By Mitchell E. Kauffman, MBA

If longevity is a race, then women are the winners: Women outlive men (Females 80.2 years and males 74.5 years); wives live 8-10 years longer than their husbands if they’re married at the same age; and over 75% of women are eventually widowed.

As a result, women must take hold of their financial futures.

The unexpected death of a husband or a recent divorce may mean that a woman is suddenly making all financial decisions. In some cases, they may have been doing this all along. But if not, the unanticipated responsibility can be overwhelming.

In addition, the consequences of poor planning can be devastating. Several studies conclude that after the death of a spouse, up to 80% of life insurance proceeds can be depleted—a lifetime building a nest egg could disappear within a matter of months.

Married or single, it can be beneficial for our clients to reflect on the top 10 financial challenges that women face with suggestions and solutions:

1. Putting the needs of others ahead of your own. A woman will often fund her child’s education before her own retirement, or she’ll loan money to relatives that may never be repaid. Solution: Pay herself first. I tell clients if they have ever flown, they have heard the flight attendant remind them to put the life vest and oxygen mask on themselves first, even before they help family members.
2. Spending money to compensate for emotional needs. Suggestion: Encourage clients to observe their behavior. Then create ways to get through difficult times that don’t require spending money.
3. Deciding whether to keep the mortgage or pay it off. Many advisors believe that for clients over 50 and plan to stay in their home then it makes sense to pay off the mortgage. It is important to be aware that women are often less comfortable with loans than men. As a result, they may decide to pay off the loan even if it’s not in their best interest. Suggestion: How we typically develop a plan depends on the following five factors: Tax bracket, the size of the client’s portfolio relative to the size of the loan, projected cash flow, the liquidity of assets, and what decision will be best for the client’s emotional situation.
4. Living in a home that is too large or expensive. Many women have a strong nesting instinct. As a result, women often place great importance on remaining in their homes. But sometimes there are better options. Suggestion: Similar to point 3, clients are advised to evaluate the five factors, and decide what is best for them.
5. Having an outdated or non-existent estate plan. Considering mortality is never easy. Suggestion: I tell my clients that one of the best gifts that they can provide loved ones is to have their finances in order after their death. Preparation means your estate can be settled more quickly with less cost and hopefully reduce some of the emotional burden on your heirs.  It can also help relatives avoid having to seek out court appointed guardianship, which can add more cost and even emotional trauma. Finally, it is always important to keep family members informed of financial decisions, the location of assets and estate planning documents, and make sure they have determined who will control asset matters should they become incapacitated.
6. Having an investment plan that doesn’t focus on the client’s individual needs. Does the client’s investment program reflect their income, growth, tax bracket, and estate? Suggestion: For clients fortunate enough to have more income than they need, consider income deferral and gifting programs. If their savings falls below the income they require, it may be time to review their expenditures and investment allocations.
7. Being too aggressive or too conservative with investments. Solution: Determine whether the client’s investment plan addresses their income needs and risk tolerance.  Seek objective input.
8. Holding investments too long. A common problem I see when meeting with clients is an attachment to their investments and an aversion to change. Solution: Part of the financial planning process involves creating investment benchmarks. It is a good idea to review and evaluate these with an independent advisor on a regular basis and make adjustments as necessary.
9. Seeking financial advice from someone other than an advisor who is certified in financial planning. Solution: Review an advisor’s experience and background, and request references.
10. Withdrawing too much or too little from a retirement plan. Suggestion: Deciding whether to take out more or less requires an objective outlook. Base the withdrawal amount on the client’s tax bracket and cash flow needs both this year and in the future.

By Doug Fendrick, Esquire

There are many reasons to establish a Trust in your estate planning documents.  One reason is to avoid estate taxes.  However, with the increase of the federal estate tax exemption over the past several years, the all out repeal of the federal estate tax in 2010 and now a $5 Million federal estate tax exemption for years 2011 and beyond, fewer clients need complex trusts in order to avoid federal estate taxes. (Note, however, that the New Jersey exemption is $675,000 and, if your estate exceeds that amount, tax planning trusts may still be appropriate and recommended to minimize your New Jersey estate tax exposure.)  That said, there are still many important non-tax reasons to establish a Trust in your estate planning documents.

