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EisnerAmper WMCB’s Marc Scudillo Featured In MarketWatch

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In a new op-ed by Marc Scudillo of EisnerAmper WMCB, “Opinion: How higher taxes on the rich could affect your investment and financial goals,” Scudillo encourages everyone to put the proposed tax increases into perspective, and make a plan to mitigate taxation if the increases will affect you.

For instance, top marginal income-tax rates would only rise from 37% to 39.6%, which was the top rate prior to the 2017 tax cuts. The rate was already scheduled to revert to 39.6% in 2025.  Nobody likes to pay higher taxes, and the Biden administration is focusing on increasing taxes for high-income individuals and families, and corporations. According to the plan, households earning less than $400,000 annually most likely will not be affected in a significant way.

People who have more than $400,000 of annual household income should begin to think about a tax plan relative to their goals. If clients make more than $1 million in annual income, the tax plan reportedly being considered would definitely have an impact, including a near-doubling of the capital-gains tax rate to 43.4% from 23.8%.  Combine this with the lowering of the estate-tax exemption to $5.49 million from $11.7 million and many more clients may be impacted by these changes.

 

So, what can you do? Consider tax-advantaged investments and other ways to make your portfolio more tax efficient.

If these tax rates increase, there will be a higher focus to create greater tax efficiency in client portfolios.  Some investors may consider realizing long-term gains sooner before the capital-gains tax rates go up.  “Asset location” will become of more value; this is where client portfolios should have those assets with the highest tax consequences, like high turnover, located in tax-deferred retirement accounts.

For estate planning, some people may want to lock in the lower capital-gains rates for estate purposes.  If the “step-up” in basis is eliminated, realizing capital gains now may become another option for estate planning.  Yet for business owners whose largest asset will often be the value of the business, this may not be a viable option.  Expect to see an increase in the use of insurance to help business owners fund the estate taxes, especially if the exemption is reduced to $5.49 million per person.  To keep this in perspective, realize that estate taxes were already scheduled to revert to this level after 2025 and were at the same level in 2017.

 

Insurance, Annuities and ETFs.

Insurance will become a more interesting option not only for the estate benefits but also for the tax-favorable growth. The cash value of insurance grows tax-deferred, much like a traditional IRA or a 401(k) retirement account. As a policy’s cash value increases, the policyholder does not pay income taxes — unless they cash it out. Tax deferral can make a significant impact as the value grows over time.

The same concept can apply to annuities. One of the most common drawbacks with annuities are the expenses associated with the contract. However, annuities have become much more competitive for pure tax-deferral. They also have significantly increased the number of investment options offered. Another commonly cited disadvantage of annuities is the sacrifice of future growth of non-qualified annuities being treated as ordinary income versus long-term capital gains. This negative may need to be re-evaluated should capital gains rates be raised based on the client’s annual income and ordinary tax rate.

When compared to mutual funds, ETFs can be more tax efficient, often creating a lower tax liability than if a similarly structured mutual fund were held.

Proper planning will help an adviser and client decide if a single strategy to minimize taxes, a combination of strategies or no change at all will be optimal.

 

Read the entire article on MarketWatch here:

https://www.marketwatch.com/story/how-higher-taxes-on-the-rich-could-affect-your-investment-and-financial-goals-11619551926?mod=mw_latestnews

 

Marc Scudillo is the managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC (www.eisneramperwmcb.com). He is a certified public accountant and a Certified Financial Planner™ and Certified Business Exit Consultant®.

The Case for Investment Refresh

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The Case for Investment Refresh

Investment refresh is an optional extension to automatic enrollment whereby participants would be notified that, as of a certain date, their current investment allocation will be transferred to the plan’s qualified default investment alternative

(“QDIA”) investment. The QDIA is frequently an age/risk appropriate target date fund (“TDF”). Any participant may opt out of this action prior to or at any time after the transfer date.

The premise underlying investment refresh is that participants do not always make prudent investment decisions. We frequently find that, although the vast majority of participants are deferring into the plan’s TDF, their prior assets often do not get transferred. This is an interesting but contradictory fact that can be attributed to a conscious act, simple neglect, or potential loss aversion, but the reality is, that it may be detrimental to the participant’s actual intent or their best interest. In addition, we also know that there is often a mismatch between the level of risk participants tell us they are comfortable with and the risk level in the actual portfolio they have constructed.
Clearly, many participants would benefit from additional assistance. Our experience tells us that investment refresh could provide significant help.

Excessive Fee Litigation: The Best Defense is Compliance

Excessive fee litigation is increasing at a steady pace and all signs are it will continue to increase. The positive side of this situation is that we now have more caselaw to consider as we work toward compliance in creating a “best defense”. Early caselaw did not reflect the consistency of court decisions. Some court rulings were in direct conflict with those of other courts, and some did not seem well reasoned.

Recent excessive fee caselaw does help us determine a more solid foundation for liability mitigation. Clearly, it is most important to have a robust process for making prudent investment decisions, as per ERISA “procedural prudence”. This has always been the case, but now we have more clarity in how this process should be conducted. Courts want to see evidence that based on the information that the fiduciaries had at the time they made their decision; a robust structured process was followed. As always, it is crucial that you follow your investment policy statement and document your process and reasons for all fiduciary level decisions.

QDIA…. Why is it important?

The qualified default investment alternative (“QDIA”) is arguably the most important investment in a plan’s investment menu. By far the most often selected QDIA investment is a target date fund (“TDF”). TDFs are typically the only investment selection that offers unitized professionally managed portfolios that reflect the participants’ time horizon today and as they go to and through retirement.

TDFs are tied to the anticipated year of your retirement. Retiring in 2035? The 2035 TDF is the easy pick. This portfolio will be professionally managed to become more conservative as you approach your retirement. This de-risking is based on an investment “glide path” which contains more aggressive investments during the participant’s younger years and utilizes more conservative investments as retirement approaches.

