Review by Eric R. Severson, Esq., Wellington, Florida
Book by Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.
“Whatever your income, always live below your means.” Stanley & Danko, The Millionaire Next Door at 161. This simple rule is very hard to live by in our high consumption society. My wife and I have three young children and are very concerned with our society’s desire to display high social status (e.g., big houses in fancy neighborhoods, luxury cars and clothing, etc.) and our children’s perception of that. This book reinforces the idea of saving for our own good and instilling those ideas in our children.
The authors of The Millionaire Next Door have spent over twenty years studying how people become wealthy. Their research uncovered the following seven common denominators among those who successfully build wealth:
They live well below their means.
They allocate their time, energy, and money efficiently, in ways
conducive to building wealth.
They believe that financial independence is more important than
displaying high social status.
Their parents did not provide them economic outpatient care.
Their adult children are economically self-sufficient.
They are proficient in targeting market opportunities.
They chose the right occupation.
Stanley & Danko, The Millionaire Next Door at 3 – 4.
The authors came up with a formula to determine whether one is wealthy or not:
“Multiply your age times your realized pretax annual household income from all sources except inheritance. Divide by ten. This, less any inherited wealth, is what your net worth should be.” Stanley & Danko, The Millionaire Next Door at 13. From this equation, the authors have classified the two extremes as prodigious accumulators of wealth (“PAW”) or under accumulators of wealth (“UAW”). Boiled down to its essence, the over arching rule to follow to become a PAW is to live below your means. The authors spend time explaining the correlation between living below one’s means and being a PAW through case studies, giving examples of how PAWs live below their means, explaining how one becomes a PAW, and teaching how best to pass this lifestyle down to their descendants.
I would recommend this book to everyone from young adults just starting their careers to grandparents desiring to teach their children and grandchildren the importance of self-control and saving. My only criticism would be that the numbers used in the tables are outdated. For example, Appendix 2 provides estimated price per pound for 1996 motor vehicles. I also question Table 2-2 on page 44 detailing the credit cards held by millionaire household members. I would think that today’s millionaires are holding different credit cards than they were in 1996 taking into consideration discounts various businesses use to entice customers to shop at their stores and use their credit services (e.g., Macy’s and Target). However, the lessons imparted are even more important now than they were when the book was first published.
When I look for a book on retirement planning, I want more than a financial planning book. Although financial planning is very important, retirement planning is broader. After all, isn’t our pursuit in “retirement” to “finally” be doing the things we want to do? If so, Reinventing Retirement, 389 Bright Ideas about Family, Friends, Health, What to Do and Where to Live, is a well written and thorough summary by Miriam Goodman, of things we need to focus on in order to make that goal reality. Retirement planning is not a “defensive” strategy. It is an “offensive” strategy that needs a guide book.
Goodman introduces a “new disease now striking millions of otherwise healthy baby boomers … Retirement Anxiety.” She describes it as our inability [unwillingness] to address our own futures. She emphasizes, “It is essential to think of it as a beginning, not as an end.”
Reinventing Retirement is dedicated “To Peter Pan.” As the eternal child did for Wendy and her siblings, Goodman wants to free the reader’s mind from years of constraint, boundaries created by ourselves, our families and life circumstances. The book is an effort by Goodman to permit our dreams to fly. Unburdened by employment, while still drawing a paycheck, whether adequate or just nearly adequate, Goodman sets our course to pre-plan every aspect of our lives and to regularly re-assess how to make the most of the next phase. “Retirement is both a challenge and an opportunity to be embraced with enthusiasm.” Goodman seems to have a grasp of the issue: what does my retirement mean and how do I prepare and make the most of it?
I like this book because it is not a financial planning book. This book is a practical guide to help focus the reader on multiple areas of life after work with proactive planning for the myriad of demands in retirement. If not now, when?
Planning for “retirement” is (or should be) a current topic of discussion for the largest generation of retiring Americans. Personally, like so many of our peers, we are too busy to discuss it. But, practically, we have to. Goodman writes, “Reinventing Retirement is designed to make it easier for you to assess your retirement needs and consider useful and valuable approaches to meeting them.” She styles her writing as a personal agenda for the reader, much like a workbook.
The book outlines for the reader, literally with physical notebook tabs at the section breaks, a retiree’s eight (8) general areas of focus: Work, Play, Home, Relationships, Finances, Health, What’s Next and Resources. Consistent with the argument that a single book cannot solve all the issues for one’s retirement planning in detail, Reinventing Retirement is a guide. Therefore, the last section on Resources finishes the “workbook” with where to go in order to get details of each general topic.
