© 2017 Samuel, Sayward & Baler LLC
© 2017 Samuel, Sayward & Baler LLC
Our attorneys have been out and about in the community, speaking about the importance of estate planning and continuing our education series on matters related to our practice areas.
In November, all of our attorneys attended the Massachusetts Bar Association’s day-long Probate Law Conference, which is always an informative event. This year’s highlights included the Probate Court’s move toward electronic filing of probate documents and further clarification of the best way to ensure clear title to real estate passing through the probate estate. Additionally, Attorney Greenfield chaired the annual Massachusetts Continuing Legal Education Program, “The MassHealth Process from Application to Approval,” in Boston.
In December, Attorney Baler gave a presentation on Powers of Attorney at the Westwood Senior Center in conjunction with our new community partner, the Honoring Choices program (see separate article on this program). Attorney Greenfield testified at a public hearing in Worcester regarding changes to proposed MassHealth regulations (see article on proposed changes).
© 2017 Samuel, Sayward & Baler LLC
2017 started off with a bang in the MassHealth world! The end of 2016 brought with it some unexpected proposed MassHealth regulation changes which forced elder law attorneys across the state to scurry like mad before the holidays to review and comment on the new regulations which were originally set to take effect on February 1, 2017 but still have not been officially implemented. Some of the most impactful changes are the proposed elimination of pooled trusts for nursing home MassHealth applicants over the age of 65, and no longer permitting MassHealth applicants to fund supplemental needs trusts for non-child beneficiaries. While the written comments prepared by MassNAELA members as well as the testimonies of 15 lawyers at a public hearing in Worcester in mid-December may prove helpful in convincing MassHealth to reconsider some of the changes, we expect that many of the proposed regulations will take effect soon.
On January 5, 2017, the Massachusetts Supreme Judicial Court (SJC) heard oral argument on two pending irrevocable income only trust cases. We should finally receive some clarity on the future of these trusts for MassHealth planning this spring. Stay tuned for updates in this ever-changing area of the law!
© 2017 Samuel, Sayward & Baler LLC
While many employers offer retirement accounts as an employee benefit — even those that offer generous matching contributions — many do not offer adequate education on how to choose among the investments offered in the retirement plan. If you have engaged a financial professional to advise you, make sure that their advice about your overall investment strategy incorporates the money in your (and your spouse’s) retirement accounts. If you don’t have a financial advisor and don’t have the time to educate yourself about investments, Target Date Funds (TDFs) may be a reasonable alternative if you do a bit of research yourself. Here are the basics of what you need to know:
Employer Sponsored Retirement Account Basics
If you are employed and eligible to contribute to your employer sponsored retirement plan, congratulations! Your employer is giving you the opportunity to contribute much more than the IRS maximum allowable contribution amount for Individual Retirement Accounts (IRA). Maximum contribution to a company retirement account in 2017 is $18,000 ($6,000 more if you are over 50 years old) compared with $6,500 to an IRA. And, your employer may match some of your contribution. That’s free money and worth a conversation with your employer to find out if you are eligible to contribute, as well as determine if you are taking full advantage of this opportunity.
Contributing to an employer sponsored retirement plan also requires choosing among the several investments offered by most plans. Investment choices are typically mutual funds and there may be many dozens from which to choose. Unless you are an experienced investor or have help from someone who is, deciding what funds to invest in and when to make changes bewilders most employees. If your employer offers employee education, it will be time well spent; and, if you are an employee who has a financial advisor, make sure to ask for help with retirement plan investments — something many advisors overlook. If none of these options apply to you, consider TDFs.
Target Date Funds
TDFs automatically spread an employee’s contribution among a mix of mutual funds that hold stocks, bonds and cash in proportions targeting a specific year of retirement. About ten years ago, the U.S. Department of Labor began allowing the use of TDFs in retirement accounts. TDFs alter the mix of stocks, bonds and cash, by reducing the percentage held in stocks and shifting the allocation toward more conservative investments the closer you are to retirement.
TDFs aren’t managed by the investor, who may make panicked decisions during turbulent markets that they may later regret. But, not all TDFs are alike. Before investing in a TDF, it is important to understand how it invests and adjusts its mix of stock, bonds and cash over time as well as what the TDF costs.
