Tuesday, July 11, 2017

What We Can Learn About Estate Planning from Yogi Berra


It’s baseball season. In the Bay Area, both the A’s and the Giants are struggling. There are moments of brilliance, an occasional little winning streak when we hold our collective breath and hope our luck is changing, but we end up disappointed once again. We’ve learned to love our Giants for their ability to play killer ball when it really matters, but this year may be the exception. And the A’s? Well, there’s still a lot of baseball to play.


But let’s take a look at Yogi Berra

Yogi Berra, who made an extraordinary contribution to baseball, died last fall at the age of 90. Every baseball fan has his or her heroes, but Yogi Berra was extraordinary, a little guy who earned a big spot in the pantheon of stars. Yogi was voted into the Baseball Hall of Fame in 1972 on the first ballot and had a historic baseball career: a .285 lifetime batting average, 358 home runs and 1,430 runs batted in. Not only was he a catcher for both the New York Yankees and the Mets, but he also managed and coached both teams. Yogi appeared in 21 World Series as player, coach or manager–and won 13 of them. No other player can touch this kind of record.

Another contribution: Yogi was a financial planner and adviser

But Yogi was also insightful, thoughtful and a savvy financial planner. We’re left with many of Yogi’s pearls of wisdom which we can apply to investing, managing money and planning for the future.
  • It ain’t over till it’s over. You’re investing for the long term, so stay focused on your long-term goal—college planning for your kids or retirement.
  • It’s déjà vu all over again. The fact that stock prices have been down much of this year isn’t unusual. We’ve seen declines before, and we’ll see them again. We’re enjoying a robust economy right now, but we all remember the recession. Economic cycles repeat themselves, so we should never get too comfortable.
  • When you come to a fork in the road, take it. You don’t need to choose between owning stocks or bonds; your portfolio should be diverse and should probably include both.
  • I usually take a two-hour nap from 1 till 4. If you’re wondering about investing in the latest hot stock, sleep on it. Do some research and talk to a financial advisor.
  • Pair up in threes. You should rely on a financial planner, a tax advisor and create a Living Trust.
  • It gets late early out here. If you haven’t started preparing for retirement, start today. If you’re waiting until you get old to create a Living Trust, “old” may have arrived. Yogi knew that you don’t have to be old or have an estate to need an estate plan, and that a Living Trust is an important component of this.
  • If the world were perfect, it wouldn’t be. It’s impossible to be completely correct with every financial decision or preparation for end-of-life care. We live in a world of constant change, and there are too many variables over which we have no control. In the words of Warren Buffet, another sage who can afford to build his very own pantheon, “It’s better to be approximately right than precisely wrong.” This is the time to get started.

Our comprehensive Living Trust package includes a Power of Attorney and Advanced Healthcare Directive. Call the California Document Preparers team today to make an appointment to get started on your Trust.

Wednesday, June 28, 2017

Retire Early—And Get Cheap Health Insurance!

Americans are redefining the retirement model

They aren’t just retiring, but starting second careers, volunteering, becoming entrepreneurs. Others may be looking forward to a well-deserved retirement, but it’s busy with travel, hobbies or helping raise their grandchildren.

And for those who didn’t lose it all in the 2008 recession and want to retire early, congratulations!

But to enjoy that retirement, a lot depends on good health and resources, and these days it’s hard to plan when Congress is rewriting healthcare, and Medicare doesn’t kick in until you’re 65. Healthcare is a major and growing expense, and it can take a big bite out of fixed incomes.
A recent Kiplinger’s article by Michael Yoder, CFP, CRPS, How Early Retirees Can Get Cheap Health Insurance, provides some excellent advice on managing your income, taking advantage of  tax credits and cost-sharing reductions. Yoder admits that “Although there is political uncertainty surrounding health insurance, with health care reform stalling out, the likelihood is growing that the status quo will largely prevail.” That’s good news for those who are contemplating early retirement.