TDF QDIA selection is important for plan fiduciaries as well. The Department of Labor (“DOL”) has indicated that if the TDF has been prudently selected and commensurate with the plan’s participant demographics, the suite meets certain structure requirements, and required notices are provided, fiduciary liability mitigation would be available. Prudent process entails identifying your participant demographic needs. Your participant demographic need may tend towards a low-risk portfolio (e.g. participants are on track for a satisfactory retirement), or perhaps a more aggressively positioned portfolio (e.g. less savings so the need to obtain higher returns), or perhaps a multiple glidepath approach for a financially non-homogenous population.

Prudence of TDF selection is also determined by cost relative to other TDFs with similar risk levels, as well as the quality of underlying investments.

This Month’s Participant Memo

Participant Corner: Tax Saver’s Credit Reminder

This month’s employee memo informs employees about a valuable incentive which could reduce their federal income tax liability. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com.

You may be eligible for a valuable incentive, which could reduce your federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If you qualify, you may receive a Tax Saver’s Credit of up to $1,000 ($2,000 for married couples filing jointly) if you made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.
Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.
Your eligibility depends on your adjusted gross income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

Use this chart to calculate your credit for the tax year 2021. First, determine your AGI – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50% of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $42,000 each contributes $1,000 to their respective retirement plans, for a total contribution of $2,000. They will receive a 20% credit that reduces their tax bill by $400.

With the Tax Saver’s Credit, you may owe less in federal taxes the next time you file by contributing to your retirement plan today!

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

New Jersey Secure Choice Savings Program Act

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New Jersey Secure Choice Savings Program Act

If you are a business owner with 25 or more employees, you are now faced with an obligation that was previously a personal business decision; but you don’t have to settle for the “no-choice choice

YOU HAVE OPTIONS. Read on to learn more

An alternative to the mandatory, state-run program is to voluntarily implement a 401(k) plan. The question employers should consider: What is the difference?

Some Plan Feature Differences: The Act (state mandated option) vs. Company-Sponsored 401(k) Plan (elective choice)

Let’s assume you are an affected company and currently do not offer a retirement plan. Employers must now consider whether they want to implement a 401(k) plan or be defaulted into NJ’s state-mandated program. A company-sponsored 401(k) plan provides for flexibility and customization not available through the state-mandated program. Below is a table highlighting six significant differences between the two:

Some Facts about the Act2:

  • Signed into law by Governor Phil Murphy in March of 2019.
  • Implementation is slated for March 28, 2021 (could be delayed up to one year).
  • A Board will be established to oversee the program.
  • The Act is an auto-IRA program, not a 401(k) Plan.
  • Employers will be required to:
    • Provide employees with information about the program within 30 days of employment.
    • Deposit employee salary withholdings on a timely basis.
    • Offer an open enrollment period annually.
    • Track whether an employee has opted-in or opted-out.
    • Submit employee census data to the NJ Secure Choice Savings Program annually.
  • Employees age 18 that have completed 3 months of service must be auto-enrolled at a mandatory 3% of pre-tax salary.
    • Employees can increase or decrease the amount deferred into the program OR opt out of participating.
  • Employers can incur penalties for non-compliance ranging from a written warning up to $5,000.
  • New Jersey business owners must offer a retirement plan if they have been in business for 2 or more years, have 25 or more employees and have not offered a qualified retirement plan in the past two years.

In Closing:

I am a fan of the Act, in spirit. Why? Because I am a proponent of all employees having access to a company-sponsored 401(k) plan that is of high-quality, low-cost and a fiduciary based / client first solution. However, I am not a fan of “forced-choice” and thus prefer the ability to customize a retirement plan program based on the specific needs and characteristics of the business owners and employees I serve.

If you are an employer with 25 or more employees and have yet to implement a 401(k) plan let’s discuss the many options available to you, before that choice is made for you.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

Post-Election Investment Commentary

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Post-Election Investment Commentary

Stock markets abhor uncertainty. Currently, investment prognosticators are interpreting the election results to create a relatively “stagnant” legislative environment. This opinion is based primarily on the Senate remaining in Republican control with the presidency Democratic. The anticipated stagnation connotes a more predictable investment environment. Clearly, the stock market has recently responded overwhelmingly positive (as of 11/10/20), to the reduced potential of increased taxation along with the greater likelihood of additional COVID-19 aid and economic stimulus.

This leaves some investors with an instinctual response to grow their equity exposure. However, the biggest risk investors face at this time is changing their investment course and getting it wrong. It remains important to keep focus on the long-term horizon, which no one can predict with much accuracy. The potential future variables that can impact markets are limitless. The impact of the pandemic and potential ensuing lockdowns is clearly one significant unknown.

What is a prudent investor to do? Assuming you are appropriately diversified, remaining so may be your best response.

Those initiating portfolio changes now based on campaign rhetoric should consider that the proposed policy changes may not materialize in current proposed form. If some do, it is difficult to assess which policies may be implemented and how they may affect the markets both US and internationally.

Long-term investing success is a function of innovation, economic growth, interest rates, productivity, and factors we may not currently foresee. Maintaining an appropriately diversified, low cost investment strategy which is properly funded, may not be exciting or pacifying today, but it most likely will provide financial success in the long term.

Cyber Security Issues for Plan Sponsors

The Department of Labor is working on a guidance package addressing cybersecurity issues as they relate to plan sponsors and third-party providers.

Tim Hauser, Deputy Assistant Secretary for DOL’s Employee Benefit Security Administration (EBSA) has indicated that we should expect more focus in the department’s investigations of the adequacy of various cybersecurity programs to confirm that service providers plan sponsors hire are practicing effective cybersecurity practices.

Mr. Hauser also indicated that the forthcoming guidance would be informal, and not a formal notice and comment.

Plan Sponsor Considerations

The DOL expects there to be questions asked when hiring a TPA or record-keeper.

  • What practices and policies do the service provider have to ensure their systems are secure?
  • Does the service provider have regular third-party audits by an independent entity?
  • How does the third party validate their systems cybersecurity?
  • Is there any history of cybersecurity incidents?  If so, what is their track record?
  • What did they learn from any prior incidents, and how have they improved their defensive processes?
  • Do they indemnify their clients in event of security systems breaches that result in losses?
  • Do they have insurance policies to make you whole and cover breaches, or do they have all sorts of waivers and exculpatory clauses in their contracts?

