SML Planning Minute

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

• COVID-19 (coronavirus) Information

Episode 227 – The initial promise and excitement of a provision created by SECURE 2.0, to allow 529 Plan account balances to be rolled over to a Roth IRA, has ended in disappointment, but it may still work for you.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, The 529 Plan Rollover to a Roth IRA – Is it Worth it?

On December 29, 2022, President Joe Biden signed into law the Consolidated Appropriations Act, 2023. For Americans trying to save enough for retirement, an important section of that law was the portion often dubbed “the SECURE Act 2.0”, or more appropriately, “the Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022” (“SECURE 2.0”).  SECURE 2.0 built upon the original SECURE Act, or Setting Every Community Up for Retirement Enhancement Act of 2019, that was signed into law by President Donald Trump on December 20, 2019.

One particular provision of SECURE 2.0 initially garnered a great deal of attention. That provision allowed for tax-free rollovers of unused 529 Plan balances to a Roth IRA.  529 Plans are very attractive college funding vehicles because it allows for tax-free growth of the investments in the plan, as well as the tax-free and penalty-free withdrawal of plan balances, if used for qualified higher education expenses such as tuition, fees, books, supplies and computers.  However, if any funds remained in the account because the child did not need all of the money in the plan to fund higher education, or the child failed to even go to college, the choices were either to name a new beneficiary, such as another family member, or withdraw the funds. Withdrawal of the funds, however, would be subject to income tax on the investment growth and a 10% penalty.

SECURE 2.0 provided some initial excitement with the rollover provision.  After detailed analysis, however, that provision has disappointed many because of all the restrictions placed on its use.  So, if you were thinking this might be a great provision for you to take advantage of, think again. We’ll briefly summarize some of those restrictions.

This provision is not effective until 2024, so those who have 529 Plan balances will need to wait another year.

The 529 Plan must have been in existence for at least 15 years, so newer plans are not eligible.

The rollover can only go to the 529 Plan beneficiary’s Roth IRA, NOT the account owner’s Roth IRA. This is one of the most disappointing provisions.

Contributions to the 529 Plan made during the last 5 years prior to the rollover are not eligible for the rollover.

The rollover maximum is limited to $35,000, lifetime, per beneficiary.

Even though the maximum limit is $35,000, it can’t all be rolled over in one year. Rather, the law limits the amount that can be rolled over to whatever the limit is for IRA contributions in that year. For example, the current IRA contribution limit for 2023 is $6,500 or $7,500 for those over age 50. Using those numbers, that means it would take at least 5 to 6 years to complete the maximum rollover.

If the rollover is made, that may limit the beneficiary’s ability to make further contributions to a Roth IRA that year.

In order to contribute to a Roth IRA, the beneficiary must have earnings, so unemployed children cannot do the rollover. Also, the ability to contribute to a Roth IRA is limited by the amount of income earned that year, so highly successful children who were beneficiaries of the 529 Plan may be barred from the rollover if they earn too much.

While this provision created a lot of excitement when it was enacted, that euphoria has died down because of the restrictions. Also, critics believe that this is just another method for the wealthy to move money to the next generation on a tax-favorable basis. Congress, however, may yet listen to the complaints and comments and fine-tune the program to make it more attractive in the future, so stay tuned.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 226 – Just having a will is not enough. You need to get the details right. Here are 6 big mistakes we see people making when they structure their wills.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, six big mistakes people make with their wills.  Here they are in order.

1. Doing Nothing

Pablo Picasso has been quoted as saying, “Only put off until tomorrow what you are willing to die having left undone.” The biggest mistake you can make with your will is not having one at all, and procrastination is enemy #1.

If you have any assets at all, they are worth protecting. And the last thing you want to do is die “intestate,” that is, without a will. Dying intestate means that the disposition of your assets will not be decided by you or your family, but by state law. Is that the best arrangement?

2. Not Reviewing and Updating

Let’s get real: having a will is the most important step. But it’s not enough. Tax laws and asset values change. As time passes, you might change your mind about who gets what in your family, or you may have a falling out with your favorite charity or even a family member. Even your choice of executor may need to be updated.