Read Michael’s article below

Early retirees might qualify for thousands of dollars of subsidies if they can keep their incomes between certain limits

If you’re retiring before age 65, you’ll want to take a second look before turning on any sources of taxable income, including pensions or IRA withdrawals. That’s because you might jeopardize your ability to qualify for incredibly cheap health insurance, as well as generous out-of-pocket cost subsidies.
I have seen early retirees squander untold sums by not knowing about this, money that could have been used to support their retirement.
Although there is political uncertainty surrounding health insurance — including a legal challenge on cost-sharing reductions by the House of Representatives that’s still up in the air — the subsidies are slated to survive for at least a few more years under the House plan, as I will explain below. In addition, with health care reform stalling out, the likelihood is growing that the status quo will largely prevail.

The basics

Under current law, when you sign up for health insurance on the exchanges (assuming you make too much to be on Medicaid), you may qualify for two forms of subsidies:
  1. A tax credit on your health insurance premiums if your household income is under 400% of the Federal Poverty Level (FPL).
  2. Cost-Sharing Reductions (CSRs) if your household income is under 250% of the FPL, and you sign up for a Silver plan.
According to 2017 HHS guidelines, 400% of the FPL is $64,960 for a married couple and $48,240 for singles, however the figures are a little higher for residents of Alaska and Hawaii. Even if you have a high level of assets, you’ll most likely have enough levers at your disposal to keep your income under the limit. After all, you can choose when to commence pension and Social Security benefits, when to trigger capital gains, whether to take IRA withdrawals, etc. The more you’ve saved outside of tax-deferred accounts, the easier this will be.

The Premium Tax Credit

The premium tax credit applies to those whose incomes are between 100% and 400% of the FPL, which would be from $12,060 to $48,240 for singles and $16,240 to $64,960 for married couples. (Note: The lower boundary is 138% if you live in a state that expanded Medicaid, because essentially you’d qualify for Medicaid below that and therefore would not be eligible for subsidies.) This credit can be applied against your premiums, reducing your monthly health insurance bill.
The credits are targeted to keep your premiums below a certain percentage of your income. For a couple at 150% of the FPL (which would be $24,360), for example, a basic Silver plan would cost roughly 4% of their income. In dollar terms, this works out to combined premiums of about $82 per month.
There is a number of free online tools to help estimate your credits, including the Kaiser Family Foundation calculator (available at kff.org/interactive/subsidy-calculator/).

Cost-Sharing Reductions (CSRs)

If you can keep your income to between 100% and 250% of the FPL — which would be from $12,060 to $30,015 for singles and from $16,240 to $40,600 for couples — you can also qualify for reductions in your deductible, coinsurance and out-of-pocket maximum, known as Cost-Sharing Reductions (CSRs). Again, just like with premium tax credits, the lower boundary is 138% in states that expanded Medicaid. But unlike the premium credits, which apply to all plans, the CSRs apply only to Silver plans.
These CSRs can amount to substantial savings annually. For example, a couple at 150% of the FPL (or $24,360) could see their out-of-pocket maximum drop from $14,300 to $4,700. The reductions in deductibles and coinsurance vary by plan.

How to make it work

To maximize your subsidies, if you are retiring before age 65, when Medicare kicks in, evaluate whether you can defer any sources of income. In the meantime, you’ll need to tap other assets, such as Roth IRAs or nonretirement accounts.

An example

Consider a 62-year-old couple with $35,000 of household income (216% of the FPL). The husband just retired and can begin receiving a $30,000 pension. If he defers the pension to age 65, the benefit increases to $35,000 per year.
  • In this case, he would be better off deferring the pension, since their current income level allows them to qualify for the following subsidies (assuming they live in an average cost area)
  • A credit of $16,982 toward their health insurance premiums each year until Medicare begins at age 65.
Cost-Sharing Reductions (CSRs), if they choose a Silver plan, which could reduce their out-of-pocket costs by thousands of dollars.
Had the husband commenced his pension at age 62, he would have lost roughly $17,000 in premium credits, plus the CSRs. Including the taxes on the pension benefits, turning on the pension at 62 would have cost them nearly as much as the pension was worth!
From age 62 to 65, the couple would need to tap nontaxable assets to cover their living expenses. Upon reaching age 65, their coverage would switch to Medicare, at which point they could safely turn on his (now increased) pension benefits.