In the event a security breach is identified and an offender has achieved access to confidential information, the plan sponsor should produce a documented response, including notifying law enforcement, the FBI, the plan and their participants.

Once an official final guidance package is made available, we will share that information with you.

Annual Retirement Plan Notices

It is that time when plan sponsors need to send annual notices to participants. The 401(k) safe harbor, qualified default investment alternative (“QDIA”), and automatic enrollment notices must all be sent to plan participants between 30-90 days before the beginning of the plan year (i.e., no later than December 2nd for calendar year end plans), and may be combined into a single document.

401(k) Safe Harbor

Plan sponsors of safe harbor matching contribution plans can retain the flexibility to reduce future contributions by issuing “maybe not” language in their annual 401(k) safe harbor notice.

Prior to this year, safe harbor non-elective contribution plans had to be in place as of the first day of the plan year and were subject to the safe harbor notice requirements. Effective beginning January 1, 2020, not only can a 401(k) plan be converted into a safe harbor non-elective plan at any time during the plan year or even during the following plan year, but the notice requirement has been eliminated. Generally, safe harbor plans can make a mid-year reduction or suspension of a safe harbor contribution, but only if the employer is either (1) operating at an economic loss, or (2) had already provided a “maybe not notice”. As a result of the economic downturn created by COVID-19, the IRS issued temporary relief from this limitation on suspensions.

QDIA

If your plan contains a QDIA, you must provide an annual notice to all participants who were defaulted or may be defaulted into the QDIA in order to retain this fiduciary protection. Many plan sponsors send the notice to all plan participants.

Automatic Enrollment

If your plan contains an automatic enrollment feature, you must send an annual notice describing the automatic enrollment to all participants who have been or will be automatically enrolled and haven’t made an affirmative election to change their deferral percentage.

This Month’s Participant Memo - Participant Corner: The 10% Savings Goal

This month’s employee memo encourages employees to conduct a regular examination of their retirement plan to determine whether any changes need to be made. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

Most people need to save more — often a lot more — to build a nest egg that can meet their needs. Many financial experts recommend putting away 10 to 15 percent of your pay for retirement. There’s a relatively painless way to reach that goal.

Take small steps

  • Begin by contributing enough to receive your employer’s matching contribution
  • Consider gradually raising your contribution amount to 10 percent or higher
  • Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember—say, 2 percent on your birthday. Thanks to the power of compounding (the earnings on your earnings), even small, regular increases in your plan contributions can make a big difference over time.

A little more can mean a lot

Let’s look at Minnie and Maxine. These hypothetical twin sisters do almost everything together. Both work for the same company, earn the same salary ($30,000 a year), and start participating in the same retirement plan at age 35. In fact, just about the only difference is their savings approach:

Minnie contributes 2 percent of her pay each year. Her salary rises 3 percent a year (and her contributions along with it), and her investments earn 6 percent a year on average. So, after 30 years of diligent saving, Minnie will reach retirement with a nest egg worth $68,461.

Maxine gets the same pay raises, saves just as diligently, and has the same investments as her sister—except for one thing: She starts contributing 2 percent, but raises her rate by 1 percent each year on her birthday until she reaches 10 percent. She will keep saving that 10 percent for the next 22 years, until she retires by Minnie’s side.

Maxine tells Minnie that she’s never really noticed a difference in take-home pay as her savings rate rises. Instead, she looks forward to having $285,725 in her retirement fund by age 65.

Think ahead and act now. To increase your deferral percentage, contact your HR department today.

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

IRS Limits on Retirement Benefits and Compensation

By | Resources

IRS Limits on Retirement Benefits and Compensation

As published in IRS News Release IR-2020-79, Oct. 26, 2020

HIGHLIGHTS OF CHANGES FOR 2021
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift
Savings Plan has remained unchanged at $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts for 2021 remains unchanged at $13,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements
(IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2021.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or
his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated,
depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work,
the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2021:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from
    $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement
    plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered,
    the deduction is phased out if the couple’s income is between $198,000 and $208,000, up from $196,000 and $206,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is
    not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads
of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to
$208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes
contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderateincome workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750;
and $33,000 for singles and married individuals filing separately, up from $32,500.

Key limit remains unchanged
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for
individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. Details on these and
other retirement-related cost-of-living adjustments for 2021 are in Notice 2020-79 (PDF), available on IRS.gov.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

To Roth or not to Roth

By | Resources

To Roth or not to Roth

To Roth or not to Roth

Many Defined Contribution retirement plan participants are uncertain as to benefits of allocating their contributions to traditional vs Roth options. This is for good reason. There are two key major determiners as to the benefit of contribution to Roth:

  • Will they be in a higher or lower tax bracket in retirement?
  • Will tax rates increase, stay the same or decrease in the future?

If you know for sure that tax brackets will increase in the future, the Roth option allows post-tax contributions grow and be withdrawn with no (higher) taxes later.

Simple, however no one knows whether income tax will be greater during the balance of their contribution period, or in retirement, than it is today.

One supposition we hear frequently is that “taxes always go up.” Actually, this is not the case. History shows that income taxes move both up and down over time. Admittedly, there is some logic to the assumption that, with our national debt being considerably greater than ever and increasing, tax increases seem probable. One plausible compromise approach may be utilizing both traditional contributions up to maximum employer match, and Roth for non-matched employer contributions.