One common benchmark is to make sure your will is updated at least once every 5 to 10 years, or whenever there is a major tax law change. Another time to re-evaluate your will occurs  whenever a change occurs in your family’s make-up, for example, a marriage, a divorce, a death or even a birth.

3. Picking the Wrong Beneficiary

This is one hazard that can easily undo most, if not all, of your planning. IRAs, 401(k)s and life insurance policies are generally administered outside your will. The obvious potential problem here—and one we’ve discussed before—is divorce. It’s doubtful you would still want your ex to be the beneficiary of your IRA or life insurance policy, but simply changing your will won’t help with that. You need to change the beneficiary of these non-probate assets..

And what happens if one of your beneficiaries dies before you do? Often with a life insurance policy, there is a contingent beneficiary. If the primary beneficiary dies before  the insured, then the death benefit would be paid to the contingent beneficiary.

If there are no contingent beneficiaries, then the death benefit will usually be paid directly into your estate. This means that the amount of the death benefit will go through probate, where it is subject to public scrutiny and vulnerable to the claims of creditors.

4. Lack of Flexibility

People make estate planning decisions based on their current financial situation, but that is likely to change before you die. Let’s say you have a $3 million dollar estate. You want to leave $1 million to your favorite charity and the rest to your two kids. But what happens if, over time, the total value of your assets drops to $2 million. Are you comfortable with your kids absorbing all of that loss in value?

This is why you need flexibility. Your will needs to be structured to avoid unintended consequences.

5. Leaving Cash in the Wrong Hands

For obvious reasons, there are issues with a minor child getting a significant amount of cash. In many states, a court can appoint a conservator for the benefit of a minor who inherits a sum of money.  The conservator manages and controls the assets until the minor reaches adulthood.

But it’s not just young children you need to worry about. There are also adults who are simply irresponsible, as well as others who face difficulties that make it unwise to provide them with a large sum of cash.

Rather than leaving a mess behind them, many people prefer to set up a trust in their will that will take effect at their death.

And finally…

6. Not Communicating Properly

Perhaps not surprisingly, money can bring out an ugly side in some people. There’s a good chance that whatever you decide, someone is going to feel shortchanged, whether the feeling is justified or not.

How do you deal with something like this? One way is to recognize that information is critical. Conflicts can flare up when one or more parties are surprised by what the will says. So you need to talk things over, and it’s best to do so before you sign the will. This could give you a chance to head off any ill feelings before it’s too late.

Life Insurance Can Help

A properly structured life insurance policy can go a long way to help your heirs feel more loved and respected. It also may help provide the funds needed to pay the costs associated with probate and to help meet your financial objectives.

Unsure of where to begin? Your Security Mutual life insurance advisor can help.  Contact your Security Mutual life insurance advisor today to review your goals and objectives for yourself, your family, or for your business. Your Security Mutual life insurance advisor will work closely with your tax and legal advisors to create a plan that best fits your goals and objectives.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 225 – Recent financial turmoil involving several large banks provides an important lesson and opportunity to revisit the general FDIC-insurance rules and limitations.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, The Importance of FDIC Insurance.

The fragility of the banking industry and the near collapse, bankruptcy and/or receivership of several large banks have dominated recent news headlines. The affected banks include Silicon Valley Bank, the nation’s 16th largest bank; First Republic Bank, the nation’s 14th largest bank, both as of December 31, 2022; and Signature Bank. This has caused the federal government and several of the largest banks to band together to provide assistance.

As many of you may know, typically, the Federal Deposit Insurance Corporation or FDIC provides assurance that depositors’ funds are insured from bank failures up to $250,000. However, many depositors’ accounts in these banks far exceeded that limit causing personal and market turmoil. As a result, the FDIC has had to invoke its so-called “systemic risk exception” to prevent uninsured depositors at these institutions from taking losses. Although the FDIC was created by the Banking Act of 1933 during a severe banking crisis, to restore the public’s confidence in banks, the “systemic risk exception” wasn’t created until the Federal Deposit Insurance Corporation Improvement Act of 1991. The exception was first used in 2008 when Wachovia, Citigroup, and Bank of America, three of the four largest banks at that time, were in crisis.

