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Elder Care Planning for Single Older Adults

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As I have written about for many years, having a plan in place for one’s aging years is important. Making sure that there is a plan for future housing, future care, having legacy plans in place, and having the proper estate planning documents procured so that someone is set to handle things in the case of incapacity is vital. For aging couples, it is important that these plans are discussed and ready; but in a worse-case scenario, when plans haven’t been solidified, at least the spouse is in place to help provide support and clean up the pieces, even if the situation isn’t ideal.  But what happens if planning hasn’t been done for a single older person, one who might never have been married and might have no children? One who might not have any close or living relatives, then what?

I have found that many single older adults think that planning for their aging years is very simple. They believe because it is “just them,” not much planning it is involved. Quite to the contrary, because it is “just them,” more planning is actually needed. There are not any default family caregivers or family living situations to rely on. The estate planning area can be a special area of challenge.

For single older adults with possibly no family to name as durable powers of attorney or successor trustees on Trusts, what are possibilities?

  • Consider naming a close family friend that you trust.

  • An estate planning attorney can serve as a general power of attorney or executor of an estate if there is no other suitable person to name.

  • An estate planning attorney or family friend along with a corporate Trustee can be named as a successor trustee of a Trust (i.e. broker dealer of the financial advisor you work with, if that is appropriate and the fees are reasonable).

  • A Geriatric Care Manager might be considered as a power of attorney for health care/patient advocate if there is no other suitable person to name (they have the appropriate background in nursing and social work to make the health care related decisions on your behalf).

Elder Care planning is important for everyone, but especially important for older single adults. If you haven’t started planning and this applies to you, start the conversation with your financial planner today.

Sandra Adams, CFP® , CeFT™ is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Sandra Adams and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Unpacking Incentive Stock Options

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Contributed by: Matt Trujillo, CFP® Matt Trujillo

What is an ISO?!

Some of you reading this might have been granted Incentive Stock Options (ISOs) in the past or perhaps this is something that your employer recently started to grant you. In either case it never hurts to get a refresher on what they are and some of the nuanced planning opportunities that go with them. ISOs are a form of stock option that employers can grant to employees often to reward employees' performance, encourage longevity with the company, and give employees a stake in the company's success. A stock option is a right to buy a specified number of the company's shares at a specified price for a certain period of time. ISOs are also known as qualified or statutory stock options because they must conform to specific requirements under the tax laws to qualify for preferential tax treatment.

The tax law requirements for ISOs include*:

  • The strike price—the price you will pay to purchase the shares—must be at least equal to the stock's fair market value on the date the option is issued.

  • To receive options, you must be an employee of the issuing company.

  • The exercise date cannot be more than 10 years after the grant.

*Special rules may also apply if you own more than 10 percent of your employer's stock (by vote). Nonqualified stock options, another type of employee stock option, are separate from ISOs therefore receive different tax treatment.

Once you have been granted a stock option, you can buy the stock at the strike price even if the value of the stock has increased. If you choose to exercise a stock option, you must buy the stock within the specific time frame that was set when the option was purchased or granted to you. You are not required to exercise a stock option.

Your options may be subject to a vesting schedule developed by the company. Unvested options cannot be exercised until some date in the future, which often is tied to your continued employment. The stock that you receive upon exercise of an option may also be subject to a vesting schedule.

Assuming that a stock option satisfies the tax law requirements for an ISO, preferential tax treatment will be available for the sale of the stock acquired upon the exercise of the ISO, but only if the stock is held for a minimum holding period. The holding period determines if a sale of the stock you received through the exercise of an ISO is subject to taxation as ordinary income or as capital gain or loss.

To receive long-term capital gain treatment, you must hold the shares you acquired upon exercise of the option for at least:

  • Two years from the date you were granted the option, and

  • At least one year after the date that you exercised the option

So whether this is something new to you or something you’ve been handling for a long time, feel free to contact us with questions regarding the nuances around Incentive Stock Options.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc.® Matt currently assists Center planners and clients, and is a contributor to Money Centered.

This information does not purport to be a complete description of Incentive Stock Options, this information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing in stocks always involves risk, including the possibility of losing one's entire investment. Specific tax matters should be discussed with a tax professional.

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Qualified Charitable Distributions: Giving Money while saving it

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Late last year, the Qualified Charitable Distribution (QCD) from IRAs for those over the age of 70 ½ was permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015. Previously, the QCD was constantly being renewed at the 11th hour in late December, making it extremely difficult for clients and financial planners to properly plan throughout the year. If you’re over the age of 70 ½ and give to charity each year, the QCD could potentially make sense for you. 