If few “Boomers” want to confront the issues, Goodman has an informal easy reading style that allows us to accept the subject(s) while avoiding any well-deserved guilt for not having “put away for the future.” This book does not point fingers; it describes how to accept our individual situations and to make the most of our available retirement options. Her approach is coherent, clear, gentle and concise, without intimidating technical advice that so often causes one to switch to the television as an alternative. I read the 170 page text in a couple of relaxed evenings.
There is a psychology to retirement planning. The book is structured to emphasize that retirement is not just about financial planning. Work, Play, Home and Relationships precede Finances as topics. Goodman focuses on what the majority of our life issues will be concerned with. The transitions most of us will face involve these topics. The bottom lines, Health and What’s Next, underscore that in order to enjoy this phase of our lives, we must affirmatively take steps to maintain our health and continually accept that we will be facing opportunities for change or being ‘forced’ to accept conditions placed upon us against our will. Although there are limits to how much specific recommendations might add to such a work, and it may tend to change the character of the style, I would appreciated footnotes to the resources in the last section to help jump-start my planning.
Reinventing Retirement does not so much give the answers as provide the questions for anyone planning for retirement or wanting to make the most out of their next phase of life. It is an interesting book, with an easy manner, useful to its audience. I appreciated the book’s approach as a “whole foods” planning guide with a broad emphasis on living fully the retirement experience. I found this work a good starter for anyone beginning the retirement planning process and I recommend it.
Review by Linda Greenberg, Esq., Palos Verdes, California
Book by Julie Jason
My review is on “The AARP Retirement Survival Guide – How to Make Smart Financial Decisions in Good Times and Bad.” The author, Julie Jason is a personal money manager who started her career as a securities lawyer 30 years ago. Her goal in writing this book was to create an educational consumer-protection guide for soon-retiring baby boomers. AARP (American Association of Retired People) got involved because their mission is to publish books that enrich the lives of older Americans. This book provides a good overview of financial planning options for retirement such as how much you should save, how much you can afford to take out every month. The book won the Best Finance Book at the International Book Awards and was chosen the top business book by Booklist.
The first thing you notice when you open the book is the large print making the book easy to read. It is very detailed oriented and provides lots of tips and lists of things you need to have handy when working on your retirement. For example, there is a list of exactly what you need to bring with you to the social security office when you are first applying for benefits. The book offers clear directions on things such as “Where do I begin?” and what to do when your spouse has very different ideas about retirement.
The book offers very helpful self-assessments, checklists, and tools that are designed to help even the absolute beginner under stand some very complex topics. There is a detailed rating system for varying products as well as some really helpful “Don’t be Fooled Rules”.
Ms. Jason provides her expert opinions on various topics. She rates things like how motivated is a product salesman to does your decision let you sleep at night. She has several “Don’t be Fooled” rules that help educate retiring consumers and protects them from unscrupulous or overzealous salespeople. Along this line, she has one entire chapter dedicated to these topics called “ Perfect Storm of Disaster for Retirees – Sales Tactics, Scams and Bad Advice”.
There is also a great deal of information on evaluating retirement income products. I found this information to be helpful and educational but came away with a sense that a financial advisor would be the smartest way to go since so much can go wrong if you don’t know what you are doing.
As for not yet ready to retirement younger readers, there are lots of recommendations that can help put them on a better, more prepared path toward retirement.
The book finishes with a step-by-step retirement readiness test. Overall, the book was a helpful and educational tool. I would recommend this book as a first step toward putting together a comprehensive retirement plan. It highly suggests the use of a financial advisor. However, it does not go into detail on specifics of individual plans. This book would be a very good reference book that would allow to reader to return as needed for comprehensive explanations for different types of financial products or salespeople.
Review by Christina Nevins, Esq., Boynton Beach, Florida
Book by Daniel R. Solin
Let me first say that I don’t usually enjoy reading financial planning books. Don’t get me wrong. I do read them, because I know that I need the information contained in them. I just don’t enjoy the process, finding that many are bogged down with too much information and a host of unpronounceable acronyms. Having said that, I found Daniel Solin’s book, The Smartest Retirement Book You’ll Ever Read, to be a refreshingly easy to understand and well written book.