The percentage of companies offering a Roth 401(k) option alongside a traditional plan has grown steadily in recent years, requiring greater need for participant education. The Plan Sponsor Council of America’s 62nd Annual Survey of Profit-Sharing and 401(k) Plans, released in December 2019, showed that nearly a quarter of participants (23%) elected to contribute to a Roth in 2018 when given the opportunity, up from 19.5% in 2017 and 18.1% in 2016.1

For those that also have a Roth IRA, remember the SECURE Act 2019 eliminated the “Stretch IRA” that had allowed beneficiaries to gradually take distributions from inherited IRAs over the course of their lifetime. Now those who inherited an IRA since the beginning of 2020 and thereafter have 10 years to withdraw the assets or face taxation of the money all at once (spouses and disabled beneficiaries are among the exceptions to the rule). The Roth IRA option can mitigate this issue for high net worth clients looking to transfer their estate. Roth 401(k)s have the same 10-year distribution limit for beneficiaries, but they have the potential benefit of reducing tax liability as Roth 401(k) distributions are not taxed like traditional 401(k) or IRA distributions (although they do count as income).

Roth 401(k)s have the same 10-year distribution limit for beneficiaries, although still considered as income, there is the potential benefit of reducing tax liability as Roth 401(k) distributions are not taxed like traditional 401(k) or IRA distributions.

  1. https://www.research.net/r/3RQD8R2

Defined Contribution Recordkeeper Consolidation Continues

Empower recently announced an agreement to acquire MassMutual’s retirement plan recordkeeping business. The acquisition is expected to capitalize on both firms’ experience and expertise to the benefit of retirement plan participants and plan sponsors. Plans currently utilizing MassMutual are being notified of this action and should expect no changes or disruption to current operations during the next 4 to 6 months, with any potential changes likely 18 months away.

While MassMutual’s retirement plan products and services are considered among the best in the industry, and their market share has grown substantially over the past decade, providers must generate increasingly greater scale and make significant sustained investments in technology, product offerings and the customer experience to meet future competitive customer demands.

Empower is an acknowledged industry leader in the retirement business and is well positioned to continue to make the investments necessary to compete successfully over the long term. Empower has been active in acquiring other retirement plan businesses over the past decade and possesses a great deal of experience. This acquisition will increase Empower’s participant base to more than 12.2 million individuals in approximately 67,000 workplace savings plans. Due to their combination of expertise, product strengths and business scale they are expected to remain a long-term industry leader.

Together the consolidated firm will serve a broad spectrum of employers including: include mega, large, midsize and small corporate 401(k) plans; government plans including state-level plans to municipal agencies; not-for-profits such as hospital and religious organization 403(b) plans, defined benefit and collectively bargained Taft-Hartley plans.

Retirement plan recordkeeper consolidation has been accelerating since the early 2000s beginning with acquisition of some smaller entities who were not able to keep pace with the growing customer needs and product sophistication. More recently we have seen consolidation among the larger recordkeepers, including top tier providers like the Wells Fargo’s acquisition by Principal, Empower’s acquisition of Great West, Putnam, JP Morgan, and MassMutual’s acquisition of the Hartford over the past decade.

As with previous similar occurrences, we anticipate this consolidation will be a positive for the industry, plan sponsors and their participants as it will likely lead to enhancements in technology, plan level and participant services, and financial economies of scale.

 

Plan Documents… Save or Purge?  

Many ERISA plan sponsors are unclear regarding a primary fiduciary responsibility concerning plan document retention (which and when documents may be purged). Most plan sponsors adopt an assumed “reasonable” amount of time to retain documents prior to purging them. Unfortunately, IRS rules may not always be complicit with what may be assumed to be “reasonable”.

The purpose of this communication is to underscore the important plan record retention so that you may not fall prey to the type of fiduciary breach described in the following paragraph.

Recently a random IRS 401(k) plan investigation shed an uncomfortable light on the issue of plan document retention. When pressed to produce certain specific documents that were not readily available, the plan administrator decided to contact the plan’s service provider. The plan administrator was informed that the Third Party Administrator (TPA) purges its files after each plan restatement and expects the plan sponsor to meet any document retention obligations under IRS or ERISA. This is actually standard procedure for many TPAs. (https://ferenczylaw.com/solutions-in-a-flash-to-purge-or-not-to-purge-that-is-the-question/)

Depending on the document category, there are different standards for how long documents need to be kept. For example: participant benefit records must be retained “as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary.”1 While the regulations were never finalized, the Department of Labor (DOL) has taken the position those record retention obligations apply beginning when the DOL issued its first set of proposed regulations under Section 209 on February 9, 1970 because employers were put on notice of the obligations. As such, plan sponsors should consider whether benefit plan records need to be maintained indefinitely.

Record retention rules are accessible in both the DOL regulations as well as ERISA statutes. Statutes of limitations on plan sponsor liability for administrative functions concerning retirement plans also are codified.

Due to the length of regulations on this topic we urge you to review the AICPA link below for a thorough list of document retention regulations.

 

  1. https://www.aicpa.org/content/dam/aicpa/interestareas/employeebenefitplanauditquality/resources/planadvisories/downloadabledocuments/ebpaqc-plan-advisory-retaining-and-protecting-plan-records.pdf

 

This Month’s Participant Memo

Participant Corner: Budgeting for Retirement

This month’s employee memo encourages employees to conduct a regular examination of their retirement plan to determine whether any changes need to be made. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

There are all kinds of “rule of thumb” numbers floating around for how much income you’ll need in retirement, but they are just that — guidelines, not hard and fast rules that will necessarily apply to your particular situation. Budgeting for your retirement is a bit of a guessing game however clarifying your goals and expectations will make it easier.

Reduced Expenses

How do you know what you’ll need to retire? That depends entirely on how you end up living in retirement. If you’re intending to stay in the same place with the same spending habits, then take your current monthly expenses and deduct the things that may no longer apply — things like:

  • Mortgage, if you will pay it off before you retire
  • Work clothing
  • A second vehicle if you won’t need one anymore
  • Insurance on the second vehicle
  • Gas for commuting
  • Starbucks on the way to work
  • Lunch out on workdays
  • Dinner on days you work late
  • Work-related tools (physical tools or software and a new laptop every other year)
  • Wage tax if your state has one (although you can still be taxed on Social Security)
  • Tax savings from a lower income tax rate

Sounds good so far, doesn’t it? Well before you start celebrating prematurely, there are things that may cost more. That’s where your vision for retirement comes in.