TDF Glide Path, Costs and Other Investments
Glide path is the name TDFs give to the timing of changes in the mix of investments as the years pass toward the targeted retirement, analogous to an airplane moving through take off and voyage to landing. Some TDFs have a glide path that move entirely to cash at the target date, others continue to hold a significant amount of stock through the early retirement years or even through the entire retirement. Because the percentage of stock in an account is a major factor in how an account will perform during market up and down times, it is important to know and be comfortable with a TDF glide path before investing in it.
Some employees have not only an employer sponsored retirement account, but also a spouse’s employer retirement account and perhaps other investment accounts. If you choose a TDF, check whether its mix of stocks, bonds and cash is consistent with the investment strategy in your other accounts.
Investing in a TDF costs more than putting money in individual mutual fund choices offered through an employer sponsored retirement plan. TDFs offer the additional service of choosing the funds and adjusting the stocks, bonds and cash mix, so some additional charge is justifiable. However, some TDFs add more than 1 percent per year to the other costs of the retirement plan and can be a major drag on performance.
As always, when you have questions about important financial matters, consult your trusted financial advisor.
Investments in target date funds are subject to the risks of their underlying holdings. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative investments based on its respective target date. The performance of an investment in a target date fund is not guaranteed at any time, including on or after the target date, and investors may incur a loss. Target date and target retirement funds are based on an estimated retirement age of approximately 65. Investors who choose to retire earlier or later than the target date may wish to consider a fund with an asset allocation more appropriate to their time horizon and risk tolerance.
Samuel Financial LLC is located at 858 Washington Street, Dedham, MA 02026 and can be reached at 781.461.6886. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser.
In addition to estate planning, a large part of our practice includes long-term care planning for seniors and their families. In fact, all of the attorneys at Samuel, Sayward & Baler LLC are members of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), which is the largest and oldest elder law bar in the country.
If you are over age 60, you should contact us or other experienced elder law attorneys to help educate you about long-term care issues and plan ahead for the future. As experienced elder law attorneys we assist families with pre-planning, crisis management and MassHealth applications. While it is always better to plan ahead, even in a crisis we are often able to save families from spending down all of their life savings on the high costs of nursing home care.
Call us to schedule an appointment to learn about long-term care issues, resources available to pay for care, and why advance planning is so important – especially for those who are retired or approaching retirement.
In our October, 2015 newsletter Attorney Baler reported on a Massachusetts Appeals Court case that held that a husband’s interest in a trust created by his father was a marital asset subject to division in his divorce (Pfannenstiehl v. Pfannenstiehl).
That Appeals Court decision was very disturbing to estate planning attorneys because prior to that holding, we could rely on hundreds of years of law holding that assets in a so-called spendthrift trust created by someone other than the beneficiary and managed by an independent trustee were protected from a beneficiary’s creditors.
The lower court’s decision was appealed and on August 4, 2016, the Supreme Judicial Court issued its unanimous decision reversing the Appeals Court holding. This is very good news for parents who have created trusts as part of their estate plan for the purpose of protecting their child’s inheritance from creditors including a divorcing spouse. If you are concerned about protecting your child’s inheritance, call Samuel, Sayward & Baler LLC or another experienced estate planning firm and schedule an appointment to meet learn how you can best protect your hard-earned assets from your children’s creditors.
With half of 2016 behind us, we can see a number of developments in the financial industry that will likely have an impact on investors for the rest of the year and beyond. Here are updates in two important areas: Socially Responsible Investing and the Fiduciary Standard for Investment Advisors.
Socially Responsible Investing
Socially responsible investing (SRI), is investing that attempts to evaluate an investment’s social, environmental, and governance policies in addition to its potential to provide returns. Investment dollars placed in SRI or similar strategies have grown 13.1 percent per year between 1995 and 2014 (http://www.cnbc.com/2015/09/24/doing-well-while-doing-good-socially-responsible-investing.html ). Although interest in SRI is widespread, it is most often mentioned by millennials (people born between the early 1980s and early 2000s) and women. (http://www.cnbc.com/2015/09/24/doing-well-while-doing-good-socially-responsible-investing.html). Four developments are making SRI more attractive to millennials, women, and all investors interested in SRI.