I.            Family Protection Trusts.  One of the most important reasons to incorporate a trust into your estate plan is to keep your assets in your bloodlines.  Most parents want to leave their assets to their children, and many parents trust their adult children to properly manage the funds for their benefit and the further benefit of grandchildren.  Often, a parent’s Will provides that if a child predeceases the parent, that child’s share to pass to the deceased child’s children (the parent’s grandchildren).  However, this distribution scheme in a Will may not achieve the parent’s desired outcome.

For example, if a child survives you and your Will left that child his or her share of your estate, outright, then your Will no longer controls the inherited assets.  Once the child receives his or her inheritance, then the child’s Will controls where the inherited assets will pass upon the child’s subsequent death.  The child’s Will is likely to leave his or her assets (including the inherited assets) to the child’s spouse if he/she is married.  This may be inconsistent with your estate planning objectives if you want the assets to pass to your grandchildren, rather than to a daughter-in-law or son-in-law.

Also, by leaving your assets to your children in trust, rather than outright, you help to ensure that your assets ultimately pass to your grandchildren, and stay in your bloodlines.  The trust can specify that, upon your child’s death, any assets that remain in trust will pass to such child’s children.  Such a trust can also be established irrespective of a child’s age.  Parents often think about trusts for minor children, and think that by leaving assets to an adult child in trust suggests that the parent thinks the child is irresponsible.  However, the parent can designate the child as Trustee of his or her trust.  That way, the child can make his or her own investment and distribution decisions (subject to certain limitations in the trust).

Also, by leaving assets to your children in trust, rather than outright, you protect their inheritance from any creditors they may have now or in the future (including in the event of a divorce).

Lastly, when your child passes away, any assets then remaining in the trust will generally not be included in the child’s estate for death tax purposes.  If the child inherited the assets, outright, then the inherited assets would increase the size of the child’s estate and could result in an increased estate tax bill for your grandchildren.

In summary, some of the benefits of leaving your assets in a Trust for your children are as follows: (1) creditor protection; (2) divorce protection; (3) control the ultimate beneficiary(ies); and (4) estate tax savings upon child’s death.

II.       ASSET PROTECTION DURING LIFETIME. A large portion of our practice is dedicated to protecting assets for future nursing home costs.  As many of you know, nursing home costs can cost well in excess of $100,000 per year.  That expense can either be privately paid or the individual can try to qualify for Medicaid.  Medicaid is available to cover nursing home or assisted living expenses if the individual’s assets are less than $2,000 (or, $4,000, depending on the individual’s fixed monthly income).  If there is a spouse, the spouse can keep the lesser of one-half of the couple’s assets or $109,560 (which figure is indexed annually for inflation).  In order to qualify for Medicaid, any gifts made within the preceding five years must be disclosed and a penalty period will be assessed based upon the amount of the gift.  Accordingly, more and more of our clients are gifting assets to trusts for children in order to start that five year clock ticking.  If the assets are gifted to children directly (rather than n trust), the parents risk: (1) the child spending the money; (2) the child dying and leaving the money to a son-in-law/daughter-in-law; or (3) having the assets diminished by the child’s creditors (including in the event or a divorce).  By gifting assets to a trust, you start the five year look back period and do not have to worry that your assets will be dissipated by your children during your lifetime.

III.      OUT OF STATE REAL ESTATE.  Many of our clients are snowbirds and have winter homes in southern states, such as Florida.  Likewise, many of our Pennsylvania clients own summer homes at the Jersey shore.  If you die owning real estate in a state other than the state in which you live, your Executor will need to raise an “ancillary estate” in that jurisdiction.  That can be both time consuming and costly for the estate.  Accordingly, we often recommend that such out of state property be transferred to a Living Trust.  Such a trust does not remove the real estate from your taxable estate, but will save your estate the expense of an ancillary estate administration and will save your executor the time and aggravation of needing to run multiple administrations in multiple states.

If you are interested in learning more about these non-tax reasons a trust might make sense as part of your estate plan, please contact Douglas A. Fendrick , Esquire, at 856-489-8388, or www.Fendricklaw.com,   to schedule an appointment at his office in Voorhees, New Jersey ..

Don’t forget to tell him, Marty sent you!