• Effective Estate Planning: Avoiding Common Mistakes

    Estate planning is an essential process for anyone looking to manage their assets, protect their loved ones, and establish a clear path for how their estate will be handled after they pass. Despite its importance, effective estate planning can be a complex and often misunderstood task. Mistakes made during this process can result in unintended consequences, causing stress and financial strain for those left behind. To help you navigate this critical aspect of financial planning, we’ll explore some of the most common mistakes people make when crafting an estate plan and how you can avoid them.

    1. Failing to Create an Estate Plan

    One of the most significant mistakes people make is simply not having an estate plan at all. Without a clear plan, the state’s intestacy laws will dictate how your assets are distributed, which may not align with your wishes. This can lead to lengthy legal battles and create tension among family members. Additionally, it can result in unnecessary taxes and fees that could have been avoided with proper planning.

    Creating a will or trust is a basic but crucial step in making sure your assets are handled according to your desires. While it might seem daunting, starting with even a simple plan can help prevent many future complications.

    2. Not Updating Your Estate Plan

    Life is constantly changing, and so too should your estate plan. Failing to update your plan as circumstances evolve is a common mistake that can lead to outdated or irrelevant instructions. Events such as marriages, divorces, births, deaths, or changes in your financial situation should all prompt a review and potential update to your estate plan.

    For example, if you’ve divorced and remarried, but haven’t updated your will, your former spouse could inherit assets you intended for your new spouse or children. By regularly reviewing and updating your estate plan, you can ensure it reflects your current wishes and the most up-to-date information.

    3. Not Designating Beneficiaries or Naming the Wrong Ones

    Many people overlook the importance of designating beneficiaries for accounts like retirement plans, life insurance policies, and investment accounts. Failing to name beneficiaries means these assets could be tied up in probate, delaying their distribution.

    In addition, naming the wrong beneficiaries can have unintended consequences. For instance, you might still have an ex-spouse listed as a beneficiary on an insurance policy or retirement account. To avoid this mistake, make sure you review and update beneficiary designations regularly, particularly after major life changes.

    4. Overlooking a Power of Attorney and Healthcare Directive

    Another key component of effective estate planning is designating a power of attorney and creating a healthcare directive (also known as a living will). A power of attorney allows someone to make financial decisions on your behalf if you’re unable to do so, while a healthcare directive outlines your medical wishes in the event you’re incapacitated.

    Without these documents, your family could face additional challenges trying to manage your affairs if something unexpected happens. It’s important to choose individuals you trust to carry out your wishes and to communicate your decisions clearly with them.

    5. Not Considering Tax Implications

    Taxes can have a significant impact on the distribution of your estate. Many people fail to take tax implications into account when crafting their estate plans, which can lead to higher taxes for beneficiaries. Understanding how estate taxes, gift taxes, and income taxes apply to your assets can help you minimize their effect on your heirs.

    While tax laws can be complicated, seeking guidance on how to structure your estate in a tax-efficient way can be helpful. Strategies such as gifting assets during your lifetime, setting up trusts, or exploring charitable giving options can potentially reduce the tax burden on your estate.

    6. Leaving Too Much Control to One Person

    It’s common for individuals to appoint one trusted person, such as a spouse or child, to manage their entire estate. However, this can sometimes lead to tension or even disputes among other family members. Leaving too much control to one person can also be overwhelming, especially if that individual is grieving or managing other responsibilities.

    Consider dividing responsibilities, such as naming co-trustees or designating different individuals for financial and healthcare decisions. This way, no one person is burdened with all the responsibilities, and it can help reduce the risk of family conflicts.

    7. Not Planning for Long-Term Care

    As people age, the possibility of needing long-term care increases. Failing to plan for the costs of long-term care can significantly reduce the value of your estate. Without sufficient planning, your assets may be used to pay for care, leaving little for your heirs.

    Long-term care insurance, setting up trusts, or other financial strategies can help address this issue. Including long-term care in your effective estate planning process can protect your assets while making sure you receive the care you need.

    Related: 5 Reasons Women Should Plan For Long-Term Care

    8. Overlooking Digital Assets

    In today’s digital world, it’s important not to forget about digital assets when creating your estate plan. Digital assets include everything from social media accounts and email to online banking and investment platforms. Without proper instructions, your loved ones may struggle to access or manage these accounts.

    Consider creating a list of all your digital accounts, passwords, and instructions on how you want these assets managed. Some states even have specific laws governing the handling of digital assets, so be sure to incorporate this aspect into your plan.

    9. Failing to Communicate Your Plan

    Even the most carefully crafted estate plan can lead to confusion or disputes if your loved ones aren’t aware of it or don’t understand your intentions. It’s important to communicate your estate plan with those affected by it—particularly those who are named in the will, beneficiaries, or individuals tasked with responsibilities like power of attorney or executor.

    Having open conversations about your wishes can help prevent misunderstandings and make certain that your estate is handled smoothly when the time comes.

    Are You Utilizing Effective Estate Planning Strategies?