One of the primary developments contributing to the increase in socially responsible investing is the growing realization that including SRI factors in investment criteria does not always mean sacrificing returns, as it did in the past. A 2015 Duetsche Bank analysis of a large number of studies of investment strategies found that a large majority of studies indicated a positive return when SRI investments were added, and roughly 90 percent of studies showed at least a neutral relationship between adding SRI investments and returns. (http://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917).
A second development accounting for growing investment in SRI is that SRI index funds have become more broadly available. For many investors already interested in the low cost, passive strategy of index funds, the availability of low cost index SRI funds is very attractive. Third, companies are becoming more interested in making business and financial decisions based on the impact they will have on the environment and social outcomes, as companies with strong sustainability scores have been found to show better operational performance with lower risk (http://www.arabesque.com/index.php?tt_down=51e2de00a30f88872897824d3e211b11).
Absence of tools to evaluate and monitor SRI investments has hampered SRI investing in the past. Recently, Morningstar, one of the most popular resources for evaluating mutual funds and exchange traded funds, started evaluating all funds on their SRI impacts by assigning a “sustainability rating” to each investment. This allows fund investors to evaluate their investments not only on the basis of return and mathematical measures of risk, but also on the environmental, social, and corporate governance.
Fiduciary Standard for Investment Advisors
Many people assume that all financial advisors are required to act in their client’s best interest, known as the fiduciary standard. Unfortunately, the current law permits financial advisors to choose a lower standard: “suitability.” About two thirds of financial professionals choose this lower standard.
Imagine a waiter promoting a high priced but mediocre steak dinner and receiving a bonus or commission when you buy it – it may be suitable for your dinner, but it would be in your best interest to be informed about prime steak, fresh fish, vegetables and the price and commission, too. Under the current rule, the mediocre steak would be an approved suitable transaction even if the price had not been properly disclosed or compared with better and still affordable alternatives. Under the best interests or fiduciary rule, the waiter would have a responsibility to tell the whole truth about the quality of the meal and the price, as well as the alternative prime steak and fish and vegetables.
The Department of Labor (DOL) is responsible for regulating company retirement plans as well as all types of Individual Retirement Accounts ( IRA, Roth IRA, SEP IRA). Recently, the DOL changed its rules, requiring that all financial professionals act with the account owner’s best interest in mind. For the most part, it requires compensation by fee rather than by commissions that might motivate the financial professional to make recommendations based on the commission rather than on what is best for the public. The change to the fiduciary standard goes into effect April 10, 2017 and applies only to retirement accounts.
Although the DOL’s rule is an important improvement for consumers, it isn’t perfect. First, there is an important exception to the rule, known as the “Best Interests Contract.” This exception allows financial professionals to be paid on commission if they provide a written statement to the consumer confirming that what is being recommended is in their best interest. Second, the new rule applies only to retirement accounts. Government agencies that regulate the investment accounts that are not retirement accounts have announced that they are considering eliminating the lower suitability standard, but they have not done so yet. Third, the new law is not in effect until April 10, 2017.
How might you find out if your current financial advisor is a fiduciary? The first way, of course, is to ask whether s/he is a fiduciary and whether that applies to your retirement and non-retirement accounts as well. As always, review these and other important financial issues with your trusted advisors.
Securities and Advisory Services offered through Commonwealth Financial Network®,
Member FINRA/SIPC, a Registered Investment Advisor.
Samuel Financial LLC 858 Washington Street Suite 202 Dedham, MA 02026 781-461-6886
Although many people would prefer to sign their estate plan documents, file them away and never look at them again, the reality is that your estate plan is always a work in process. Family situations change, financial situations changes and laws change. In order for your estate plan to effectively achieve your goals, your plan needs to change periodically to address your current priorities. The estate plan you created when you were 30 years old is no longer appropriate at age 50.