Given the reality that banks can and do fail, now would be a good time to review the general rules that apply to FDIC insurance. Note that while most banks are, not all banks are FDIC-insured banks. What does that mean? Only FDIC-insured banks provide depositors with FDIC insurance that will protect your money in the event of a bank failure. The FDIC insurance extends to checking accounts, savings accounts, money market deposit accounts, and certificates of deposit. The standard insurance amount is $250,000 per depositor, per insured bank, for account ownership category. Accounts such as stock brokerage accounts, bonds, mutual funds, life insurance policies, annuities, safe deposit boxes, and others, are NOT FDIC-insured, although there may be other state or federal regulatory insurance.

For example, if a depositor has a checking account, savings account and money market deposit account in the same bank, the FDIC insurance aggregates those accounts to meet the $250,000 maximum coverage because those accounts fall into one account ownership category (i.e., sole ownership). If the depositor has more than $250,000 to save, then the depositor should be encouraged to split that amount to accounts in multiple FDIC-insured banks, up to the $250,000 maximum in each bank, to ensure the widest insurance coverage.

However, if the depositor is also a joint account owner of an account in the same bank as their individual accounts, then there is a separate $250,000 maximum that applies for each joint account owner for those jointly owned accounts. That satisfies the “account ownership category” requirement. For example, if two spouses are joint account owners, then each of them would have up to $250,000 of FDIC insurance for the joint accounts in that bank. That means $500,000 of joint account savings would be covered. That would be in addition to any accounts in that bank under individual names. The same would be true for accounts held in the name of a revocable living trust, irrevocable trust or a business entity. These accounts may all enjoy separate insurance coverage up to $250,000 in that same bank.

The general rules for determining if accounts are insured and to what extent, can often rest on the account ownership category. Calculating the FDIC-insurance coverage can, at times, get complicated but, given the surprise of the recent bank issues, is a worthwhile exercise if you have more than $250,000 to save in a bank account.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 224 – Lisa Marie Presley’s death in January of this year came as a shock to many. But it’s just the beginning of the story.  

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, the sad case of Lisa Marie Presley.

Earlier this year, the unexpected death of Lisa Marie Presley, Elvis’s only child, came as a shock to many people. She was only 54.

She has three surviving children. Her only son, Benjamin, died by suicide in 2020. The three daughters will inherit Graceland, Elvis’s famed estate in Memphis, but it’s unclear what else is coming. Lisa Marie sold off 85 percent of her father’s possessions, likeness and publishing rights back in 2004.

People were equally shocked to learn that Presley, who had inherited $100 million when she turned 25 in 1993, had somehow managed to lose or squander most of what she had gotten. As always, with sad details of a shattered estate, there are lessons that we can all learn.

Let’s start with Lisa Marie’s spending habits. It’s a textbook example of what’s known as the “wealth effect.” The wealth effect is a behavioral finance theory that people spend more money as the value of their assets rise. And that seems to be what happened to Lisa Marie starting with the 1993 inheritance. As the money dissipated, she was unable to cut back when she really needed to.

According to published reports, a few years ago Presley was spending $92,000 per month on her living expenses, with less than $1,000,000 of liquid assets. Not to mention a significant reported debt to the IRS and a bitter custody battle with her fourth ex-husband. Her ex also alleged that Presley was behind on her $4,600 a month in child support payments.

And there were other planning mistakes. She appointed her mother and then business manager as trustees rather than hiring a professional fiduciary. That was until 2016, when she fired her mom and her manager, appointed her daughters (even though two of them were  minors), and ended up suing the manager for mismanagement. 

But since her death, problems have surfaced with the 2016 document. For one thing, her mother Priscilla’s attorneys have claimed that the amendment was neither witnessed nor notarized, and that Priscilla’s name is misspelled. They also question the authenticity of Lisa Marie’s signature.

It also appears that she had a $10 million life insurance policy that lapsed, presumably for non-payment.

And there is the question of what happened to the proceeds of the trust that terminated in 1993. According to legal experts, the money would likely have been better protected had it been set up for an older age distribution or even for Lisa Marie’s lifetime. Had Elvis done this, more of the money he earned would have stayed in the family.