Budget Busters

You may plan to stay right where you are and do the same things you do now other than going to work. Fair enough. Nevertheless, you may still need to add a few things:

  • If you stay in your current home, even if it’s paid off, you may have higher maintenance bills over time as the home ages. Little things like paying someone to clean the gutters aren’t a budget buster, although a new HVAC system or a new roof could be. Include a set-aside in your budget for home maintenance
  • Property taxes also tend to creep up over time. Take a look at your past tax statements and get a feel for the average annual increase. Playout annually for 20 or so years and add the increases into your budget
  • Increased medical costs: On average a 65-year-old man will spend $190,000 for medical needs during retirement; a 65-year-old woman will spend $215,0001
  • Remember our gutter-cleaner from above? You may need a lot more help around the house as time goes on in terms of your daily activities, like meal preparation and cleaning. Best to plan for
    that now
  • Is your spouse’s retirement income a significant part of your plan? What happens to that income if he or she dies? In the case of Social Security, the surviving spouse has the choice of receiving the higher benefit (their own or their spouse’s) but not both, meaning a reduction in total income

Very few people simply stop working without substituting other activities and those other activities often come with a price tag. Clear your mind and think about your “typical day” and “typical month” in retirement.

  • Where do you see yourself living? In your house? In an apartment or condo? In another city or even another country?
  • What will you do all day? Do you have hobbies or activities you intend to pursue? Knitting is relatively cheap; however, a heavy photography habit can be a budget buster all on its own
  • Do you want to travel? If so, where will you travel and how? A personalized tour of the Serengeti is pricey; a high-end cruise can be costly as well. Going to a low-cost destination for a week or two and staying in an Airbnb is much less expensive. Make a list of the places you want to visit and what you want to do there. Research the least expensive ways to do that. Then create an annual travel budget and plug it into your retirement plan

Think Outside the Box

While doing this visioning exercise, don’t limit yourself to your current environment or activities. Think expansively.

You could keep your home for a few years to transition into retirement and then downsize. Or you could downsize first, sell the house, buy something less expensive and put the difference into investments.

Maybe you don’t need a house at all. A condo or even an apartment may be right for you. While apartment rents tend to increase over time, they also give you the flexibility to move at least once a year.

Some retirees take mobility to a higher level by selling their house and cars and buying a motor home or boat to live on. While you can spend extravagant amounts on either of those, just as you could on a new home, you can also find good deals on pre-owned. You could save on property taxes and have a high degree of mobility.

An increasing number of Americans are opting to stretch their retirement budgets by moving to an area with lower costs, either in the U.S. or outside of it. The five U.S. states with the lowest cost of living are Mississippi, Arkansas, Oklahoma, Missouri and New Mexico.2 Although if you currently live in Massachusetts, Oregon, New York, California, Washington, D.C., or Hawaii almost anywhere else you move is probably going to be cheaper than where you are now.

While exact numbers aren’t available, the State Department estimates that about 9 million Americans live outside of the U.S.3 Many expats choose to relocate to save on housing and other costs of living, including medical care. You may be able to maintain a significantly higher standard of living during retirement by moving to another country.

Retirement isn’t just a time to quit working; it’s a time to enjoy the fruits of all of those years of labor — to open your mind and your horizons to new experiences, people and places. Getting there isn’t hard. And with a good plan, you can.

For more information on budgeting for your retirement, please contact your plan’s
financial professional.

 

Sources:

  1. https://money.cnn.com/2018/05/07/retirement/expenses-in-retirement/index.html
  2. http://worldpopulationreview.com/states/states-with-lowest-cost-of-living/
  3. https://en.wikipedia.org/wiki/American_diaspora

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

Election Year Investment Volatility

By | Resources

Election Year Investment Volatility

Election years, with their uncertainty and increased emotions, cause anxiety for investors. Certainly, there may be short-term market volatility around elections, but history suggests that over the long-term the economy and markets move higher regardless of election outcomes.

In fact, presidents often receive too much credit for strong economies and markets, as well as too much blame for weak economies and markets. Corporate earnings are the real driver of the market over time. Presidents have less impact on corporate earnings than many perceive.

Most recently, the market fell after the Trump election. However, it quickly reversed to a strong upsurge over the next few years. Investors that sold out of the market on Trump’s election missed out on several strong years of returns. This has played out many times in history. Looking at the long-term effects of presidential transitions, as the chart below shows, markets have trended higher over the long term regardless of whether a Republican or Democratic president held office.

The key to investment success, as always, is diversification and a long-term investment horizon. It is important for investors to tune out the short-term noise and keep a long-term perspective.

Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.

Retirement Income Survey  

Attaining a satisfactory retirement experience is dependent on sufficiency of post retirement income. In an attempt to identify current attitudes in this regard the *Alliance for Retirement Income surveyed
pre-retirees between the ages of 56 and 75 (with a minimum of $100k assets) regarding their anticipated timing of their retirement. https://www.allianceforlifetimeincome.org/feature/americans-more-pessimistic-about-retirement-plans-due-to-pandemic/

Here are some highlights resulting from the survey:

  • 20% decided to retire later than originally planned
  • 52% are not fully confident they will be able to retire when they want to
  • 47% of retirees say their retirement was partly based on factors out of their control
  • 76% overall have some lifetime income from an annuity (35%) or a pension (65%), or both
  • Only 33%, felt “very confident” having sufficient income to meet all expenses in retirement.

This survey was taken during the Covid-19 pandemic, which may have dampened some financial expectations, but it also only covered those with over $100k in assets. Perhaps those with fewer assets may be more pessimistic.

Although the non-profit education-oriented Alliance sponsoring this survey is proponent of, and therefore may have a bias toward protected retirement income programs, the validity of their conclusions is strong.

In this age of extended life expectancies, the potential of “phased retirement” workplace options and delayed retirement may help in managing better financial outcomes during retirement.