How do you know when it’s time to create an estate plan or update your existing plan? Here are five stages of your life when reviewing and updating your plan is important:
Recently, I received a call from a child of clients for whom I had done estate planning when my clients were in their 40’s and their children were young. Now, one of my clients was in a nursing home and the other had recently died. Although we had sent these clients reminders every year to review and update their plan, they had not done so. Unfortunately, an updated plan could have left their children and my surviving client in a better position than they now find themselves.
Good estate planning attorneys maintain relationships with their clients throughout their lives and encourage their clients to review and update their plans periodically. Next time your estate planning attorney reminds you to review your plan, listen to her and set up an appointment if it’s been awhile since you’ve reviewed your plan. You, and your family, will be glad you did.
Health care expenses are among the largest and most difficult costs to estimate and control during retirement. Even those of us doing a good job saving, investing and estimating our retirement expenses may be underestimating the cost of our health care. In the years approaching retirement, it may seem that switching from a private health care plan to Medicare will result in big savings. However, HealthView Services’ 2015 Retirement Healthcare Data Report, drawing data from 50 million households, provides eye-popping projections of health care costs for people approaching or in retirement. The full report is available at www.hvsfinancial.com. Here are some key findings.
A healthy couple, both age 65, retiring this year and covered by Medicare Parts B (physician) , D (prescriptions) and a supplemental (Medigap) policy should expect an annual cost of about $7,000. This amount is expected to rise steadily — from $8,000 to $10,000 annually when the couple is in their 70s, and from $12,000 to $14,000 annually when the couple is in their 80s. The total cost from age 65 to 85 for this couple, is estimated to be about $267,000. Remember that Medicare, even with a supplemental Medigap insurance policy, does not cover all dental, vision, co-pays and other out-of-pocket costs. If these additional costs are included, the HealthView study estimates that a 65-year-old couple retiring in 2016 will have paid a total of nearly $400,000 for their healthcare by the time they reach age 85.
Some people assume that Social Security benefits will easily cover their Medicare costs with room to spare. This is unfortunately not the case. This year, the average Social Security benefit is about $1,341 per month, before deduction of the Medicare premiums. HealthView estimates that a 65-year-old couple retiring today will pay more than 40 percent of their Social Security benefits to cover Medicare when they reach their 70s and that will increase to more than 80 percent in their late 80s.
Even large expenses, like those estimated above, can be managed for individuals and couples who start planning before retirement and manage their expenses well over decades of retirement. A good goal for addressing these large expenses is trying to follow the financial services industry rule of thumb of saving 15 percent of income annually, including employer-matching contributions to company retirement plans. While a 15 percent savings rate is especially difficult for people in their 20s, 30s and 40s when there are many competing needs for housing, family and education goals, making some contributions in those years, even well short of 15 percent is important. The varying amounts saved each year can be enough if combined with 15 percent or more annual savings in a person’s peak earning years in their late 40s, 50s and 60s.
For people who haven’t saved enough for the lifestyle and spending levels they hoped for, finding the least painful ways to reduce spending will not be easy. They should make some lifestyle and/or financial planning changes as soon as they can. For help with understanding how these issues will impact your life and well- being, consult a trusted advisor.
Samuel Financial LLC is located at 858 Washington Street, Suite 202, Dedham, MA 02026 and can be reached at 781.461.6886. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor.
Self-sufficiency and resourcefulness are admirable traits – knowing how to change a tire, wallpaper a bathroom, or use duct tape to fix any number of problems can save both time and money. However, not all tasks should be tackled at home – dental work, anything to do with electricity, and getting bats out of the attic are examples of tasks for which most people should hire a professional. With the proliferation of DIY (do-it-yourself) kits and forms available online these days, estate planning may seem like one of those items that could be handled at home and save a lot of money. Beware – the consequences of not getting it right can be worse than a do-it-yourself root canal! Here are five real examples of DIY estate planning gone bad.
The above are just five examples of what I see in my practice on a regular basis. While it’s great to save money, be careful about being “penny-wise and pound-foolish” – getting it right the first time will usually save a lot of time and money in the long run. And remember, getting it right the first time requires seeking the assistance of an experienced estate planning attorney. Next to DIY documents, documents created by attorneys who do not practice primarily in this area can also create more problems than they solve.
Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
Please note we only are only able to serve clients with legal matters pertaining to Massachusetts.
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