All of this will likely lead to years of expensive litigation and hurt feelings. And much of it could have been avoided with more careful planning and a little bit of spending discipline.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 223 – Confusion for IRA owners turning age 72 in 2023? The IRS provides clarification and reminds IRA owners that individuals turning age 72 in 2023 are not required to take required minimum distributions. 

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, IRS provides guidance on required minimum distributions for 2023.

By now, many of you have probably heard of the new law commonly known as SECURE 2.0. This law significantly impacts retirement planning for individuals. SECURE 2.0 was part of the Consolidated Appropriations Act 2023, which was signed into law on December 29, 2022. It builds upon the original SECURE Act or Setting Every Community Up for Retirement Enhancement Act of 2019 that was signed into law at the end of 2019. Notably, the original SECURE Act raised the age in which individuals generally needed to take required minimum distributions (“RMDs”) from IRAs and qualified retirement plans from age 70 1/2  to 72. SECURE 2.0 goes further and raises the age to 73 commencing in 2023, and eventually to age 75 commencing in 2033.

Given that SECURE 2.0 was enacted at the end of 2022 with effective dates a few days later, there was a great deal of confusion because individuals turning age 72 in 2023 were preparing to begin RMDs required by the original SECURE Act. SECURE 2.0 changed that so only those turning 73 in 2023 need to commence RMDs.

Financial institutions are generally required to file Form 5498 and indicate in Box 11 that an RMD is required for the year. The financial institution must also furnish a statement to the IRA owner that informs the IRA owner of the date by which the RMD must be distributed. But given the rapidness of the effective date of SECURE 2.0, the recordkeeping systems of many financial institutions could not be updated quickly enough. Individuals who turned 72 in 2023, may have already received a letter from their financial institution indicating the need for an RMD this year. On March 7, 2023, the IRS issued Notice 2023-23 which, in essence, indicated that the IRS will ignore that letter provided that the IRA owner is notified by the financial institution no later than April 28, 2023, that no RMD is actually required for 2023.

So, if you turn age 72 in 2023, you are not required to commence RMDs in 2023. However, if you turn age 73 in 2023, you are required to commence RMDs in 2023. Note, however, that if you attained age 72 prior to January 1, 2023, you are still required to commence taking RMDs.

Yes, it is all pretty confusing! The IRS is encouraging all financial institutions to remind IRA owners who attained age 72 in 2022, and have not yet taken their 2022 RMDs, that they are still required to take those distributions by April 1, 2023.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 222 – Most parents are naturally inclined to provide financial assistance to their adult children. But be careful: it may do more harm than good.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, we’re going to discuss why giving cash to your children may not always be a good idea.

 It seems that for anyone who accumulates wealth, at some point in their lives the natural inclination is to want to share it with their loved ones. The only question is how. But be careful. There can be significant perils to giving away cash, and doing so can often cause more harm than good.

 Experts agree that there is a significant difference between an urgent short-term need, such as medical bills or a divorce, and simple lifestyle maintenance. Most parents, if they can afford it, are willing to help when a truly urgent situation arises. But a short-term need can easily become a long-term dependency. As author Susan Covell Alpert explained in a 2019 New York Times article, “You’re rescuing them temporarily; you’re not indulging them forever and putting them on your payroll.”

And you need to do a certain amount of homework. No matter how much you trust your kids, it’s usually a good idea to verify that the need is real. Sadly, there are some adult children out there who are all too willing to take advantage of their loving parents.

It’s a dilemma many parents face: how much, if anything, do you give to an able-bodied adult child who asks for help? Since the pandemic began a few years ago, there has been an increased tendency for some millennials to stay home longer, get married at a later age, and rely more on their parents for the basics. You need to be careful not to create a dependent adult child. Some experts have suggested that it is best to charge your adult children rent, and to not pay any allowance without some strings attached.

And exactly how do you provide that help? It could be a gift, a loan, or maybe even an advance against their inheritance. If it’s a loan, it’s best to make sure that it’s fully documented. Otherwise, there’s a risk that your loan may eventually be deemed a gift.