QCD Refresher

The Qualified Charitable Distribution only applies if you’re at least 70 ½ years old. It essentially allows you to donate your entire Required Minimum Distribution (RMD) directly to a charity and avoid taxation on the dollars coming from your IRA. Normally, any distribution from an IRA is considered ordinary income from a tax perspective, however, by utilizing the QCD the distribution from the IRA is not considered taxable if the dollars go directly to a charity or 501(c)(3) organization.    

Let’s look at an example:

Sandy, let’s say, recently turned 70 ½ in July 2016 – this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA which happens to be $25,000. Sandy is very charitably inclined and on average, gifts nearly $30,000/year to her church. Being that she does not really need the proceeds from her RMD, but has to take it out of her IRA this year, she can have the $25,000 directly transferred to her church either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 28% tax bracket, this will save her approximately $7,000 in federal taxes!

Rules to Consider

As with any strategy such as the QCD, there are rules and nuances that are important to keep in mind to ensure proper execution:

  • Only distributions from a Traditional IRA are permitted for the QCD.

  • Employer plans such as a 401k, 403b, Simple IRA or SEP-IRA do not allow for the QCD

  • The QCD is permitted within a Roth IRA but this would not make sense from a tax perspective being that Roth IRA withdrawals are tax-free by age 70 ½ *

  • Must be 70 ½ at the time the QCD is processed.

  • The funds from the QCD must go directly to the charity – the funds cannot go to you as the client first and then out to the charity.

  • The amount you can give to charity through the QCD is limited to the amount of your RMD.

  • The most you can give to charity through the QCD in a given year is $100,000, even if one’s RMD exceeds that amount.

The QCD can be a powerful way to achieve one’s philanthropic goals while also being tax-efficient. The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you are passionate about. Later this month, we will be hosting an educational webinar on philanthropic giving – click here to learn more and register, we hope to “see” you there!

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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Webinar in Review: Summer Investment Update

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Contributed by: Angela Palacios, CFP® Angela Palacios

As summer heats up so have the headlines! From Brexit to the Election there has been much for investors to digest so far this year. On Thursday, July 28th, Melissa Joy, CFP®, Partner and Director of Wealth Management, and Angela Palacios, CFP®, Director of Investments, hosted a webinar to update investors on the economy, stocks, bond, and all the exciting headlines.

We started the year with all eyes on the Federal Reserve Board as investors wondered when the next interest rate hike would occur.

They have been watching several data points on the economy to assist them in making this decision, including:

  • Unemployment and Wage Inflation

  • Inflation (Core Consumer Price Index)

  • Gross Domestic Product Growth

On all points there hasn’t been enough strength shown yet by the economy for the Fed to justify raising rates further since the last rate hike in December.

The election cycle is now in full swing. Melissa discussed how Brexit, the United Kingdom vote to leave the European Union, and the election here are very telling of a constituency that is tired of the status quo. We expect headlines for Brexit to make waves in the market over the next couple of years, similar to what we remember from the Greek debt crisis a few years ago, as deadlines approach and negotiations of the separation ramp up. 

While politics here in the U.S. will cause some very interesting negative headlines in the next few months, election years overall are usually some of the better performing years (past performance is not a guarantee of future results) despite this. 

Focusing on interest rates we shared our thoughts on record low rates both here in the U.S. and around the world. Low to negative rates are becoming the trend around the world making high quality U.S. government debt extremely attractive to investors outside the U.S. This anomaly is keeping our rates very low despite a Federal Reserve Board that is slowly trying to increase rates.

While interest rates are low, many investors are turning more and more to equities to seek out yield and returns; however, it is important to remember that bonds have the potential to provide needed preservation even at these low rates during stock market corrections. When markets are comfortably up as we have seen this year investors often become complacent and don’t pay attention to their portfolios. Market highs present investors with some great opportunities to tune up their portfolios.

Melissa offered her checklist of what to do when markets are up:

  • Make sure you have future cash needs set aside.

  • Rebalance your portfolio.

  • Consider charitable gifting.

  • Reflect on your investment perspective.

  • Make sure your plan is on track.

If you want to learn more on any of these topics check out the webinar recording below. If you still have questions, don’t hesitate to reach out to Melissa or Angela for further discussion.

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Joy and Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Introducing our Newest Team Member!

Exciting things are happening this summer at The Center! We are thrilled to welcome our newest team member, Lauren Adams, as our brand new Director of Client Services. Here at The Center, we are committed to providing an exceptional level of service to our clients, and we are continuing to invest in this area by bringing Lauren aboard. And that’s not all! As one of her first responsibilities, Lauren is tasked with further growing our client service team by hiring two new Client Service Associates. We hope to be able to introduce them to you here soon.