*The Alliance for Lifetime Income is a non-profit 501(c)(6) educational organization based in Washington, D.C., that creates awareness and educates Americans about the value and importance of having protected lifetime income in retirement.

Annual Plan Audit: An Auditor’s Perspective

Does your plan require an annual audit? If your eligible participant count (including terminated employees who maintain an account balance) exceeds 100 at the beginning of your plan will you be required to conduct a benefit plan audit including financial statements attached to the Form 5500 (the one exception is the *80-120 rule.) The audit is intended to confirm the plan is operating within the guidelines of the plan documents and follows specific Department of Labor and IRS regulations.

This article identifies auditors concerns in areas of plan management that may lead to plan fiduciary exposure to litigation and regulatory breaches. The main differences auditors find are:

  • Documentation for all fiduciary level decision-making: ERISA fiduciary decision-making must follow the ERISA definition of procedural prudence, which entails a specific and rigorous process.
    (A description of this process is the subject of an accompanying article in this newsletter.)
  • Establishment of Retirement Plan Committee: Every Retirement plan should establish oversight committee which meets regularly to review plan status and conduct plan management functions. This committee should be memorialized with a committee charter identifying fiduciaries and their functions and should be adopted via a board resolution.
  • Formal Investment Policy Statement (IPS): An IPS provides a “road map” which must be followed for selection and monitoring all investments within the plan. A non-executed (unsigned) IPS is typically perceived by regulators and courts as not having of an investment process, which may result in an indefensible fiduciary breach of duty.
  • Definition of compensation: Definition of compensation is not always a simple matter. Because your plan may use different definitions of compensation for different purposes, it’s important to apply the proper definition for deferrals, allocations, and testing. A plan’s compensation definition must satisfy rules for determining the amount of contributions. If the definition of compensation found in the Plan Document is not administrated precisely for 401(k) purposes a fiduciary breach is likely. This can be a costly oversight.
  • Minutes from retirement plan oversight committee meetings: Each Plan Committee meeting, with topics discussed and conclusions, must be documented to affirm procedural prudence.
  • Definition of eligible employee: Definition of an employee, much like that of compensation, is sometimes misunderstood or inaccurately administered. An example would be that of part time employees being ineligible for plan participation. The term part time employee itself has no meaning under ERISA which focuses on hours worked when attributing eligibility to employees. This issue is often misunderstood.
  • Documentation of service provider selection and monitoring: This issue is very important for many reasons. Those most impactful on plan fiduciaries are determining reasonableness of fees, services, and investment opportunities. The documentation of this process, in accordance with procedural prudence, is essential for fiduciary liability mitigation as it is the cause of much litigation.
  • Cybersecurity controls: Plan Sponsors need to be mindful about the sensitive data they manage on behalf of retirement plan participants: their dates of birth, Social Security numbers and account balances. Security breaches could occur through phishing, malware, or a stolen laptop, etc. This is a relatively recent but rapidly expanding area of potential fiduciary liability.
  • Education to participants: In addition to providing all pertinent plan level information, it behooves plan sponsors to provide sufficient participant education such that participants are able to consistently make informed investment decisions.
  • Delinquent remittances of EE deferrals: Delinquent remittances is a frequent and typically unintentional fiduciary operational breach. It has been stressed by ERISA and in litigation activity that participant deferrals should be remitted to the investment providers as soon as administratively feasible. This has been interpreted to mean as soon as you are able to remit payroll taxes.
  • Plan Forfeitures: Plan Forfeiture administration is another often misunderstood or overlooked operational responsibility. Plan forfeitures, employer contribution amounts that accrue when an employee leaves the Plan and their account is not fully vested, should be allocated at the end of each plan year in which they were accrued. If you hold forfeiture allocation longer, this becomes a fiduciary breach and one which can be time consuming and administratively difficult to correct.

Please contact your financial professional with any questions you may have.

*The 80-120 rule provides an exception for growing businesses. If you (a) have between 80 and 120 participants, and, (b) were considered a small plan in the previous year, you can continue to file the shortened version of the form. When you report at least 121 participants, you must file as a large plan. If you file as a large plan after employing the 80-120 exception, you must continue to file as a large plan – even if your participant count drops below 120 – as long as you have at least 100 participants in your plan.

This Month’s Participant Memo

Participant Corner: Retirement Plan BasicsThis month’s employee memo encourages employees to conduct a regular examination of their retirement plan to determine whether any changes need to be made. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

 

Ten Things to Know about Your Employer’s Retirement Plan

  1. What it is?

Your employer’s retirement plan is a defined contribution plan designed to help you finance your retirement. Federal and sometimes state taxes on your contributions and investment earnings are deferred until you receive a distribution from the plan (typically at retirement).

  1. Why do they call it a 401(k)?

The 401(k) plan was born over 40 years ago, under Section 401(k) of the Internal Revenue Code,
hence, 401(k).

  1. You decide

You decide how much to contribute and how to allocate your investments. This gives you the advantages of easy diversification – a well balanced mix of investment choices, and dollar-cost averaging by making regular investments over time.

  1. It’s easy

You contribute your pre-tax dollars and lower your taxable income by making automatic payroll deductions. It’s a simple method of disciplined saving!

  1. Know your limits

In 2020 you can save up to $19,500 of your pre-tax dollars. If you are age 50 or older, you can save an additional $6,500.

  1. “Free” money

Many employers will match some of your contributions. This is free money and a great incentive to contribute to the plan.

  1. Vesting

Should your employer make a matching contribution; vesting refers to the percent of your employer contributions that you have the right to take with you when you leave the company.

  1. Borrowing

Some plans allow you to borrow a percentage of your account value. Keep in mind that you have to make regular payments plus interest on the loan.

  1. Early withdrawals

You may be able to take a lump-sum payment before you retire, generally for emergencies (hardships) only. You’ll pay a 10-percent penalty as well as federal and state income taxes. While this is good for emergency situations, your retirement plan is a retirement savings fund, not a rainy-day fund!