The story of Thomas Gilbert Jr. is a particularly harrowing and extreme example of what can go wrong. The son of a wealthy hedge fund manager, his parents had fully funded his Princeton education. But he struggled considerably as a young adult unable to hold a job. And his parents agreed to help him out. They funded his lifestyle with a generous allowance and by paying the rent on his Manhattan apartment.

But the parents decided to cut the allowance off when he reached age 30. Gilbert Jr., who had previously shown signs of mental illness, became enraged. He eventually shot and killed his father, and in 2019 he was sentenced to 30 years in prison for it.

If you do decide to help out your kids with cash, remember that in 2023, the gift tax annual exclusion is $17,000 for each person you make a gift to. That means that a married couple can generally gift up to $34,000 to each of their children without any tax complications.

Some parents may choose to give their kids appreciated stock instead of cash, in the belief that the stock will likely appreciate further. But there is a potential tax trap here; in most cases your cost basis in the stock will become the child’s cost basis. So if the child decides to immediately sell the stock, there could potentially be a significant capital gain. Say you bought some company stock for $5 per share and gave it to your daughter when it’s worth $50 per share. If she turned around and sold it, she would pay a capital gains tax on the $45 gain per share.

Note that this does not apply to inherited assets. If your daughter inherits the stock when you die, her cost basis would be “stepped up” to $50 per share, and she could sell it at that price without a capital gain.

There are a variety of financial, personal and emotional issues that come into play when you make a gift to an adult child. Contact your Security Mutual life insurance advisor today to review your goals and objectives for yourself, your family, or for your business. Your Security Mutual life insurance advisor will work closely with your tax and legal advisors to create a plan that best fits your goals and objectives.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 221 – Several states are seeking to do what the federal government has failed to do thus far, and that is to increase taxes on the wealthy and high-income earners.

Hello, this is Bill Rainaldi with another edition of Security Mutual’s “SML Planning Minute.” In today’s episode, “Beware of State Efforts to Tax the Wealthy.” 

Much of the Congressional activity, in 2021 focused on increasing taxes on the wealthy because of a perception that they were not paying their fair share of taxes. The Build Back Better Act proposal was a massive effort to impose significant taxes on the wealthy including raising income and capital gains taxes on individuals making more than $450,000 per year; tax surcharges on those making more than $5 million per year; drastic changes to many estate planning and wealth transfer strategies to inhibit the wealthy from minimizing estate and gift taxes; eliminating favorable retirement planning strategies that would reduce income taxes; and many other proposals aimed at increasing taxes on the wealthy. However, 2021 ended without any agreement on the proposal due to disagreements within the Democratic party which controlled the Presidency and both Houses of Congress.

In 2022, efforts to pass the Build Back Better Act effectively died. In its place, the Inflation Reduction Act of 2022 was passed, which made many changes to help Americans increase retirement savings, but which had few provisions aimed at increasing taxes on the wealthy.

In 2023, the Republicans regained control over the House. Because of that, few pundits are expecting any significant tax legislation this year. Individual states, however, have decided to take matters into their own hands. As of this episode, at least seven states have introduced legislation aimed at increasing taxes on the wealthy. This follows on the heels of the new Massachusetts “millionaire’s tax” passed late last year but effective in 2023, imposing an additional 4% income tax on those making over $1 million per year. These seven states include New York, California, Connecticut, Hawaii, Illinois, Maryland and Washington.

The various state proposals run the gamut from increasing the highest state income tax rates; implementing or increasing capital gains tax rates based upon level of income; establishing a mark-to market tax based upon asset levels (i.e., end of year asset values will be taxed as if they were sold if the aggregate values exceed a certain threshold such as $1 billion sometimes referred to as “wealth tax”); creating a surtax on capital gains for individuals over certain income thresholds; increasing corporate tax rates; and more.

Unlike the Massachusetts millionaire’s tax, legislation in all of these other states are only at the proposal stage. Yet it is clear that these state legislatures and governors are intent on doing what the federal government has failed to do thus far, and that is to tax the wealthy because of the perception that they are not paying their fair share of taxes.

