The Sandwich Generation
A Slice of Estate Planning
For the millions of baby boomers in the "sandwich generation," these are worrisome times. Sandwiched between the financial needs of parents and children, they often end up having to contribute to both, and there may be particular urgency when elderly parents need to get their estate plans in order. Often, parents have put off making vital decisions, and face a future of uncertain means, declining control over their own lives, and increasing dependence on younger family members.
One way to address these issues is to view estate planning as a family affair. You could start by setting aside time for everyone involved-yourself, your spouse, and any siblings-to discuss the main aspects. But be prepared for a frank, often awkward discussion of sensitive concerns. Your parents or in-laws may regard this as an intrusion into their personal affairs, and emotions are likely to run high.
Here are several things to discuss with your parents:
Do they have an up-to-date will? Most estate plans start with a will, and even if your parents have one (many don't), it may need to be updated to reflect changes in family circumstances, your parents' desires about how assets will be distributed, and frequent recent shifts in tax and estate laws. You'll need the help of an experienced estate planning attorney, but first you'll have to persuade your parents to share this very personal document with you. Emphasize that your only goal is to make sure their wishes are successfully carried out.
Where's the money? You may want to take an inventory of all of the key documents. This will likely include bank account records, life and disability insurance policies, retirement plan and IRA statements, and the like. It's a good idea to assemble all of the pertinent information, including account and policy numbers and contact names, in one document and make copies for you and your parents or in-laws. Also note whether any accounts are in joint name or designated as "transfer on death" accounts, which will not pass under the terms of a will but rather the designated person on the account.
Are tax records in order? As part of this process, look at tax issues, and determine the tax basis of securities that may have been purchased decades earlier. It's also a good idea to know where your parents' tax records are kept and who their accountant is.
What are their wishes about health care? This can be a particularly touchy subject, so tread carefully, but it's also extremely important. Try to establish guidelines for what will happen if a relative is disabled or suddenly loses a spouse. If extra care is needed, do they prefer to have someone come into their home, or would they rather move into assisted-living or live with a family member? Also encourage your parents and in-laws to establish a living will and durable power of attorney that sets out their preferences for end-of-life care and specifies someone to handle health-care decisions if they're no longer able to make them. A general power of attorney is also needed for management of assets.
This list hardly covers everything you'll need to discuss, but it may help get you started. We can work with you and your parents to assess asset allocation plans, tax strategies, and other elements of their financial lives. And, of course, we're also happy to help you take stock of your own estate plan and the provisions you want to make for your children.
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To Roth or Not To Roth
That is the question!
High income earners were previously unable to convert a traditional IRA to a Roth IRA. That changed in 2010 and has lead to quite a few conversations surrounding "Should I or shouldn't I?". The answer isn't clean-cut.
Several points need to be considered:
1) Do you have the ability to pay the taxes due on the conversion? This should be done with assets OUTSIDE of the IRA.
2) Do you believe you'll be in a higher tax rate at retirement than you are today? If yes, then a conversion may make sense.
3) When do you anticipate retiring? It may make more sense to convert to a Roth, if retirement is not in your immediate plans.
These are just a few considerations. Make sure you consult with your financial advisor and/or your accountant before moving forward with a conversion.
Also, if you've already converted to a Roth and are now having second thoughts, you can "re-characterize" the conversion. That gives you the option to return the IRA to its prior status.
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Paying Dividends
It wasn't so long ago that
many investors regarded dividends as roughly the financial equivalent of a
record turntable at a gathering of MP3 users--a throwback to an earlier era,
irrelevant to the real action.
But fast-forward a few years,
and things look a little different. Since 2003, when the top federal income tax
rate on qualified dividends was reduced to 15% from a maximum of 38.6%,
dividends have acquired renewed respect. Favorable tax treatment isn't the only
reason, either; the ability of dividends to provide income and potentially help
mitigate market volatility is also attractive to investors. As baby boomers
approach retirement and begin to focus on income-producing investments, the
long-term demand for high-quality, reliable dividends is likely to increase.
Dividend income has
represented roughly one-third of the monthly total return on the Standard and
Poor's 500 since 1926. According to S&P, the portion of total return attributable
to dividends has ranged from a high of 53% during the 1940s--in other words,
more than half that decade's return resulted from dividends--to a low of 14%
during the 1990s, when investors tended to focus on growth.
If dividends are reinvested,
their impact over time becomes even more dramatic. S&P calculates that $1
invested in the Standard and Poor's 500 in December 1929 would have grown to $57
over the following 75 years. However, when coupled with reinvested dividends,
that same $1 investment would have resulted in $1,353. (Bear in mind that past
performance is no guarantee of future results, and taxes were not factored into
the calculations.)
If a stock's price rises 8% a
year, even a 2.5% dividend yield can push its total return into the double-
digit range. Dividends can be especially attractive if the market is producing
relatively low or mediocre returns; in some cases, dividends could help turn a
negative return positive. Dividends also can help mitigate the impact of a
volatile market by helping to even out a portfolio's return.
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| Brighton Financial Planning provides discretionary investment management, investment advisory and financial and estate planning services. |
Contact Us
Brighton Financial Planning
1728 Rt. 31
Clinton, NJ 08809
908-730-7000
www.brightonfinancial.com
John@brightonfinancial.com
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