Important details

“Household income” is defined as your Adjusted Gross Income plus municipal bond income, untaxed Social Security benefits and foreign income. This means you won’t be able to reduce includable income simply by moving your portfolio into tax-free municipal bonds.

A few other important points

  • The premium tax credit is a rare example of a “cliff” benefit, where exceeding the limit by $1 would cost you the entire credit. If your income is close to the 400% cutoff, be sure to plan very carefully in order to avoid losing thousands of dollars in subsidies.
  • If your income is below 100% of the FPL (138% in certain states), you will go on Medicaid, which for many is not a desirable outcome because of potentially longer wait times for patients and fewer participating doctors from which to choose.
  • If you retire and have COBRA or a retiree health plan available to you, you can still qualify for the subsidies if you decline the coverage and buy your own instead (see the IRS website for details).

What about health care reform?

  • Finally, how will theAmerican Health Care Act (H.R. 1628) affect all of this? First of all, it’s unknown how the Senate’s version of the bill will look, but it appears they are treading more cautiously than the House when it comes to rolling back benefits.
  • Even if the House bill passes in its current form, the tax credits and Cost-Sharing Reductions are available until 2020, although the tax credit in 2019 will be slightly reduced for some people by up to 2% of their MAGI (see sections 131 and 202 of the Act).
You’ll want to keep an eye on political developments, but for now it appears the subsidies will exist for at least a few more years, and potentially longer. You would be wise to plan accordingly.
If you’re working on an estate plan, a Living Trust is an important part of the overall plan. Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront. We’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Tuesday, June 20, 2017

Divorced Couple Rethinks Estate Planning after Cancer Diagnosis

A 60-year old Antioch woman came in to our Walnut Creek office because she needed assistance creating Living Trusts for both herself and her ex-husband. “Anna” and “George” divorced seven years ago after more than 20 years of marriage and three grown children.

Now, it seems, they have become each other’s best friends

This happens more often than you might think. People share many experiences as they build their careers and raise their children together. Once the day-to-day pressure of living together is removed, we often hear about couples rediscovering the reasons they got together many years before and rethinking their relationship.

George’s struggle with cancer has been a wakeup call for this couple

Anna is now there for George as he struggles with terminal cancer. His treatment has given him hope, but he’s also realistic. He and Anna want to be prepared so that their children don’t have to deal with Probate when he dies.
Anna and George co-own two townhomes in the same Antioch neighborhood. They own the homes 50/50 as unmarried people; they’re listed on the title as joint tenants, which means that if one of them dies, the other automatically becomes the property’s owner.
Anna and George are considering separate Living Trusts, and as part of their Trusts, they will create Powers of Attorney and Advance Healthcare Directives, naming their younger daughter, “Amanda” as their Agent. Amanda is a CPA and lives close by, which makes her an ideal candidate. Being an Agent is a responsibility that can require a significant commitment, so we generally caution our clients to name someone who has availability. It also helps if it’s someone who has a facility working with numbers, as it’s often necessary to manage financial accounts.

There are other issues on the table for this couple as they complete their estate planning 

  • If each creates a separate Living Trust, they will spend twice as much money.
  • Anna may be eligible to receive a portion of George’s pension when he dies.
  • If they remarried, they could create a joint trust, which would meet their requirements, including providing ownership succession for George’s home, Power of Attorney and an Advance Healthcare Directive.
  • Most of all, if they remarried, Anna might be better positioned to receive a portion of George’s pension.
We printed a marriage-license request from the county recorder, and Anna took it with her as she went home to talk to George about the practical benefits of becoming man and wife again—nearly 30 years after they’d originally exchanged their vows.
If you’re working on an estate plan, a Living Trust is an important part of that planning. Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment today. You can also jumpstart the process with our easy-to-use, secure online storefront. We’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Wednesday, June 14, 2017