Solin covers a lot of territory, presented in 14 sections containing several very short chapters each. Topics covered range from the shockingly large bite inflation can take out of your nest egg over time, to when to retire and begin drawing Social Security, to irrevocable trusts, and even to prenuptial agreements for seniors. Each topic is covered in concisely written, surprisingly thorough chapters. Most of the chapters are only one-and-a-half to two pages, making for a quick read. Solin supplements these chapters with a section in the back of the book that provides, chapter-by-chapter, references to web sites and other resources for further independent research.
The book is, for the most part, written for those individuals who are already retired or about to retire and have enough resources to be able to invest some and still have ready cash on hand for daily expenses. For example, Solin recommends keeping 2 years’ worth of expenses in readily available money market accounts while investing the rest in a combination of stocks and bonds. Certainly, for many retirees, doing so is simply not a realistic option. The majority of the book assumes that you’ve got a substantial nest egg and just need to know what to do with it. At one point, Solin refers to a $100,000 investment as a “cheap” investment, a statement that might turn some off to his advice, thinking that they simply do not have the resources to implement his otherwise sage advice. (Solin does, however, provide a short section entitled “Financial Lifelines for Desperate Times,” in which he discusses what to do if the worst happens and your nest egg runs out before you do.)
Solin’s credentials are excellent. He is the author of two other very well received books, The Smartest Investment Book You’ll Ever Read and The Smartest 401(k) Book You’ll Ever Read. (Sensing a theme here?) He also writes a financial advice column for the Huffington Post and a contributor to AOL’s DailyFinance. Solin’s confidence in his skills comes out clearly in the book: “you need ” this and “you don’t need” that are the kind of definitive word choices he uses when doling out his advice. For some this certainty of opinion may be off-putting; for others, however, it may be reassuring as it gives clear direction on what to do and what not to do.
Overall, I think that this is an excellent book to keep in the finances section of your library. It covers a lot of subjects very well and provides a springboard to further research in the ones that are particularly relevant to your individual situation. I still may not “enjoy” reading books like this, but with this one, at least, I learned a lot of very valuable information that I will keep in the back of my mind for when the time comes for me to retire.
I reviewed Smart Women Don’t Retire – They Break Free: From Working Full-Time to Living Full-Time. I specifically wanted to know how retirement differs for women as opposed to men; however, I learned not only about women and retirement, but also about how women approach transitions in all stages of life. I feel that every woman, young or old, will find this book a useful tool at any stage of their life, and it will open their eyes to the importance of planning early for retirement. Every attorney should have this book on their shelf as a ready reference for themselves and to share with their women clients.
Smart Women Don’t Retire was produced by The Transition Network (TTN) in conjunction with author Gail Rentsch (a founding member of TTN). TTN is a nationally recognized organization founded in 2000 for women over fifty who are thinking about the next stage of their lives. It is comprised of small peer groups that meet regularly to provide support for women as they investigate ideas about the kind of changes they are seeking in their lives. While many TTN members are seeking volunteer opportunities where they can continue to use their special skills, others just want to make new friends and have fun, but most of all the women want to change society’s image of women over fifty.
The book states that it is designed for women fifty years of age and older to help them orient themselves on their retirement journey. I found that although a woman in her later years will find this book indispensable, it is also applicable to women of all ages in varying stages of their life. The book asserts that the women of today’s pre-boomer and boomer generations find themselves in a peculiar situation with regard to what retirement is, what it means, how to transition into their new roles, and what obstacles or joys they will face as women in transition. The women who are currently coming into retirement age now are very different than previous generations. They will be trailblazers for the next generation of women who will become eligible for retirement in the next twenty or thirty years.
As background, throughout history, women rarely entered the workforce and remained in the home dependent on the men in their family for financial support. If they did enter the workforce, it was often due to dire need and was for low pay. In the 1950s, some women began to have jobs outside the home as long as it did not conflict with their traditional roles as wives and mothers. Retirement consisted primarily of leisurely activities with family members and lady friends. It wasn’t until the women’s movement of the 1960’s that women began to consider having full- time jobs outside of the home for financial compensation separate from their husband’s support.
The current population of women pre-boomers and boomers are well-educated, have increased life expectancy, and are healthy through exercise and nutrition. They lived through the women’s movement of the 1960s and saw for themselves the revision of a woman’s place in the world. These women have embraced work and become accomplished, intelligent, independent women who imagined the previously unimaginable. These women broke barriers in the workplace, achieved high positions in their chosen careers, earned money, power and independence, and many of these women look to their careers to define who they are in the world. Therefore, this is the first generation of women to really go through their own retirement. There is no “retirement” blueprint for them to follow.