Lauren said she was eager to join The Center after finding us on Crain’s list of “Michigan’s Cool Places to Work.”* Originally from Michigan, Lauren worked as a stock analyst and manager in Chicago for Morningstar for several years while also earning her MBA from the University of Chicago Booth School of Business and CFA®, Chartered Financial Analyst®, designation in the evening. She’s excited to put these credentials to work helping further improve The Center’s operations and contributing to our investment process. 

Managing Partner Tim Wyman comments, “While working at Morningstar Lauren held a variety of roles that makes her uniquely qualified in this new Senior Manager position here at The Center. Most importantly, Lauren passionately embraces our firm values such as professionalism, a strong work ethic, and a desire to serve others.”

Lauren and her husband Chris decided to return to her home state of Michigan, but not before spending one year traveling the world and visiting over 50 countries (they were inspired by Jim Rogers’s book Adventure Capitalist). If you get the chance to speak with Lauren, be sure to ask her about her favorite countries!

*annual ranking of Michigan’s best work environments based on factors such as benefits, policies, perks, and engagement as measured by employee and employer-based surveys (awarded for 2014)

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Recent Mortgage Rate Decline may offer Financial Opportunities

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Over the past month, interest rates on mortgages have declined significantly, posing the question to many clients if it would make sense for them to refinance or potentially accelerate a new home purchase that they may have been considering. Many factors cause mortgage rates to decline, but the most recent cause can primarily be attributed to the UK leaving the European Union, dubbed “Brexit” (click here  to read our recent blog on this topic and don’t forget to check out our investment focused webinar as well on 7/28!). Typically, when there is a surprise in the markets or volatility spikes, there is a “flight to safety” by investors and bonds are purchased. Bonds are a bit tricky at times to understand in the sense that when bond prices rise, interest rates usually fall. This “flight to safety” caused the yield on the 10-year Treasury bond to hit an all-time low of 1.36% on July 5th. Mortgage rates typically have a direct correlation to the 10-year Treasury bond yield so when you see those rates decline, usually mortgage rates will follow suit. 

Here are some items to consider if you’re thinking of taking advantage of these once again, historically low mortgage rates:

  • How long do you plan on staying in your home? There is usually a cost to refinancing and we’ve found that you typically need to live in your home for at least two to three years after the refinance to justify the fees lenders will charge.

  • Lowering the payment isn’t always the best option – consider reducing the term on the loan even if it means the payment will slightly increase. Being mortgage free in retirement is a beautiful thing!

  • If you have an outstanding second mortgage or home equity line of credit, consider combining them into one loan with a fixed interest rate.

  • If you have an adjustable rate mortgage (ARM), now could be a great time to move to a fixed rate to avoid payment fluctuations in the future.

  • Consider a modest cash-out refinance to pay down high interest rate loans or use as a low interest rate option to fund higher education costs.

  • Don’t make an impulse home purchase just because mortgage rates have declined – the cost of rushing into a major decision like buying a home can cost you far more than the savings you’d see by having a very low mortgage rate.

As with any major financial decision, such as a refinancing or a new home purchase, we encourage all of our clients to reach out to us before making a final decision so we can ensure it is in their best interest for their own personal situation. Please don’t hesitate to reach out if you’d like to talk through your options and see if changing your mortgage rate or term aligns with your overall financial plan and goals. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. . Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Webinar in Review: Taking Control of your Student Loans

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Contributed by: Clare Lilek Clare Lilek

If you or a loved one has student loans, then you know it’s easy to feel overwhelmed at times. According to The Institute of College Access & Success, 70% of undergraduates have student loan debt of $35,000 on average upon graduating. Moreover, these numbers and percentages increase with degree level. With increasing numbers of Americans with student loan debt and the fact that managing multiple loans of various types and interest rates can cause confusion, Melissa Parkins, CFP®, and Kali Hassinger, CFP®, hosted a webinar on the subject in order to provide some clarity.

First, it’s important to determine whether you have federal or private loans; there are various sub-categories of loan types for federal loans. The majority of loans you will come in contact with are federal loans and they tend to have fixed-interest rates and the possibility of flexible repayment plans. Private loans tend to have less flexible repayment plans and interest rates are determined by credit scores.

Federal loans tend to be considered the preferred type of loan. They offer flexible repayment plans, varied interest rates, loan consolidation options, and the possibility of loan forgiveness (note on loan forgiveness: if you still owe money at the end of your federal loan period, the government will forgive that loan but the remainder will be taxed as income that year). Private loans, however, tend to be more straight forward since there is a standard repayment plan that is not based on your income.

One big tip Melissa and Kali offered is first getting organized with your loans. Create a list that outlines the type of loan, the lender, interest rates, and the term. (For help with creating this inventory check out Melissa’s latest blog on the subject.) They also offered a helpful flow chart for deciding whether or not you should refinance your federal loans:

Taken from Social Financial, Inc

Taken from Social Financial, Inc

At the end of the webinar, Melissa and Kali went over an in depth case study looking at specific examples of loans and potential refinancing options to save you money and to pay back your loans at a faster rate. Listening to this case study can provide more clarity on how creating a loan inventory may help you save money in the long run.