Deed Case Study: Incorrectly Prepared Deed Results in Tax Reassessment

This story is a cautionary tale, an example of the potentially costly consequences of well-intentioned efforts from a family member.
Barbara Theobald, who has worked in our Walnut Creek office for more than eight years, was contacted by “Sherry”, a previous Living Trust client. Sherry needed assistance solving a dilemma with a Deed that her mother and brother had created for her.
  • Sherry created her Trust in 2014, and her mother, “Irene”, gave her another property in Redwood City.
  • Sherry transferred the property into her new Trust.
  • Irene had recently changed her mind and decided to transfer the property back into her own Trust, which requires preparing a Deed to transfer ownership.
  • Irene asked her son, “Richard”, to prepare the Deed.
  • Sherry signed the Deed and Richard recorded it with the county clerk in January 2017.

Property now being reassessed, with a considerable bump in taxes

In April, Irene received a notice from the assessor’s office that the property was being reassessed for tax purposes. The bill was substantial and Irene couldn’t understand what had happened. Barbara did some research and discovered that Richard had prepared the deed incorrectly. Instead of its being transferred from Sherry’s Trust to Irene’s Trust with the appropriate assessor forms so there would be no reappraisal of property taxes, the deed was recorded from Sherry as an individual to her mother as an individual and recorded as a gift. The lack of supporting paperwork to show that the property was going from child to parent caused the reassessment and the subsequent bump in property taxes.

Barbara was able to correct the Deed

Barbara was able to correct the Deed for Sherry and Irene, but it ultimately cost this family more money than it would have if they’d come to California Document Preparers in the first place to transfer and file the Deed. It also would have saved considerable time and anxiety.

A final note: DIY processes can often have consequences

We hear this a lot from our Do-It-Yourself (DIY) clients who abandoned the process. Those “simple, easy processes”—especially when it comes to Divorce and Living Trusts—can quickly become complex. Legal documents that have long-term consequences are not the place for guesswork.
Do you need to transfer your Deed? Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment today. You can also jumpstart the process with our easy-to-use, secure online storefront--we’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Wednesday, June 7, 2017

Social Security Benefits for Spouses: Are You Leaving Money on the Table?

At California Document Preparers, Living Trusts are an important part of our business. While we believe that everyone with assets and dependents should have a Living Trust—the reality is that many of our Trust clients are older. They may or may not be retired, but they’re thinking about estate planning and how they’re going to be spending the final years of their lives. This spawns a wide range of discussions about sometimes-controversial topics such as hospice, Medicare, Medi-Cal and long-term care insurance.

Retirement and quality of life issues center around economics and health

In all of these conversations, everyone is concerned about the quality of life issues in retirement—having good health and enough money to be able to travel, spend time with family and slow down to enjoy life. But there’s one economic benefit that many people are completely unaware of—the Social Security spousal benefit.

Jane Bryant Quinn, personal financial expert: Guide to Social Security spousal benefits

