Estate Planning For Unmarried Couples

Ray’s Take Times change. And more couples put off getting married for numerous reasons. People are marrying at a later age and sometimes not at all. Older Americans who have been widowed or previously divorced are deciding to cohabit instead of marrying.

While there are many good reasons to make these choices, it is important to know what rights you are giving up when you choose not to marry. 

For example, legally married couples are allowed to leave their entire estate to the surviving spouse, free of estate taxes. Everyone else is subject to pay tax on amounts over the exclusion amount. State laws generally award assets to biological relatives unless there is a will or other beneficiary documentation in place. 

Additionally, should there be a medical crisis, without the proper power of attorney in place, biological relatives will make all the decisions. Be sure to title any property appropriately so that your loved one isn’t turned out of the home in the event of your death.

There is a common misperception that if you live together for a certain number of years you are married in a common-law union with all the rights of a couple that was married by license. That is not true.

Without additional planning, if one person in an unmarried couple dies, the survivor is not entitled to any benefits, notice in a probate proceeding or continuing support that is afforded to legally married spouses. 

Know the costs and benefits of your choices and do appropriate planning around them. Laws vary from state to state, so it’s important to be aware of how they work in the state where you live. If you haven’t created an estate plan, your state has a default plan for you. A good financial planner can help you create a plan that works for you.

Dana’s Take The average age for marriage is now at an all-time high: 27 for women and 29 for men, according to the 2012 American Community Survey. 

According to Pew Research Center, of all Americans ages 18-29, only 20 percent are currently married, compared with 59 percent in 1960. Delaying marriage leaves time for developing careers, exploring alternatives and developing as an individual before tying the knot.

Ray and I married after age 35, so I get it. But if you’re committed enough to share a home, wouldn’t you want to protect your partner in the event of your death or illness? In the case of your unexpected disability, wouldn’t your spouse feel more committed to care for you than a roommate would? 

For numerous legal, financial and emotional reasons, legalize that union. A lavish wedding is not required, just a trip to city hall.

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Avoid 401(k) Loans

Ray’s Take Many employers offer 401(k) plans that grant participants the option to take out a loan. And when times are tough – or maybe you really, really want to renovate your kitchen – it’s tempting to withdraw money from your 401(k) for a loan.

The loan gets paid back over time by payroll deductions. After all, you’re borrowing money from yourself – what could go wrong? It looks easy and painless on the surface. But digging deeper, there are some very good reasons not to do it.

If you leave your job, the full balance left on the loan becomes due immediately. And the same rule may apply if you are downsized from your job. Defaulting on a 401(k) loan makes the outstanding loan balance into a withdrawal subject to full income tax and, if the borrower is not 59 1/2, the 10 percent penalty too.

The debt typically has to be repaid within five years, or tax and penalty apply to the balance. These sound like some pretty good reasons not to take a loan from your 401(k), but there’s an even bigger one.

The biggest drawback to these loans is opportunity cost that comes with the missed potential growth of your investments. In addition to the lower balance in the account making less money, people typically reduce or stop contributions to their 401(k) while repaying a loan, which means they’re missing out not only on their normal contribution but also on their employer match.

People are living longer than ever, with fewer safety nets. That makes taking loans from your 401(k) even less of a good idea than ever. When you borrow from your 401(k), you are borrowing from your future self and even when you pay back the principal and interest, you probably still won’t break even in terms of lost investment growth by the time you retire.

Dana’s Take Seeing money in your 401(k) account is like smelling freshly baked brownies – it’s hard to keep your hands off. Those of us who are more impulsive may have a hard time leaving that big pile of money alone.

Having a financial planner on retainer to manage your investments can be like having your mother in the kitchen when those delicious brownies emerge from the oven. While a financial planner cannot stop you from raiding your savings, he or she can go over the benefits of leaving that money to grow and compound for decades.

As Ray’s father, Denby Brandon Jr., used to say, “It’s very inconvenient to be old and broke.”

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Bridging the Gap

Ray’s Take: After years of working, planning and saving, many retirees are well-prepared financially to stop going to work in order to earn a living. But many are less prepared for how to fill the space previously filled by work.

Most of us envision retirement as that golden age at a predetermined point in the future where we’ll be free to do all the things we want to do but don’t have time for now. Do you have actual activities that you’re already trying to fit into your routine? Or are they more idealized, hazy, abstract things that you intend to figure out once you reach retirement?

A great question to ask yourself before you retire is: What do I feel like I missed out on? Or What resonates with me now that I want to know more about? Let that be a guide to some things you might want to begin exploring before taking the retirement plunge.

It’s hard to break the routine of a career, but now is the time to get your feet wet in other areas. Retirement may provide more time to do the things we’ve thought about for years, but it still doesn’t provide magic pixie dust – or energy – that will give us the motivation to engage in those activities. Retirement tends to magnify existing behaviors and habits. Putting a foundation in place now to build on later can be one of the best retirement plans you make.