One of the problems I found with the book is that the book jacket itself leads the reader to assume that the book was written for an elite group of business and government leaders who probably don’t need the help that this book is supposed to provide. In reality, the book addresses women from all walks of life, all financial levels, and all ages.
Although many women interviewed in the book claimed that they want to work well into their seventies, it is believed that in the next decade, the largest population of women in the work force will retire in some form. This book provides, in a very organized manner, an outline of the issues these women will face. Issues such as thinking about retirement, deciding how to enjoy their retirement, changing careers in later life, ageism (both in the workplace and society at large), volunteerism, friendship, finances, legal documents, how retirement will affect their significant other (if married or in a committed relationship), and loss of a loved one.
The book is divided into chapters, each covering a different aspect of retirement and life transition. Following a short general overview of the topic, specific topics are discussed and actual experiences of TTN women are used as examples of what women should and should not do to bring about their desired goals. The book provides exercises in self-analysis on each of the topics with suggestions about how to manage the issues, insight from top psychologists, commentary from other women who have already faced these issues, and provides real alternatives to traditional retirement theories. This book also is filled with pages of internet resources for women regarding careers, life planning, health, networking, travel, and volunteering.
The book discusses all facets of retirement, but I personally believe the most important section is chapter 3: “Can I Afford to Make a Change? “ It deals with handling personal finances competently and managing retirement portfolios effectively. Among the topics discussed is the idea that traditionally women have not assumed responsibility for their own financial security. Rather than a lack of ability, many authorities in the field believe that women have been “socialized” to avoid talking about money and thus have given control of their finances to others. In addition to an extensive list of “things to do” to take control of your finances, there are detailed descriptions of real-life experiences of women who have developed workable financial plans for their retirement.
As a woman and a lawyer, I found Smart Women Don’t Retire – They Break Free: From Working Full-Time to Living Full-Time insightful into the differences between women’s and men’s feelings about retirement. I encourage every attorney to read this book as it provides a great deal of understanding into the needs of their women clients. I believe that this book can be a valuable tool for women fifty and over who are contemplating their retirement in the near future; however, to save this book only for women who meet both of these requirements would be doing a great disservice to all women who are in transition (a constant condition of life). Recent high-school and college graduates, new mothers, divorced women, new business owners, and newly retired women could all benefit from reading some or all of the topics in the book. Because of the easy-to-read format and the short lists of “things to do” under each topic, women can gain knowledge about or do additional research on topics that may have a great affect on their lives for many years to come. The book stresses to all women that it is never too early to begin preparing for financial security, and never too late to make new friends and help others.
I liked this book and found it quite informative. It is directed to the grown children of aging parents who have been placed in the position of having to assist their parents with retirement/financial matters or those who want to help their parents plan before a crisis hits. Though written to that audience, it would be useful to someone looking toward retirement or even to the parents who could benefit from its financial suggestions and see the situation from another perspective. Opdyke has written a book that, in my view, is easy to read and understand. He gives many practical tips and examples on how to get information, documents and finances in order and help make a parents’ nest egg last. The book emphasizes the emotions and resulting stress involved on everyone and tries to offer solutions that produce the least amount of anxiety as possible. Opdyke states up front that each family is unique and that not all techniques will be appropriate for each situation. He also emphasizes the need to use professionals.
The book is broken down into 6 parts: 1) The Talk, 2) The Documents, 3) The Money-Banking and Budgeting, 4) The Money-Making the Money Last, 5) The House, and 6) The Health. Being a financial columnist, the book is the strongest in the financial areas. The first chapter really sets up the rest of the book because it is where Opdyke stresses the importance of opening the dialogue with parents concerning their finances and the need/desire for assistance. Throughout the book, Opdyke gives examples of how to start the different conversations. He makes a point of stressing parents’ independence and how children should not force anything – it has to be comfortable for the parents. Opdyke then gives many useful tips on the type of information and documents that need to be gathered and how to organize. He even has a couple of worksheets for keeping track of things. There is information on budgets-how to determine what the parents budget is, how to decrease if necessary, the discussions to have.