recent article from personal financial expert Jane Bryant Quinn, whose excellent articles on personal finances regularly appear in the AARP magazine, prepared a guide to Social Security spousal benefits. While the guide is from the perspective of a wife filing on her husband’s earnings record, the same rules apply to either spouse.
  1. What is a spousal benefit? It’s a payment originally designed for women who left the workforce to raise children. You need ten years of work (40 quarters) to claim aretirement benefit of your own. If you worked fewer than ten year or 40 quarters (or not at all), or your earnings were very low, you qualify for a spousal benefit based on your husband’s earnings.
  2. How much is the spousal benefit? It depends on your age when you claim it. If you wait until your full retirement age (somewhere between 66 and 67), you’ll get half of what your husband could get at his own full retirement age. If you claim earlier, you’ll receive less.
  3. What if you worked 10-plus years and earned a Social Security retirement benefit of your own? Here’s where claiming gets tricky. If your husband has not retired, you can file for a benefit based on your personal earnings. When he finally quits work and goes onSocial Security, the spousal amount you can receive depends on your personal benefit’s size. If it’s higher than what you’d get as a spouse, you’ll continue to receive that same, higher amount, says Philip Moeller, coauthor ofGet What’s Yours: The Secrets to Maxing Out Your Social Security.
If your personal benefit is smaller, it will be topped up to the spousal level. If you file when your husband has already retired, Social Security will normally assume that you’re claiming your personal and your potential spousal benefit at the same time. You will receive the higher of the two. There’s an exception for people who were born on or before Jan. 1, 1954. If you put off your claim until full retirement age, you can file a “restricted application” for a benefit based on your spouse’s earnings, without also claiming the personal benefit you’re owed. At age 70, you can switch to your personal benefit, which will have grown at 8 percent per year plus the inflation rate.
  1. What if you’re divorced? You get the same benefits as a current spouse if your marriage lasted at least ten years and you are now single. Also, you can claim the spousal benefit even if your ex has not retired, provided that he is eligible for benefits and you have beendivorcedfor at least two years. If you’ve been working, however, you will probably find that sticking with your own benefit is the better deal.

In conclusion, and for more information

While there are special rules for those who are disabled or for retirees with children who are under 18, these rules apply for most people. If you need more information about spousal Social Security benefits, the agency’s website is very helpful. If you want to talk to someone, you can try calling 800.772.1213 and use the automated telephone services to get recorded information and conduct some business 24 hours a day.
A reality check: These are national numbers; they do not publish the numbers for local Social Security offices. These phone trees can be very frustrating, and the mailboxes often fill up early. A note from personal experience: I had to do something last winter that required my going into my local Social Security office. I put this off as long as I could, fearing it would be like a trip to the DMV. I was delighted when I went into the office, signed in, waited five minutes and met with an extremely knowledgeable, professional and gracious woman who solved my problem in fewer than ten minutes. I hope my experience was not an anomaly and that others will go to their Social Security offices and meet with problem solvers.

Are you putting off creating your Living Trust? Call California Document Preparers at one of our three Bay Area offices todayto schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront–we’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.

Tuesday, May 30, 2017

True Default Divorce Finalized in Just Six Months!


Divorce is never easy, but a recent Divorce for a Walnut Creek client was finalized in six months. This relatively simple solution went a long way towards helping our client get on with her life.
“Zoe”, who lives in Pleasant Hill, came in to our office for assistance with her Divorce. Zoe is 32, has a good job as an account executive with a national publication, and had been married to Bobby, 34, the operations manager for a manufacturing company, for nearly two years. Like many busy professionals these days, they met online and were delighted to discover their shared interests. They quickly fell into a pattern of spending their weekends together.

Zoe and Bobby began to drift toward marriage

The couple had attended a number of weddings together over the last year, and they were at that age when young couples begin to think about settling down. They set a date and married in the summer of 2015. Bobby moved into Zoe’s home that she’d inherited from her parents, and they began their new life together. But almost from the beginning, their relationship was troubled. While they’d spent considerable time together before marriage, they found that actually living together was challenging. They were soon quarreling, tried counseling, but finally admitted that they they’d married for all the wrong reasons, and in less than a year, Bobby moved out and left no forwarding address.

Zoe wanted to be married and have a family, but with a different partner

Zoe wanted to divorce and get on with her life. There were no kids, no support issues, no property issues or community assets. When Bobby moved out, he simply packed up his belongings and took them with him. (While California is a community property state, Zoe’s home was deeded to her before she met Bobby, and she made no effort to include him on the title after they were married.)

Bobby was not involved in the Divorce

Zoe knew that Bobby wouldn’t want to be part of the Divorce process, but she also knew where he could be served. She filled out our workbook, we prepared the initial paperwork and one of Zoe’s friends served Bobby the Divorce papers. Bobby didn’t file a Response within the required 30 days, so we were able to file a “true default” judgment for Zoe, which was signed by the judge and filed with the court. Bobby never had to sign a thing, and Zoe’s Divorce became final within six months of her initial office visit.