As I have said before, retirement is nothing short of creating an entirely new identity. The transition from full-time worker bee to fully retired can be far more challenging than asset accumulation. If you’re already squeezing in some interests, then you’re ahead of the game. Building a bridge by starting on interesting and fulfilling projects or exploring interests now, before you retire, can make the transition a lot smoother.

Retirement is about more than money. It’s also about creating a new, engaged and fulfilling life.

Dana’s Take: The retirement decision is as much, or maybe more, psychological as it is financial. Some people enjoy what they do so much that it could be unwise to retire without a solid replacement activity or passion established before leaving the workforce. Others are waiting avidly for the day when they can walk out the door of work for the last time and celebrate. Knowing which personality type you are will help you plan the best way to build your retirement lifestyle.

Are you already involved in hobbies or volunteering and passionate about it? If not, it may be unreasonable to expect that you’ll suddenly develop that passion the day after you retire. The most successful retirees plan their post-working lives.

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Playing It Safe

Ray’s Take: With the rise in major hacking instances, it’s more important than ever to be safe, savvy and vigilant when it comes to online accounts. Not only were there major hacks to some of the big-box stores like Target and Home Depot, but they also happened at sites that are perceived to be much more secure. Like Experian – and the federal government. Remember the hack into the personnel database?

What’s the average person to do in the face of all this hacking? A few preventive measures you can take would be these.

Start with a fraud alert. Very effective and not as cumbersome as a credit freeze. Check your bank and credit card transactions online regularly – no less than once a week. Banks and credit card companies are much more vigilant and effective at spotting suspicious activity and reaching out to you, but no one knows your business better than you.

Try not to sign up for every website and web service that asks you to. This spreads your information so far across the web that you’ll never remember where you have accounts. Keep an eye on your email and junk folder. If a website you’ve forgotten about sends you an email, let it be a flag to go there and delete your information and close the account. I’d like to say read what you’re accepting when you sign up for things, but that’s hardly realistic.

Minimize the information you share on any website. If your phone number and address are required to create the account, go back after you’ve signed up to see if you can change or remove information. Try editing the phone number to 1234, or street address to Property SearchCrime ReportNeighborhood ReportWatch Service" style="color: #7d0200; text-decoration-line: underline;">100 Main St. for sites that don’t truly need that information.

Be as careful, and as vigilant, as you can. Keep an eagle eye on all of your accounts. But the harsh cold facts of the new world are that true privacy does not currently exist.

Dana’s Take: When it comes to privacy on the internet, the younger generation seems to be unfamiliar with the concept. Every aspect of their lives is splashed across social media like the latest movie trailer or hot book.

Keeping privacy settings up to date can seem like a full-time job – and sometimes a nightmare. How public are your posts on social media? Have you ever thought about Facebook “about” information like high school and colleges attended? We could be supplying a scammer with a script to say he or she attended the same class. I suppose one has to think like a criminal to set security settings. Or opt out.

Think about how much information you’ve made public already before sharing access to your life and family.

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Medical Planning for Two

Ray’s Take: Planning how you’ll handle health expenses is one of the crucial jobs for any couple when planning for retirement. While many elements of health insurance are based on the individual, it’s important to evaluate these expenses as a couple because what happens to one person inevitably affects the couple as a whole. From a financial point of view and also from a caregiver point of view.

Trying to figure the impact can be difficult. The range of what health care costs could be in retirement can run from nominal to explosive. You can plan for “average,” but you have to look at best case and worst case as well. Remember that retirement is like a cross-country car trip with no gas stations. What’s in the tank at the beginning is likely to be all there is!

Take a realistic look at your health and your spouse’s health. Know the family history of health issues like heart disease and Alzheimer’s. It’s important to take these factors into consideration when planning for retirement. And to make contingency plans to cover the possibilities. Will your spouse be your main caregiver and vice versa? Or do you have another preference?

People tend to assume Medicare will cover health expenses in retirement, but this simply isn’t true. Medicare covered 62 percent of an individual’s medical expenses in 2013, according to a 2017 report from the Employee Benefit Research Institute (EBRI). That’s on average. Even with Medicare, retirees are going to pay more for health care than many are accustomed to under their current employer-sponsored health plans.

You may not be able to reduce your risk of some diseases, but you cantake care of your health, which will keep your costs down. Retirement is a complex and expensive phase of life, and all aspects should be calculated as carefully as possible prior to taking the plunge. It’s usually not inflation or even market performance that presents the biggest risk to your retirement plan. It’s unexpected medical expenses.

Dana’s Take: Dreaming about retirement with your significant other can be a thoroughly enjoyable experience. Planning for that retirement, however, can be less pleasant. One spouse may take the role of optimist, assuming today’s health and wealth will continue forever. This can place the other spouse in the role of pessimist if he or she wants to plan for assisted living and significant health care expenses.

A couple of good tips for these conversations. Be ready to compromise and be respectful of each other’s views. Nobody wants to feel like they’re being railroaded into something.

Meeting with a financial professional can take some of the pressure off.

Having a third party who sees things from outside can help a couple to bring their differing ideas into a cohesive plan that works for both.

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