If and when these proposals are enacted into law, planning strategies to minimize these taxes could be helpful to high-income and high-net-worth residents in those states. So, residents need to keep a watchful eye on state legislative developments.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 220 – In today’s episode we revisit the question, what’s the biggest fear people have in retirement? According to the Journal of Accountancy®, Americans’ biggest retirement fear is running out of money. In this episode we take an in-depth look at the problem. Is it real? And what can you do about it?

Hello, this is Bill Rainaldi with another edition with Security Mutual’s “SML Planning Minute.” In today’s episode, we take a look back at one of our favorite previous episodes, “Our Biggest Retirement Fear: Running Out of Money.”

What’s the biggest fear people have in retirement?  Well according to the Journal of Accountancy, Americans’ biggest retirement fear is running out of money.  In a survey conducted by the AICPA, 41 percent of CPA financial planners say running out of money is their clients’ top concern about retirement, even including clients who have a high net worth.

Among the reasons for this is simply that so many people are living well past their life expectancy.  And there’s another phenomenon: baby boomers are at what’s called an “economic crossroads.”  Many are supporting both their parents and children at the same time.  This of course exacerbates the fear people have about running out of money.

On the other hand, some have suggested that the fear of running out of money is overblown.  According to an author at CNBC, you’ll need less, you’ll spend less, and you can simply find out ways to make money while in retirement.  This is not a popular sentiment.  It all sounds good, but for most people the whole point is being able to maintain the same standard of living you had while you were working.  And many people come to realize that once they retire, they’ll have about the same expenses as before and be in the same tax bracket.  It’s nice to think that you’ll be able to spend the same amount in retirement, but not everything goes as planned.

There are several steps that you can take to assuage you fear of running out of money.  The most obvious and important step is simply to start saving as much as early as you can.  This is something we discussed in detail during episode 13.

You also need to find ways to reduce your tax burden both before and during retirement.  This includes tax-advantaged investing and could even include moving to a tax-friendly state.

Also, long term care insurance or a chronic illness rider on a life insurance policy can go a long way.  The last thing you want to do in retirement is spend everything you have on health care costs.

There is also Social Security.  One way to avoid running out of money in your later years is to understand how Social Security survivor benefits work.  Assuming you live past age 70, for a married couple the survivor benefit is simply the higher of the two.  So if, for example, you’re collecting $2,000 per month and your spouse is collecting $1,000 per month, when you die your spouse’s benefit will go from $1,000 to $2,000 per month.  So in that case, the higher your benefit is, the higher your spouse’s survivor benefit will be.  Keep in mind though, that in this case the overall household income will still nonetheless decrease by $1000 per month since the lower Social Security benefit will be eliminated. This can be especially important if you’re significantly older than your spouse.

So how can you use Social Security to help mitigate the risk of running out of money?  The answer is simply by delaying when you collect. If you wait until age 70, you will maximize your own benefit and quite possibly your spouse’s survivor benefit.  We had a more detailed analysis of this in episode 49.

Things begin to shift when you get deeper into retirement.  According to the AICPA study, after 10 years of retirement, health becomes the biggest concern. At that point, 44% of financial planners say that serious illness, including dementia and diminished capacity, is their clients’ biggest worry.

Although people become more concerned about cognitive decline once they’ve been retired for a while, according to the survey, just 18% of planners say that their clients are proactive about this problem.  The AICPA has some other suggestions that planners and family members can use:

Don’t assume anything.  It’s important not to assume that someone isn’t concerned or affected, or that someone else will address the problem with them.  It’s also a bad idea to assume your loved one knows what to do.

Make sure you’ve addressed estate planning.  You need to ensure that your family member has the proper heath care directives and has established the necessary powers of attorney.

And finally, be proactive. Too often families only take the required steps once the problem has become painfully obvious.  You can take steps to protect your loved one before the problem becomes critical, if it ever does.  It’s not an easy conversation to have, but it’s worth the initial discomfort.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

Episode 219 – What do you do if you’ve just been notified that you’re about to receive an inheritance? Do you know what comes next? Here are some things that you might expect.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.

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