True default judgments and California law

According to California law, if someone does not respond to his/her spouse or partner’s petition for Divorce, the case will be considered a “true default” judgment. In a “true default” case, the spouse is giving up the right to have any say in in the Divorce. A true default judgment is uncommon because, unlike Bobby, most people are stakeholders in their marriages—they have emotional and economic investments—there are kids and property to divide–so this kind of simple solution is somewhat unusual. In most cases, even if the Divorce is uncontested, both parties work together to make decisions about custody, a parenting plan and division of property.
Are you contemplating divorce? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront–we’re still available by phone and email if you have questions. Our dedicated family law specialists are helpful, compassionate and affordable.

Wednesday, May 24, 2017

Who Has the Title to Your Deed: You May Be Vulnerable to Probate

This case study is a cautionary tale, and unfortunately, we see this kind of situation all too often. It highlights the importance of what is called vesting, or the way in which title to a Deed is held. It seems like a small thing, but a Deed is the legal document that identifies the property owner. Without the title, it is impossible to buy or sell a home. And as our client discovered, she also couldn’t update her Living Trust.

Updating Claire’s trust to reflect the changes in her life

It began when our client, “Claire”, came in to our Walnut Creek office to update her Living Trust. She’d experienced some significant changes since she’d created her Trust more than ten years before. She’d divorced, added a grandchild, lost her daughter to breast cancer and her mother to heart disease, changed jobs so that she was making significantly more money, bought a very promising stock that was soaring, invested in a Tahoe timeshare and purchased a life insurance policy. These were precisely the kinds of life events that should alert people to the need to be updating their Trusts.
We began amending Claire’s Trust to reflect the many changes in her life, but ran into a problem when we got to Claire’s Walnut Creek home. We needed to move the home into the Trust, but it was partially owned by her mother, and mom had died in 2015. Unfortunately, the Deed didn’t state that the owner and her mother were “joint tenants”, which meant that full title didn’t automatically pass to Claire when mom died. The result: 50% of the property would now have to go through Probate to determine ownership.

Probate a growing practice area for us

At California Document Preparers, uncontested Probate is a growing practice area for us, and this is one of the situations we most frequently encounter.
As part of Probate, the Court appoints a personal representative, or administrator, to settle the estate, so we work closely with the administrator throughout the Probate process. Claire became the administrator for the Probate, responsible for the following:
  • Placing a notice in the local newspaper and mailing notices to creditors. Probate is a public process.
  • Collecting the Probate property of the decedent.
  • Paying all debts, claims and taxes owed by the estate.
  • Collecting al rights to income, dividends, etc. and settling disputes.
  • Distributing or transferring the remaining property to the heirs.

Access to the decedent’s accounts

As an administrator, Claire can access all of the decedent’s records to understand the financial landscape. This may include valuing assets, taking physical custody of assets and selling assets, as necessary, to pay off debts or expenses. In this case, since Claire’s mother had already dealt with those financial assets by beneficiary designations, the only outstanding issue was the Deed to the home.
During Probate, the deceased’s estate becomes a separate tax entity, so Claire had to obtain a federal identification number. She was also responsible for filing the estate’s tax return and a final individual tax return.

Distribution of remaining assets

Once all taxes and debts have been satisfied, the Court distributes any remaining assets according to state law. In California, as in most states, the first priority is given to the deceased’s spouse, followed by the deceased’s children. In this case, the only asset in question is the 50% ownership of the home in which Claire is living. Claire was her mother’s only daughter, so mom’s interest in the house was distributed to Claire.

By vesting the Deed as joint tenants, they would have avoided Probate

If the Claire and her mother had been joint tenants on the Deed to their home, this scenario would have been dramatically simplified and they would have avoided Probate. When we prepare a Deed, we present all the options so clients can make informed decisions about how they wish to hold title—hopefully avoiding an unfortunate situation like this.
Do you need to transfer your Deed? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. You can also jumpstart the process with our easy-to-use, secure online storefront–we’re still available by phone and email if you have questions. We’re helpful, compassionate and affordable.