The parts of the book that I liked best were the chapters on money. There were many commonsense approaches to figuring out the parents’ existing budget. Opdyke explained the different types of financial mechanisms from the simple savings account to IRAs and securities. He emphasized the need to have the parents’ money work for them without the blind faith in the stock market that I’ve seen in other sources. The fact that the book was written after the 2008 crash helps to temper his reliance on the stock market. He stressed the need to watch out for unscrupulous financial people and gives examples of red flags in investment strategies. There were also straight forward examples of how different financial strategies work, or do not work. There were examples of how laddering CDs can produce more income/assets; how having all assets in bonds or a savings account is not the best strategy; and how to decide on a good savings withdrawal rate. Opdyke also showed how some techniques worked for parents with more assets but also had pointers that would apply to any financial situation. In fact, I liked that he emphasized that even a little extra cash can make a difference in a retiree’s life and security mindset. The financial recommendations of the book can also be used by the children to help them get in better financial shape.
The weakest chapters dealt with the home situation (both where the parents should/can live and what to do with the home) and health matters. Opdyke sees the 5 year Medicaid planning as risky and the Medicaid rules too subject to change. It seemed to me that he is of the view that people need to work with what they have/what their kids and family have and only use Medicaid planning in a crisis. He does, however, several times state the importance of seeking out an elder law attorney on these matters. Opdyke is a fan of LTC insurance but recognizes its limited availability at times and the expense. The book discusses LTC in terms of how to get the most in view of the cost.
Throughout the book Opdyke uses his personal experiences to show how children can/can’t assist their parents. He also makes a point of stating his belief that children owe this involvement to their parents (they took care of you, now you take care of them). The book is meant to help ease the process for children who are taking on more of a parental role over their aging and declining parents. I would recommend this book. It is easy to read, relatively short and has a lot of good, practical advice.
Ernie Zelinski’s title is so very promising, particularly coming on the heels of his previous book, The Joy of Not Working, and his third work, Career Success Without a Real Job. What a reader quickly discovers, however, is that Mr. Zelinski is one part Wayne Dyer (Erroneous Zones), one part AARP travel suggestions, one part philosophical wisdom, and – well, that’s pretty much the sum of the parts. Is this a bad thing? Not at all. But it is a very limited thing: this book will best (and perhaps only) serve an audience who have 1) already determined how they are going to fund their retirement (or who have decided that they will work well into advanced age), and who have also 2) never taken the time to plan the ways in which they intend to make those years a ‘golden’ time.
The ideal reader for this book is someone for whom the financial preparations for retirement are in place, who has spent his or her entire working life focused on work, who has few (if any) outside interests or relationships, and is dreading retirement: viewing it as an intellectual and personal bone yard. Not only will you not find this advice coming from your financial advisor, you will not find any of his advice in this book.
Having said all of this, there is a place for Zelinski’s book on an Elder Law practitioner’s book shelf: it fills the human factor void that often exists in the dry and practical world of financial and estate planning. Anyone with friends or clients in their fifties, sixties, and beyond, certainly knows someone (or a number of ‘some ones’) who suffer from anxiety, depression, and fear, particularly where concerns about retirement steer the conversation. This book is a humorous and conversational attempt to focus on quality of life: what it is, approaches to crafting one’s own in retirement, and historical moral support in the form of myriad famous quotations.
Zelinski contends that “Retirement Can Set You Free” (Chapter 2). Quoting Kafka, Zelinski points out that “It is often safer to be in chains than to be set free.” No argument there. But Zelinski also argues that retirement is only freedom for those who are emotionally and egoistically prepared; and, he adds, retiring early is even better: “The younger you are,” he observes, “the better you will be able to adapt to such a big change in your life.” And he further warns that, “Retirement may be your last shot at being the person you would like to be.” Again, no argument here.
Zelinski is an advocate for travel and adventure, and offers some clearinghouse information in this area, including contact information for the Elder Hostel program. He does not deal with the nuts and bolts of health and emergency care while traveling: that’s simply not his niche. He also offers advice on late in life dating and companionship. My favorite quotation in this area is one from Elayne Boosler, one of the funniest comediennes of the last thirty years. Boosler claims that “A man who was loved by 300 women singled me out to live with him. Why? I was the only one without a cat.” (I’m still laughing.) There’s some serious stuff, too, like this from Eleanor Roosevelt: “Friendship with oneself is all important because without it one cannot be friends with anyone else.”
Zelinksi does give a few examples of people who have retired early or only part-time, but these stories aren’t likely to motivate individuals with expansive investment portfolios (nor are they intended to). In the end, Zelinski’s book is about becoming that person in retirement that one has never been able to become during working life: an authentic true self. It’s a limited market, for sure, but a market nonetheless.
[Nova D. Muhlenberg Bonnett is an attorney in Largo, Florida, with a general civil practice focused on Elder Law. She is an LL.M. in Elder Law candidate for December 2011]
This book was not a happy choice. In retrospect, it is clear that the title should have warned me off-as with menus, where an exhaustive list of items probably means that they are equally poor. Books that give hundreds of suggestions do not always give so much as one of any real value.