  1. Leaving the company

When you leave your job, you can rollover your retirement plan savings to an Individual Retirement Account, which can later be rolled over to a new employer’s retirement plan. This way, you stay on track for your retirement savings goals, without having to start over each time you change jobs.

 

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

You’ve Taken a Financial Hit During COVID-19. Use These 5 Techniques to Overcome Financial Stress

By | Resources

You’ve Taken a Financial Hit During COVID-19. Use These 5 Techniques to Overcome Financial Stress

Beginning in February and March 2020, America, Canada and Europe locked down cities, closed businesses and halted travel amidst the onset of COVID-19. Six months later, we’re still experiencing the pandemic’s global impact in our communities. A record number of people have applied for unemployment in America since March, and millions are still left jobless, behind on their bills or struggling to make ends meet. If you and your family have been financially hit during the COVID-19 pandemic, here are a few things you can do to help handle and overcome your financial stress.

Tip #1: Make a To-Do List

Sometimes the most effective techniques are the simplest. When it comes to overcoming your financial stress, start by putting your to-do list in writing. Creating a clear list of what’s ahead can help it feel more tangible and doable. If you can, start with the easiest tasks and slowly work through your list, checking things off one by one. With a to-do list in front of you, there’s no need to bear the burden of remembering everything in your head. Starting with a list of tasks can help you more effectively build a plan of action.

Tip #2: Try Talking to Someone

While working with a financial advisor is recommended, it can still help to open up to a family member or friend in the meantime. Keeping everything bottled up and to yourself is only going to escalate your anxiety. If you’re able to, talk it out with someone you trust and be honest. Discussing your problems can ease the burden significantly. Your friend or family member may even have some advice to offer or a financial advisor to recommend.

Tip #3: Review Your Spending Habits

Ignoring the situation may be tempting, but putting your financial obligations off will only make them worse. While some financial issues are more complicated than others, taking stock of your current situation can help build a better understanding of where you are today and what needs to happen. This often starts with adjusting your spending and saving habits. When it comes to addressing your current spending habits, there are a few things you can do right away:

  • List out every income source you currently have
  • Determine your debts (student loans, car payments, credit card debt, etc.)
  • Keep track of all your spending manually or using a phone app
  • Identify potential spending patterns or triggers (when you’re stressed, right after payday, etc.)
  • Determine what changes you can make to your average spending to save more
  • Avoid impulse spending

Tip #4: Make a Plan and Create a Monthly Budget

Creating and tracking a monthly budget is a great way to get in the habit of healthier spending – and healthier spending habits mean less 􀀁nancial stress.
To get started on creating your monthly budget, start by:

  • Listing out recurring expenses such as gas, groceries, utilities, etc.
  • Prioritize contributing to your emergency fund each month
  • Set up automatic payments to avoid late fees or interest
  • Determine where you may be able to cut down on spending (entertainment, clothes, etc.)+

Tip #5: Establish a College Savings Plan

If you have a young one at home, paying for college is likely looming over your head. To ease this large financial burden, take the time now to establish or check up on your 529 plan. This tax-advantaged savings plan is designed to encourage saving for future education costs (such as tuition, room and board, etc.). You and other family members can contribute to the account, which will gain interest over time as you set aside funds to pay for a child or grandchild’s education. Getting your finances in order is no easy feat. Identifying your main stressors and establishing a plan to address them can make a big difference in how you and your family feel about your finances. If you’re feeling lost, confused or overwhelmed, don’t forget to reach out to a trusted financial professional who can help make sense of your current financial situation.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalites. Please consult legal or tax professionals for specific information regarding your individual situation. THe opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security

4 Yearlong Tax Tips for Retirees

By | Resources

4 Yearlong Tax Tips for Retirees

Whether you’re just easing out of the workforce or you’ve been in retirement for a few years now, making financial moves is critical. If you’re working with an advisor or taking a look at your finances
one central goal during retirement is protecting your wealth from unnecessary taxes.

In many cases, there are ways to avoid owing more taxes – but usually, this requires proactive action beyond tax season. Below we’ll explain four tips you can utilize throughout the year to help minimize your tax obligations in retirement.

Tip #1: Take Your Required Minimum Distributions (RMDs)

An RMD is an amount that must be withdrawn from your retirement account. These required withdrawals begin when you, the retirement plan account owner, reach age 72. The rules apply to employer-sponsored retirement plans, traditional IRA plans and Roth 401(k) accounts, but they don’t apply to Roth IRAs when the account owner is still alive.
Some IRA custodians and retirement plan administrators might find out what your RMD is for you, but the responsibility ultimately falls on you. To find out what your RMD is, the IRS provides l ife expectancy t ables to utilize according to your circumstances. If you do not withdraw the RMD (or the correct amount), the amount not withdrawn will be taxed at 50 percent, which is why it’s critical to take your RMDs and withdraw the correct amount.1

It’s important to note that as part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, passed on March 27th, 2020, RMDs are not required for the remainder of 2020.2

Tip #2: Manage Your Income Combinations

As a retiree, a portion of your income will likely come from Social Security. However, not all of your benefits are taxable, and there are ways to minimize or, at times, eliminate taxes on your Social Security benefits.

If half of your Social Security benefits in addition to your other income is higher than the base amount for your status, your benefits will be taxable. By strategically managing all of your income sources (such as pension payments, dividends or part-time jobs), it’s possible to lower the portion of benefits that will be taxed. Rules regarding Social Security income taxes also vary from state to state, so always check with your state regulations to determine the best solution for you.3

Tip #3: Figure Out if You Need to Pay Quarterly Taxes (If Not, You May Decide to do it Anyway)

If you don’t have taxes withheld automatically, you may need to pay estimated tax payments. Individuals who are expected to owe $1,000 or more – or those whose withholding and refundable credits are 1) less than 90 percent of the tax owed or 2) at least 100 percent of the tax on the previous year’s return – must pay estimated tax.