    Effective estate planning is a critical process that requires thoughtful attention to detail. By avoiding common mistakes such as not creating a plan, neglecting to update it, or failing to communicate your wishes, you can help ensure that your estate is managed according to your goals. Taking the time to carefully consider your assets, beneficiaries, and responsibilities will go a long way in creating an effective estate plan.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • Creditable Drug Coverage

    This article was written by Elaine Floyd, CFP® and modified from the original, found here.

    A key feature of Medicare—and any insurance really—is that the system only works if people maintain continuous coverage. This is why anyone on Medicare—that is, anyone 65 or older and enrolled in Part A and/or Part B—also needs to have creditable drug coverage. If they go more than 63 days without creditable drug coverage after their initial enrollment period ends, they will pay a late enrollment penalty when they sign up for Part D. The penalty is 1% of the national base beneficiary premium ($34.70 in 2024) for every month they went without creditable drug coverage. This amounts to about 35 cents a month—not a huge amount but it could add up if there are many months—and it continues for life.

    Most people avoid the penalty by enrolling in Part D at the same time they enroll in Parts A and B—that is, when they turn 65 or come off employer insurance if working past age 65. But there are some fairly common situations that can lead to the penalty without individuals even realizing it.

    One of the most common situations is where an individual is working past age 65 and staying on an employer plan that pairs an HSA with a high-deductible health plan. The individual may know not to enroll in Medicare if they want to keep making HSA contributions, but they may not realize that the drug coverage offered by the HDHP is not creditable. When they finally go off the employer plan and enroll in Medicare, they learn that they must pay a Part D late-enrollment penalty because the entire time they were covered by the HDHP, they did not have creditable drug coverage.

    Another common situation is where an employee retires and has retiree health insurance offered by the former employer. Anyone 65 or older who has retiree coverage must sign up for Medicare Parts A and B, because Medicare pays primary to retiree insurance. But they do not need to find supplemental insurance in the marketplace (Medigap or a Medicare Advantage plan) because the retiree insurance serves as the supplement—often including drug coverage. If the drug coverage is creditable, there’s no problem. But if the drug coverage offered by the retiree plan is not creditable, and if the individual later goes to sign up for Part D, penalties will apply. This could come as a surprise.

    How is a person supposed to know if their drug coverage is creditable? And how are they supposed to know about the penalty in the first place? It’s probably safe to say that the vast majority of late enrollment penalties are not willfully incurred. People get hit with them because they didn’t know.

    Note that the Part D late-enrollment penalty is separate and distinct from the Part B late-enrollment penalty. The Part B penalty is 10% of the premium for every 12-month period the person went without health insurance after qualifying for Medicare at 65. So it’s possible to be a few months late signing up for Part B and not be charged the penalty. But if a person goes more than 63 days without creditable drug coverage, the Part D late-enrollment penalty will apply.

    What is creditable drug coverage?

    Creditable drug coverage is at least as good as the coverage specified by Medicare’s standard drug plan design. Because the plan may not adhere exactly to the design—giving a little here, taking a little there—it just needs to be actuarially equivalent. As you can imagine, the formulas for determining actuarial equivalence are complicated and not something you can figure out for yourself. Rather, each insurance company is required to determine whether its plan meets CMS’s definition of creditable coverage and to disclose this information to employers.

    Employers in turn are required to disclose this information to all Medicare-eligible employees. Medicare eligible policyholders include active employees, spouses, dependents, COBRA qualified beneficiaries, and retirees. Employers will not always know whether an individual is Medicare eligible, so it is recommended that they distribute the notice to all employees. Notification must be made: (a) annually, prior to October 15; (b) prior to the effective date of coverage for Part D eligible employees enrolling in the employer’s group health plan (e.g., new hire onboarding); (c) upon termination of the prescription drug plan; (d) if the creditable coverage status changes; and (e) upon request.

    Because creditable drug coverage notification is not always obvious—it may be embedded in a newsletter or other routine communication—it is recommended that individuals request such information from their employers as part of the Medicare planning process. It should be noted that drug coverage offered by Tricare (for retired military), the VA, and FEHB (for retired federal employees) IS creditable. Individuals who have these plans do not need to sign up for Part D. Neither do individuals who are staying on employer or retiree plans that do offer creditable drug coverage.

    Changes for 2025

    The Inflation Reduction Act is ushering in some changes that may cause some plans whose drug coverage was previously creditable not to be so starting in 2025. In short, out-of-pocket spending by patients is being limited to $2,000 a year, with the difference largely being picked up by insurers. See this article for a more complete explanation of how this works. Insurers who do not meet this test—that is, who do not limit their insureds’ out-of-pocket spending to $2,000—will be deemed not creditable. That’s why this year, more than ever, all individuals 65 and older who do not have either a Part D drug plan or a Medicare Advantage plan that includes drug coverage—that is, individuals who are getting their drugs covered through an employer or retiree plan—will need to ensure that the coverage they have is creditable for 2025. If not, they will need to shop for and enroll in a Part D drug plan sometime between October 15 and December 7, with coverage starting January 1.

    The mandate to disclose creditable drug coverage to Medicare-eligible individuals falls to the employer (who in turn gets the information from the insurer). Employers who fail to provide the necessary notifications risk violating their fiduciary duties under ERISA.