The book consists of an alphabetical list of activities that, if embarked on, would result in one being engaged as advertized. It does tread along from Acting to Zen, but it’s hard to imagine that anyone would be intellectually unengaged enough to be willing to plod through it. It does serve to list things that one might do if confronted with the question “what should I do for a hobby?”
Each activity gets a few paragraphs starting with the author’s rating of the opportunities it provides for intellectual, social and physical engagement. For example, acting provides intellectual and social opportunities. Beekeeping provides intellectual and physical stimulation. I suppose the author recognizes that the company of bees is not likely to make the retiree more welcome in society. But is it really physically demanding? I suppose there are opportunities for running ahead of a swarm. Is acting really not physically demanding. A host of behind-the-scenes films says otherwise.
We are then treated to a description of the prospective hobby (a term by the way that Mr. Price seems to eschew, it may be that it strikes the ear as rather old-fashioned; but hobbies are clearly what we are really talking about) and a brief history. If we decide to take up bartending, we learn that Antoine Peychaud, a New Orleans druggist served his Sazerac in a French egg cup called a coquetier , which devolved into cocktail. Frankly bartending sounds like a somewhat dangerous hobby.
I suspect that there are far more opportunities for pursuing the hobby at home than there are for the professional engagements Mr. Price envisions. Still, it is a novel excuse for the more-than-social drinker who has to put up with well-meaning Samaritans staging unwelcome interventions.
Each activity also has a listing of resources for getting started. These at least are theoretically useful and my save one a couple of steps on a search engine. But it would be more useful to know if Mr. Price really explored all of the cited resources and is vouching for them.
Still, it is to the book’s credit that it is not yet another investment guide. In fact, Financial Planning/Investing gets the same treatment accorded Fencing. It is but another way to divert oneself in pursuit of the elusive engagement. Mr. Price is a retired lawyer from the financial services industry and that ain’t hay, so one assumes that Mr. Price can afford to treat planning for his future ways and means as simply another way to pass the time.
Mr. Price should also be commended for his fair and balanced approach. If one is not inclined to take up Gun Collecting, there is always the tried and true pastime of Gun Control. Evidently not a favorite hobby among congress persons and they won’t be nearly as good at it after they retire.
Altogether probably not entitled to a permanent place on the bookshelf.
SEPTEMBER 27, 2010 VOLUME 17 NUMBER 30
This is so confusing to clients, but it needn’t be. The rules are actually simpler than they seem. Stay with us, and we’ll walk you through it.
OK, here’s the set-up: You have three children, one of whom (the youngest) has a disability. We’ve decided to name her Cindy (sorry if we got that part wrong). Your estate plan is to leave everything equally to your three children, but you know that (1) Cindy can’t manage money, and (2) even if she could, leaving her money directly would knock her off of her public benefits. Just to make things more complicated, nearly half of your net worth is held in an IRA.
Before we roll up our sleeves, let us make a few observations about your situation:
If instead of an IRA you have a 401k, a 403b, Keogh or other retirement plan, the rules are pretty much the same. They’re somewhat different if you have a Roth IRA; we may tackle that issue in a future newsletter.
If Cindy’s disability entitles her to public benefits but she is able to manage money just fine then some of the trust issues might be different from what we describe here.
We’ve decided that your estate (your combined estate, if you are married) is just under the estate tax limits, whatever they might be. That’s so we don’t have to complicate this explanation with an estate tax element. But the truth is, that wouldn’t complicate things all that much — we just don’t want to have to throw those oranges into our apple basket. Not today, anyway.
Ready? Here we go. We’ll start by asking you some questions:
First question: What benefits does Cindy get? Is she on Supplemental Security Income (SSI)? Does she also get Social Security benefits, either on her own work history or on yours? Is she receiving Medicare coverage? How about Medicaid (or, in Arizona, AHCCCS)? Does she also get a housing subsidy, benefits through the Division of Developmental Disabilities, or therapy and care from the school district?
This question is important, because first we need to figure out whether her benefits will be affected by any trust you might set up for her. Here’s a surprise: it’s not enough to figure out what benefits she is on now, particularly if she was disabled before age 22. She might be eligible to receive benefits on your work history (or your spouse’s), and those benefits could go up when you retire and again when you die. Since your estate plan is all about what happens to your money when you die, the benefits Cindy gets then will be more important than the benefits she receives now.