In some cases, you might decide to pay quarterly taxes, even if you are not required to, in an effort to avoid the inconvenience of paying a large sum all at once. If you miss a payment or underpay, you may be charged a penalty.4

Tip #4: If You’re Moving to a New State, Get to Know Its Tax Laws

If you’re relocating to a new state during retirement, consider the impact of the move on your financial situation, as tax laws vary according to the state. For example, some states, like Florida and New Hampshire, don’t tax on income or only tax on dividends and interest.5 On the other hand, they may have higher property taxes. For example, New Hampshire’s property taxes are high compared to the rest of the country.6 In addition to nicer weather or a more serene lifestyle, you might decide to move to a new state in an effort to save on taxes.

In many cases, an individual or couple is working with a fixed amount of wealth to last throughout retirement, which is why taking the right financial steps is essential. By working with an advisor and keeping these four tips in mind during the year, you can make sure you’re not paying more than you need to. When it comes time to finalize gifting to your children or grandchildren, you can further reduce taxes by incorporating other strategies, like charitable giving, into the equation. 7

1. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#1
2. https://www.congress.gov/bill/116th-congress/house-bill/748/text
3. https://www.irs.gov/faqs/social-security-income
4. https://www.irs.gov/publications/p505#en_US_2019_publink1000194564 arevenue.com/faq/pages/faqsearch.aspx?keywords=income%20tax&cat=0&subcat=0

6. https://www.revenue.nh.gov/assistance/tax-overview.htm#interest
7. https://taxfoundation.org/the-effects-of-making-the-charitable-deduction-above-the-line/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

4 Areas of Your Estate Plan to Review in Light of COVID-19

By | Resources

4 Areas of Your Estate Plan to Review in Light of COVID-19

Although COVID-19 related restrictions are beginning to ease, many people continue to help slow the staying home and self-isolating. There are still unknowns related to the pandemic and how it will play out, undoubtedly keeping us all on edge. Over the past few months, we’ve been forced to face fears of falling ill, losing a job, spending time alone, etc. With these anxieties weighing on your mind, it may feel as though there’s a sudden need to get your affairs in order, just in case.

It never hurts to be prepared in the event that, for instance, you may need to be hospitalized for coronavirus or any other sickness. Thinking about falling ill or not being able to make decisions for yourself can be frightening, but having an estate plan in place can help ease your concerns.

Many people are taking this time at home to update their estate plans, and if you don’t have one in place, there’s no better time to put it together.

Estate Plan Documents That Should Be Reviewed & Updated If Necessary

Individuals over the age of 18 should have some level of estate planning in place. You may be surprised to learn that wills and trusts aren’t the only documents to prioritize. A strong estate plan will include several important documents, such as a living trust, financial powers of attorney, health care powers of attorney and more.1
In light of the current pandemic, two of the most important documents to have up-to-date and on-hand are your medical and financial powers of attorney. For instance, if you’re quarantined in your home, admitted to the hospital or become incapacitated, you’ll need someone to handle your finances or make medical decisions on your behalf. With those in place, it’s a good idea to continue organizing a comprehensive estate plan that includes the following documents.

1. Power of Attorney and Health Care Proxy

A financial power of attorney grants authority to carry on a person’s financial affairs and protect their property by acting on their behalf. This includes the ability to write checks, pay bills, make deposits, purchase or sell assets or sign any tax returns.1

Similarly, a health care power of attorney grants the authority to make health care decisions on your behalf should you become incompetent or incapacitated. If you are over the age of 18 and do not have a health care power of attorney in place, your family members will need to request that the court appoint a
to take on these responsibilities.1

Ensuring that you have named trustworthy and reliable individuals as your powers of attorney is key as you update your estate plan. If your current documents are outdated, implementing new ones should be on the top of your list.

2. Your Will

A last will and testament is a legal document that allows you to direct distributions of your property at the time of your death. A will also allows you to appoint an executor who oversees the distribution of your assets.2 This person will attend to your affairs after you pass, probate your will if necessary and file income and estate tax returns on your behalf. If you have children who are minors, you should also name a guardian for them in the will.

Everyone has assets that must transfer after a person’s death, and without a will, there is no direction as to how and to whom those assets will pass. Distribution of your assets will be handled by the state and the court will decide on the best person to oversee the administration. This is similar to an appointed guardian in that if you don’t appoint one, a court will decide on the best person to fulfill this role.2

3. Living Trust

In general, your trust benefits you while you are alive and may also be beneficial to others, such as your spouse or children. Identifying who will receive assets upon your death may be a detail that needs updating based on your lifestyle and changes that have taken place. Additionally, you’ll want to outline whether your beneficiaries receive your assets outright or perhaps you’ll want to provide them with an income stream instead. If your beneficiaries are young, you may want to consider holding assets for them in a trust until they are old and responsible enough to handle finances themselves.

Appointing a trustee will identify who will step in to manage your affairs without the involvement of the court, avoiding extra time and money associated with probate.3 A trust also affords you privacy regarding the details of your estate since it eliminates the need for probate, which is a public process.

4. Beneiciaries

Another important update you should make to your estate plan is to review beneficiary designations on your life insurance policies, retirement accounts, etc.2 Keep in mind that if you have a joint asset such as a bank account, that will pass to the surviving joint owner. Be sure to name someone you trust to act in your best interest should the time come for them to be responsible for your assets.

Due to stay-at-home orders and social distancing practices, it may be more difficult to meet with your or notary in-person to prepare or update your documents. There are template websites online

that allow you to create documents from scratch, and some states have even suspended various statutes to let people appear before a notary public via videoconference.4 While some documents can be finalized virtually, wills need to be signed in front of witnesses, which means this step to finalizing your documents may need to be done in person.

While you have the time, you should start reviewing your estate plan and making any adjustments with the appropriate professionals as needed. Making necessary and important changes now will likely benefit you and your family in the future.

1. https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/
2. https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/an_introduction_to_wills/
3. https://www.consumerreports.org/cro/2013/11/how-to-create-a-bulletproof-estate-plan/index.htm
4. https://www.americanbar.org/groups/law_aging/resources/coronavirus-update-and-the-elder-law-community/notarization-in-the-age-of-covid-19–the-status-of-states/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.