If you have questions regarding your own student loans, listen to the webinar and see if any of the information applies to you. As always, feel free to reach out to your financial planner or Melissa and Kali for any remaining follow up questions or to talk about your specific situation.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of and Clare Lilek, Melissa Parkins and Kali Hassinger not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Your Early Retirement and Your Aging Parents

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Contributed by: Sandra Adams, CFP® Sandy Adams

Last month, I wrote about how caring for aging parents can be a roadblock to planning for your retirement, particularly if you don’t have an aging plan in place for your parents. Well, let’s assume you successfully make your way to retirement. You’ve made it to the promised-land and are ready to do all of those things you’ve dreamed of doing for years…travel, spend more time with the kids and grandkids, and explore those hobbies you haven’t had time to enjoy.

And then…bam! Your parents are now older and in need of your assistance, just in time! On the one hand, it is perfect – you no longer have the stress of needing to balance work with the stress of caregiving, and you can give them your undivided time and attention. But on the other hand, this is now your time…the time you’ve waited years to enjoy…not to spend tied to someone else’s schedule and needs. For many retired couples, they are the primary caregivers for not one, but multiple sets of aging parents, which only adds to the stress (not to mention the marital tension!). Many are worried that their retirement will be spent caring for aging parents; or that by the time the caregiving is done, they will need a caregiver themselves!

So what can you do to ease the family stress and give your retirement a needed boost?

  • Make sure that you and your family have planning conversations about the care for your aging parent and that you have a Family Care Agreement in place outlining everyone’s roles and responsibilities.

  • Consider having professional resources that you can use, when and if needed, to give family members breaks (i.e. Home Care Agencies, Geriatric Care Managers and Professional Physicians that can serve as advocates in your absence, paid companions and drivers, etc.).

  • Look into Respite Care Centers where your aging parent can stay for a short period of time and be safe and well cared for while you are away (if they are unable to stay alone).

Again, if possible, planning ahead is always critical. Knowing the available resources (and then actually using them) is an important part of the process. Caring for your loved ones yourself and being their personal advocate is something people take very seriously. But taking care of you, including taking some time off and tending to other personal relationships, is the key to a happy and healthy life. So, I strongly advocate for families sharing responsibilities and/or taking advantage of professional advocates like Geriatric Care Managers or Professional Physicians that serve as advocates so that they can take time off from full time caregiving. Taking advantage of such resources can allow for better quality personal lives and better quality time and caregiving with your aging parent in the long run.

If you have questions or wish to discuss this type of planning in greater detail, do not hesitate to contact me.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Any opinions are those of Sandra Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Are your Medicare Premiums about to Increase?

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

If you’re like most, chances are you have not heard of what’s known as the “hold harmless” provision set forth under the Social Security Act. To keep things simple, this provision is essentially in place to protect the majority of those on Medicare from seeing jumps in Part B premiums when Social Security benefits do not increase through cost-of-living adjustments (COLA). 

For the second year in a row, due to low inflation, the hold harmless provision is coming into play. This year, there was no COLA for those receiving Social Security and 2017 is projected to only see a minuscule 0.2% bump in benefits. If you’re single and have an adjusted gross income (AGI) below $85,000 or are married and have an AGI below $170,000, your Medicare Part B premiums will not increase – you are part of the group whom the hold harmless provision protects (approximately 70% of those on Medicare). For those with income higher than the thresholds mentioned above, however, (which is approximately 30% of those on Medicare), you will more than likely see yet another increase in your Medicare Part B premiums in 2017 that is currently projected to be approximately 22%.    

It’s also important to note that those who are “sheltered” under the hold harmless provision (AGI below $85,000 for single filers, AGI below $170,000 for married filers) are only those who are currently receiving Social Security benefits. For example, if you’re 66 years old, receiving Social Security benefits and enrolled in Medicare, you will not see a jump in your Part B premium. If you’re currently age 64 but plan on delaying Social Security benefits until age 70, however, there is a very high probability that when you begin Medicare at age 65, your Part B premiums will be higher than they are for current enrollees. 

As mentioned previously, the same situation occurred last year and the actual increases in Medicare Part B premiums ended up being much less than what was initially projected (here’s a link to when I covered the topic last year). In October, we will be hosting a webinar on Medicare and we’re hoping to have more clarity on any potential premium increases at that time. Keep your eyes open for more information surrounding this topic and our October webinar! As always, if you have questions before then, please contact us.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. These hypothetical examples are for illustration purposes only. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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