Second question: How important is it to you to give your children the chance to “stretch-out” your IRA? We’re sorry — we didn’t explain what that means.
You already know that you have to withdraw money at a set pace, calculated based on your life expectancy, once you reach age 71 (we know — it’s really 70.5; it’s actually the year after you turn 70.5, so let’s just call it 71, okay?). You probably also realize that your beneficiaries get to use their own life expectancies after they inherit your IRA. Or at least they do most of the time.
If that is important to you, your beneficiary designation should make it easy for your children to use the longest stretch-out period possible. Since they are probably all different ages that means there is a benefit — maybe a slight one, but a benefit — to the youngest children to be able to use their own age rather than being stuck with an older sibling’s age.
Note: this assumes your children share your interest in stretching out the IRA withdrawals. Take the simple case, with Cindy not involved: if you make the other two children (let’s call them Amelia and Barbara) beneficiaries of the IRA, Barbara (the younger) will be able to take a little less out each year than Amelia is required to do. But if either of them decides to just withdraw all the money and use it for an extended European vacation, then they can choose to make a decision that is not tax-wise. If you want to prevent them from doing that, you have raised the complication factor — but it can be done. We’re just not going to try to explain it here. But we do — here.
Third question: Do you want to try to give Cindy some non-IRA assets rather than an interest in the IRA, just to make this simple? Let’s say you left your IRA to Amelia and Barbara, and increased Cindy’s share of the non-IRA assets to make the shares equal. Would that work?
Well, yes — but it’s not quite that easy. Say you leave $100,000 in an IRA to Amelia — is that worth $100,000 to her? No, because she will have to pay taxes on it when she takes it out. How much? It depends on her state, her marginal tax rate and how long she leaves it in the IRA, so it’s very hard to figure out the “real” value to Amelia. Plus we know that the real value of the same amount of IRA will be different for Barbara, making the calculation that much more difficult.
Maybe we can use a rule of thumb, though. Let’s guess that Amelia and Barbara will delay taking out their inherited IRA money as long as possible, and that when they do they’ll both be retired and not making a lot of income. Perhaps the “real” value (to them) of your IRA will be 65% to 80% of its balance when you die. Is that close enough for you to figure out what would be “fair” if you gave Cindy more cash and less IRA? We can’t tell you — this one is a judgment call for you.
Fourth question: Who will manage Cindy’s money after your death? Amelia, the banker (and classic first-born)? Barbara, who has some financial challenges of her own but has always been close to Cindy, and still lives in the same community with her? Your local bank? A family friend, or a professional you have worked with?
Enough questions for a moment. Let us tell you what we think, based on your answers.
First, you can create a trust and name it as beneficiary of your IRA. Don’t listen to your banker or your accountant if they tell you that you can not do that — they are reciting old rules that no longer apply.
But if you do name a trust as beneficiary, you are likely to force everyone to use a shorter stretch-out date — probably all three daughters will be stuck with Amelia’s life expectancy. If there are only a few years’ difference between the girls, that may not be a big deal. If this issue is important, then we probably can work around it — we can name Amelia and Barbara as beneficiaries directly, and a stand-alone “special needs” trust for Cindy’s benefit to receive her share of the IRA. If we do that, though, you have to make us a promise: you can’t let anyone else tell you to change your beneficiary designations after we get them set up. At least you have to promise not to make any changes until after you have met with us and gone back over the beneficiary form.
In fact, you will find that you have to help educate lots of folks about IRA beneficiary designations. Over time you will be told that you have a mistake in your designation, that you have unnecessarily caused tax increases for your daughters, that your lawyer obviously doesn’t know how to do this. We do, and we can help you respond to those bankers, accountants and others who tell you that you need to make changes. Keep us in the loop, please.
We also need to make sure you realize Cindy’s share can’t go to charity after her death. None of it. Even though the non-profit which provides a sheltered workshop for her would be the logical beneficiary of a share of “her” IRA portion, it mucks everything else up.
So how do we get Cindy’s portion of the IRA — and for that matter the rest of her inheritance — set up to benefit her without knocking her off of her SSI, Medicaid, AHCCCS and other government benefits? That’s what a special needs trust is all about.
We have important advice for you: Be careful as you look for information about special needs trusts, though: much of what you read will be about the rules (and limitations) on so-called “self-settled” special needs trusts, and Cindy’s trust will not be one of those. You will be establishing a “third-party” special needs trust, and the rules will be much different, and much more liberal. You can leave IRA and non-IRA assets in a special needs trust for Cindy’s benefit, and you will actually improve the quality of her life without jeopardizing the programs and benefits she receives.
