How to Support a Caregiver"

92-Year-Old Media Mogul’s Health and Succession Plan Closely Watched

MP900442259Viacom Chief Executive Philippe Dauman sought to calm investors worried about the ailing health of Executive Chairman Sumner Redstone, as well as the future of the media empire he controls. Redstone is the controlling shareholder of both Viacom and CBS Corp, and his health has been steadily declining in recent months. This issue has caused concern among investors about the future of the two media companies.

Dauman said there were plans in place to determine what happens to Redstone's ownership interests in Viacom and CBS, even though the media mogul hasn't participated in public company events for the last year.

This story is the subject of a recent article in the Los Angeles Times entitled "Viacom CEO explains succession planning for aging media mogul Sumner Redstone."

Last month, Redstone's former girlfriend, Manuela Herzer, filed a lawsuit that seeks to have Redstone declared mentally incompetent. She claims that his health took a turn for the worse in September and that he no longer enjoys his favorite activities. Herzer had been the agent in charge of Redstone's advance healthcare directive until mid-October, when Dauman took over that role.

The Redstone family controls nearly 80% of the voting stock in the two media companies, Viacom and CBS. Sumner Redstone owns 80% of the shares, and his daughter Shari Redstone holds the remaining 20% and is vice chairman of Viacom and CBS.

Dauman announced the succession process that Redstone designed more than two decades ago to ultimately oversee his interests in the media companies. It will ensure that the companies continue to have "professional governance," including a group of independent board members. A trust was established to oversee Redstone's 80% stake after Redstone dies or when there is a legal determination that he is mentally incapacitated, neither of which has happened.

Under the succession plan, seven trustees would oversee Redstone's National Amusements interests, including two family members. Dauman, the Viacom CEO, also is a trustee. The four other trustees are Redstone's estate planning attorney, a Viacom board member and longtime Redstone friend, and two other Boston attorneys. The seven trustees would have a fiduciary responsibility to exercise, Dauman said. No one individual will control the trust; rather, it will operate by a majority vote.

Herzer's lawsuit seeks to have Redstone declared mentally incompetent. She filed the suit after she was removed as Redstone's agent in charge of his advance healthcare directive. She claims that Redstone wasn't in charge of his faculties when the decision was made to remove her. A judge has ruled that Redstone's healthcare situation isn't an emergency. A hearing will be held early next year.

Reference: Los Angeles Times (December 8, 2015) "Viacom CEO explains succession planning for aging media mogul Sumner Redstone"