    If you would like Lane Hipple to review your Medicare plan documents prior to, or during, this fall’s open enrollment period, please call 856-638-1855 and request a Medicare Review.

  • Presidential Elections

    What do they mean for markets?

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  • Financial Transparency: Long-Term Financial Planning Tips for Couples

    Financial Planning Tips for Couples: Build a Stronger Financial Future – Together

    Openness is key to a strong and thriving relationship, especially when it comes to finances. When couples are transparent about their financial status, goals, and future plans, they build trust and foster better communication, both in their relationship and in their long-term financial planning. If you’re unsure how to approach money matters with your partner, this guide will highlight the importance of financial transparency and offer valuable financial planning tips for couples.

    The Importance of Financial Transparency in a Romantic Relationship

    Talking openly about money is often one of the toughest parts of a relationship, yet it’s one of the most important. Financial transparency means more than just revealing your account balances—it includes conversations about your financial mindset, goals, spending patterns, debts, and future plans. Here’s why it matters:

    1. Builds Trust. Honest conversations about money build trust and understanding between partners. When you’re open about your financial situation, it reduces the chances of misunderstandings, arguments, and hidden financial surprises down the road.
    2. Creates Unified Goals. Financial transparency allows couples to set joint financial goals and work together to achieve them. Whether it’s buying a house, saving for retirement, or funding your children’s education, shared goals give your financial planning purpose and direction.
    3. Facilitates Planning. Transparent discussions enable better financial planning. Couples can allocate resources strategically, make informed decisions, and adjust their plans as circumstances change.
    4. Reduces Stress. Money is a common source of stress in relationships. Open communication about finances can help alleviate this stress by allowing both partners to understand the bigger picture and share the responsibilities.

    Related: Mid-Year Retirement Planning Checklist

    Thinking Forward: Long-Term Financial Planning Tips for Couples

    In addition to transparency and a commitment to open and honest communication, these financial planning tips for couples can help you prepare a joint roadmap for your shared future:

    1. Initiate Honest Conversations. Start by sitting down and discussing your individual financial situations openly. Share your income, savings, debts, and credit scores – this will lay the foundation for productive financial planning discussions.
    2. Define Shared Goals. Identify your shared short-term and long-term financial goals. Whether it’s buying a home, traveling, or retiring comfortably, having common objectives gives your financial planning a clear purpose. It’s one of the financial planning tips for couples that will also help you ensure that you’re both staying on the same page.
    3. Create a Budget Together. Collaboratively design a budget that incorporates both partners’ incomes and expenses – and be sure it’s realistic so you can be successful in following it. Think critically about your spending habits and find areas where you can cut back to save for your goals.
    4. Allocate Responsibilities. Divide financial responsibilities based on each person’s strengths and preferences. One partner might be better at investing, for instance, while the other excels at managing day-to-day expenses. Establishing clear roles prevents confusion and ensures both partners are actively involved.
    5. Emergency Fund. This is foundational among financial planning tips for couples. Build an emergency fund that covers at least three to six months’ worth of your joint living expenses. Having this safety net ensures you’re prepared for unexpected financial challenges without derailing your long-term plans – or facing undue financial stress that can negatively impact your relationship.
    6. Manage Debt Together. If either partner carries debt, work together to create a strategy to pay it off efficiently. A smart strategy is to prioritize high-interest debt, like credit cards, and explore consolidation options. By working together to eliminate debt, you and your partner will be able to improve your financial stability significantly.
    7. Invest Wisely. A smart way to build wealth is through savvy investing. Before you begin, research investment options and consult financial professionals if needed. The key is to diversify your investments to mitigate risks and properly align your portfolio with your long-term goals.
    8. Save for Retirement. Both partners should begin saving for retirement as early as possible. Consider opening retirement accounts like IRAs or 401(k)s and contribute consistently. If available, take full advantage of employer match programs as that’s free money that will contribute to the magic of compounding over time.
    9. Regularly Review Your Finances. Set aside time together, perhaps on a monthly or quarterly basis, to review your financial progress. Discuss any changes in your circumstances or goals and adjust your plan accordingly. Get creative, too. This is one of those financial planning tips for couples that can end up being fun if you turn it into a regular date night that incorporates your favorite takeout or a movie, too.
    10. Stay Flexible. Life is unpredictable – just like relationships – and financial plans might need to be adjusted over time. Be open to revisiting and modifying your strategy as circumstances change.
    11. Maintain Open Conversation. Using these financial planning tips for couples is helpful, yet they can’t be one-time endeavors. Regularly discuss your financial status, goals, and concerns. Ongoing communication is key to ensuring you’re both on the same page and working toward a shared future.

    Long-Term Financial Planning for Couples: Do You Need Professional Guidance?

    Financial transparency is essential for a strong partnership, allowing couples to work through the intricacies of long-term financial planning together. By having open discussions, setting mutual goals, and managing your finances collaboratively, you can build a solid foundation for a stable and rewarding future. Keep in mind that reaching your financial objectives is a continuous process. Applying financial planning tips for couples and maintaining honest communication will help you navigate any obstacles that arise along the way.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • Q3 2024: In Review

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