We hope this helps sort through some of the finer points of IRA beneficiary designations. If you want more, we can recommend a really thorough article by our friend Ed Wilcenski, a New York lawyer. He wrote for Forbes.com, and he’s a smart guy who writes well.
Incidentally, we’d love to hear from you. Maybe you have a question about IRAs and special needs trusts, or you just want to tell us whether this helped you out. Maybe you want to quibble with some of our advice. We love to hear from readers.
We will not, however, undertake to represent you based on a simple e-mail or internet inquiry — we need much more information (starting with where you live — we don’t practice outside Arizona) before undertaking a lawyer/client relationship. We won’t be able to answer your specific questions about your own legal situation, either. What good are we, then? Well, we’ll try to demystify some of the general rules and answer general questions about these topics. Contact us if you’d like us to try, or simply Leave a Reply below. We’ll read your comments and let you know, even if we can’t help you with individual legal problems.
United Financial Systems Corporation looks like they can do it all. According to their website (which you will have to look up for yourself — we don’t want to point to it since it still includes information about how to sign up for the activities that have now been prohibited), they can tell you how to plan your estate, retirement, insurance needs, health care — even your funeral arrangements. There is a disclaimer that lets you know they do not practice law (and do not give investment advice). The Indiana Supreme Court begs to differ.
In a disciplinary action three weeks ago, that state’s high court found that UFSC was “an insurance marketing agency,” and it was practicing law. The company was ordered to stop selling living trusts, to give every client a copy of the Court’s opinion, to offer refunds to all clients they had worked with in the past four years, and to pay the costs and some of the attorney’s fees associated with the proceeding. A handful of lawyers were included in the disciplinary process; most agreed to end their involvement with UFSC (and the practice of participating in non-lawyer legal work) and were dismissed from the case.
What was UFSC doing? It had “Estate Planning Assistants” (non-lawyers) contact prospective customers to tell them about the importance of estate planning. If the customer signed up for the $2,695 living trust package, the salesperson collected $750 to $900 and helped the customer fill out a questionnaire.
That questionnaire was then sent to one of several attorneys UFSC hired to prepare living trusts, wills and powers of attorney. The attorney would be paid $225, and would make one telephone call to the client to discuss the estate plan. Once a trust and supporting documents were prepared the signing was handled by another UFSC salesperson — for another $75 slice of the total fee.
The person handling the signing, whose title was usually “Financial Planning Assistant,” also had access to the customer’s financial information (remember that questionnaire?) and could make recommendations about investment changes. One common proposal was to liquidate other investments in order to purchase an annuity — which, incidentally, would yield a significant commission for the Financial Planning Assistant and UFSC.
The Indiana Supreme Court’s opinion details one extreme example of the effect of this marketing juggernaut. The 72-year-old woman was persuaded to liquidate $500,000 worth of Exxon Mobil stock — the bulk of her entire net worth — in order to purchase an annuity. The result: she incurred a $132,000 income tax liability and her salesperson received a $40,000 commission. State of Indiana ex rel. Indiana State Bar Association v. United Financial Systems Corporation, April 14, 2010.
Would UFSC face the same result in Arizona? Probably not. While the unauthorized practice of law is prohibited by court rule, Arizona repealed its criminal statute decades ago. The Arizona Supreme Court has not been active in reviewing such cases, and indeed has even created a “certified document preparer” classification for non-lawyers who “assist” clients in creating wills and trusts.
How can you avoid being taken advantage of by non-lawyer “estate planners” or “document prepapers”? Lawyers tend to think the best answer is the simplest one: hire a lawyer for your legal needs. If you are approached by a “finanical planning assistant” or something similar, you might want to ask “assistant to whom?”
If the salesperson assures you that they have a crack team of estate planners, tax advisers and financial consultants, ask for a few names, titles and credentials. Above all, be very cautious of any person or group who also happens to sell annuities or other insurance products. Not all insurance salespersons are questionable, but practically all questionable non-lawyer “estate planners” sell insurance products.
Review by Eric R. Severson, Esq., Wellington, Florida
Protecting Your Parents’ Money: The Essential Guide to Helping Mom and dad Navigate the Finances of Retirement
How to Retire Happy, Wild, and Free (Retirement Wisdom that You Won’t Get From Your Financial Advisor), by Ernie J. Zelinski