Why Do We Cut the End Off the Ham? (Part 2)

Welcome back to my New Year’s thoughts about financial and life planning.

Last week I discussed insurance but didn’t have enough space to mention long term care. LTC coverage is a very complicated topic so let me reiterate that I believe everyone should discuss it with their planner and insurance agent even though it may not be appropriate in every situation.

Long-term care expenses are sometimes met through a reverse mortgage, more accurately described as a Home Equity Conversion Mortgage. These must be very lucrative because there are numerous ads on late night TV pitching them. Recent federal regulations have certainly made them safer but let me say two things about HECMs. First they are complicated and bear thorough discussion with your planner and the mortgage broker. Second never buy anything based on a TV ad featuring someone who used to be famous.

Deciding how you will live your final days and who will inherit the assets you’ve worked for your whole life are extremely important decisions. I have an attorney friend who begins estate planning conferences by saying ‘This’ll be fun. Let’s give away some money!’. I think that’s a very useful approach because it helps empower people to make the necessary decisions. While more than three-fourths of people say that having a will is important, barely 40% actually have them. The most common excuse is that people ‘just haven’t gotten around to it’ but I think unwillingness to think about death plays a significant role.

Many times, the documents associated with wills: Advanced Directive, Durable Power of Attorney and the naming of a health care representative are even more important. Why? Because they could easily come into play long before death is imminent. Let me touch on them briefly.

Lest you think that estate planning is only for older folks, I’d encourage you to consider Terry Schiavo, a Florida woman who suffered cardiac arrest at age 26. She did not have appropriate documentation in place and her parents fought her husband’s decision to remove her from life support. Through many legal actions, she was kept alive for fifteen years until life support was finally withdrawn. I do not take sides on this issue but I do believe the decision belongs to the person whose life is in question. An Advanced Directive (an improved version of a Living Will) allows you to make decisions about how long, and under what circumstances, your life might be prolonged. It can specify different actions in different situations. An Advanced Directive can also reduce strife among family members. Do yourself and your family a favor – have this document prepared sooner rather than later.

A Durable Power of Attorney names someone to act on your behalf in business situations. For example, if money is needed for your care, the holder of the PoA can decide what assets to sell, then handle the details.

In naming a Health Care Representative, you are empowering someone to make medical decisions if you become unable to. This is obviously a difficult role for anyone to be asked to play, so the concept should be approached thoughtfully and discussed thoroughly with the person chosen.

Digital assets are becoming a more important estate planning issue. Although I’m not a Facebook person, many are and the question of what to do with your social media accounts, emails and photos could become important. Perhaps even more so, real assets like frequent flyer miles, credit card points and PayPal & bitcoin balances. Each of these topics can be addressed through a complete estate plan.

There is no substitute for the counsel of an attorney as you consider estate planning. WWAFP maintains a list of law firms we can recommend to our clients and I think the estate planning process provides a lot of peace of mind for the $500 or so it costs.

Another planning topic is taxes. After all, it’s what you keep, not what you earn, that’s most important. Although our office does not prepare tax returns, we do believe in active tax management. I take more continuing education on this subject than any other. I’ll spend 24 hours this (and every) year trying to stay up to date. If we don’t prepare returns, why do I spend so much time studying? Well, in addition to helping with our planning, it’s proven to be a very good place to meet and interact with preparers. Those contacts help us be sure we’re making good recommendations when we share our list of CPAs with clients.

Finally, many people come to us for investment advice. While we believe it’s only one component of a complete financial plan, we do provide guidance in this area. So far, the year is off to a good start as far as stock markets are concerned. We don’t try to predict the future but after ten years of growth, it seems prudent to tilt portfolios toward lower volatility, even if it means foregoing some potential gain. We have done this for our asset management clients and suggest you discuss it with your advisors too.

Clearly, there’s a lot to consider in planning for retirement and I think it’s fair to ask whether you need to pay for such services. I did a web search for ‘Free Financial Planning’ and was rewarded with 1.6 billion links. While there are several firms around Columbus (including ours) which offer services for a fee of some sort, it may be possible to proceed at no or low cost. If you decide to enter into a planning relationship, be sure that you understand the roles and responsibilities of each party. If you select web-based assistance, vet the provider as carefully as you would an actual person. Web-based fraud is a serious problem, especially for seniors. Be absolutely sure you know who you’re dealing with, so you don’t get caught up in some sort of scheme to separate you from your money. With or without professional assistance, the important thing is to start planning sooner than later.

Jalene, Andy, Peggy and I wish you a healthy and prosperous New Year. Whether a client or a friend, you’re always welcome to contact us for assistance.