Posts Tagged ‘life’

By – Jeffrey D. Carlson, CFP®

Inheriting money is typically a gift from someone close to you that deserves to be cherished and put to good use. If managed well, the benefit to you can far exceed what even the best-intentioned benefactor might have imagined.

If you are like many baby boomers, you either have or are likely to receive some inheritance from parents or others during your life. Even if the amount of money received may not put you on “Easy Street,” it can make a difference if you handle the inheritance properly.

A 2006 study by the AARP Public Policy Institute showed that about 20 percent of baby boomer households received an inheritance, and another 15 percent expect to receive one in the future. The median value of those who have received an inheritance was $64,000 (in inflation-adjusted dollars) in 2004. While that may not be enough to drastically alter your life, it certainly is significant enough to make a substantial difference in your financial situation.

Decisions to make when the money arrives

Any sum you potentially receive as an inheritance should be helpful to you. The larger the amount, the more decisions you will have to make. Most importantly, make good use of your inheritance, no matter the dollar amount involved, in order to carry out the legacy your benefactor desired.

Here are some steps to consider as you determine what to do with this newfound source of wealth:

Be realistic about what it means. An inheritance does not give you license to suddenly change your lifestyle (except in those rare cases where your inheritance is a sum of several hundred thousand dollars or more). It might help you handle an emergency need or achieve a longtime goal, however. Be cautious about altering your approach to money just because of a sudden new source of wealth. After all, for most, this is a one-time event that won’t be repeated.

Determine how it fits within your overall financial strategy. Consider the impact of an inheritance and the effect on your financial life. You need to determine if the money you’ve received will be used for a specific purpose, or incorporated into other existing assets you already established to help achieve certain goals.

Look into possible tax implications. It is important to discuss your situation with a tax advisor who can help you understand the often intricate and complex laws associated with your inheritance. Some of the questions related to taxation revolve around the specific type of asset you inherit. For instance, if you inherit shares of a stock, the cost basis for the stock will not be its original purchase price, but valued at the price on the day the decedent died. This may provide a tax advantage for you at the time you sell the shares. If you inherit retirement plan assets, such as an individual’s workplace savings plan or an IRA, there are different tax laws that will apply. To make the most of your inheritance, it is vital that you comply with appropriate tax laws to avoid any penalties.

Develop your own estate plan. The receipt of an inheritance is a good reminder that all of us have a need to prepare for the disposition of our estates at death. If you don’t have a will or haven’t updated one lately, be sure to do so. Also, review the beneficiaries you have named for your retirement plans (workplace plans as well as IRAs) to be sure they are current.

If you plan how to manage your inheritance, it may have a more significant impact on your overall financial situation. Even if you decide to use the money for an immediate purpose, you want to make sure that your strategy is consistent with your entire financial approach.

Enlisting the help of professionals to guide you along the way, including an attorney, accountant and a financial advisor, can help you best manage this once-in-a-lifetime opportunity.

Jeffrey D. Carlson is a CERTIFIED FINANCIAL PLANNER practitioner™ who can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044.  Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2010 Ameriprise Financial, Inc. All rights reserved.

Seeking Protection with Long-term Care Insurance

By

Jeffrey D. Carlson, CFP®

All of us wish for a long and healthy life. However, the reality for many is that as we grow older, the likelihood of needing medical care for an extended period of time increases. According to the U.S. Department of Health and Human Services, seven out of every ten individuals over age 65 today will require at least some type of long-term care during their lifetime.

It’s no secret that our bodies tend to become more vulnerable to illness, injury or disease as we age. The government estimates that by 2020, 12 million Americans over age 65 (a fast-growing segment of the population) will require long-term care services.

This is one of the biggest financial risks we face in later life. While many of us will no longer have a mortgage payment and typically won’t have to worry about supporting children in our retirement years, healthcare expenses represent one facet of life that typically becomes more costly as we grow older. Services such as nursing home stays and in-home care are not typically covered by a traditional health insurance policy or by Medicare. Will you be in a position to withstand the financial impact of such an expense? One government estimate puts the average annual cost of a nursing home stay at $50,000 in today’s dollars. Some facilities may charge much more, and the cost is almost certain to be higher in the future.

Planning ahead with long-term care coverage

More and more Americans are turning to a long-term care insurance policy as a way to help prepare for what could be excessive costs of care in the years to come. This type of policy can be purchased on an individual basis, but you may be able to obtain coverage through your employer as well.

Most people age 18 or older, often up to age 85, are eligible to purchase long-term care coverage. The cost is based on age and a number of health-related factors. There are certain situations, involving pre-existing conditions, where coverage is not available. However, it is an investment worth considering as a way to protect your long-term financial security.

What long-term care coverage provides

You probably won’t find a policy that will insure all expenses you may incur with a nursing home stay or other form of long-term care. But the right policy can help offset a significant portion of the costs.

When you purchase a policy, you usually have the flexibility to define the level of benefits you receive. The greater the benefits, the more costly the coverage will be, but the better the protection you’ll enjoy. Policies often offer a daily benefit amount for care, ranging from $50 to $500 per day. You also will choose a Maximum Lifetime Benefit the policy will provide. Considering that it could be decades before you might actually begin to rely on the benefits of the policy, you may want to consider including an inflation adjustment as part of the coverage. This means that benefits paid in the future will provide comparable coverage, based on future costs, of what you would receive today.

You can specify coverage only for a situation where you are treated in a facility such as a nursing home. Other policies offer comprehensive coverage that will provide benefits regardless of where the care takes place.

One way to reduce the cost of long-term care insurance is to extend what is called the “elimination period.” This represents a number of days from the start of care services before insurance coverage kicks in to help pay the costs. The elimination period can range from zero days (meaning coverage starts immediately) to 180 days. The longer the elimination period, the less expensive the policy will be, but it will also mean you face larger out-of-pocket expenses at the time you are receiving care.

It may be unsettling to plan for a day when you may need significant medical care.  But, if that day should ever arrive, consider the relief you’ll experience in knowing you’ve taken steps to protect your financial security.

Jeffrey D. Carlson is a CERTIFIED FINANCIAL PLANNER practitioner™ who can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044.  Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

© 2010 Ameriprise Financial, Inc. All rights reserved.