Designate Beneficiaries to Avoid Unintended Consequences

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After your death, the disposition of retirement accounts, life insurance policies, annuities, and accounts at financial institutions are governed by beneficiary designations. If those designations are outdated, unspecific, or wrong, your assets may not be distributed the way you would like. Here are items to consider.

Be specific and stay current. When you name a beneficiary, your assets can pass directly to that person or entity without going through a legal process called probate. Update the designations for life events such as divorce, remarriage, births, deaths, job changes, and retirement account conversions.

Think about unexpected outcomes. Be alert for the effect of taxes and unintended consequences. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. For wealthier heirs, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected.

Name contingent beneficiaries. If your primary beneficiary dies or is incapacitated, having a backup, or contingent, selection will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.

Practice good recordkeeping. Keep your beneficiary designation forms in a safe location, and maintain current copies with your financial institution, attorney, or advisor.

Beneficiary designations are an important part of estate planning. Contact us for more information.

Returning Home as an Adult

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Are you thinking of returning to your childhood home to live with your parents? Although heading home after graduation or a divorce may feel like a setback, a temporary return to living with your parents can present opportunities to improve your financial situation.

For example, living with your parents means you can share the cost of rent, utilities, and food, resulting in reduced expenses. By establishing a realistic budget, you can make the most of these lower costs, and repay student loans or other debt more quickly. You can also build up savings for emergencies and long-term goals, such as buying a home of your own. A sound plan is to avoid additional debt while you’re working toward your financial independence. You also might consider paying expenses in cash to reduce your reliance on credit and help you stick to your budget.

For best results, establish clear expectations for both you and your parents before you move in together. Consider a written agreement that outlines the financial responsibilities of everyone in the household, and what the consequences will be for not living up to your promises. In addition, determine specific milestones you want to reach before you move out, and communicate them clearly. Goals could include accumulating $5,000 in savings, or reaching a six-month work anniversary at your job.

Contact us for suggestions about how to create an achievable financial plan.

What’s the Difference Between a Credit Card and a Debit Card

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When you pay for clothes in a store or dinner at a restaurant, you might use either a credit card or a debit card. In your mind, they may be the same. But there are differences to be aware of.

For example, with a credit card, the money is not immediately withdrawn from your bank account. As long as you pay back the issuer within the stated period, you won’t be charged interest on the money you owe. But you don’t want to make a late payment – interest can build up quickly on credit cards.

In contrast, debit cards are linked to your personal bank account, so you’re using your own money and the charges are automatically deducted from your account. Because you don’t carry a balance on the card, you’re more likely to stick with your budget and not overspend. However, you might be charged extra fees on top of interest for any overdrafts.

Another consideration: Federal laws protect you in the event you need to dispute credit card charges and usually cap your liability at $50. Debit cards offer fewer protections than credit cards, including a sliding scale of liability depending on when you notify your financial institution.

Which card is best for you? Generally, a mix of the two is a good compromise. You can use a credit card judiciously to bolster your credit, while still paying for everyday purchases with a debit card. Contact us for answers to your financial questions. We’re here to help.

Work-Related Education Costs May Be Deductible

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Are you going to school this fall to earn an advanced degree or to brush up on your work skills? If so, you might be able to deduct what you pay for tuition, books, and other supplies.

If you’re self-employed or working for someone else, you may be able to claim a deduction for out-of-pocket educational costs if the training is necessary to maintain your skills or is required by your employer.

Just remember that even when the education meets those two tests, if you’re qualified to work in a new trade or business when you’ve completed the course, your expenses are personal and nondeductible. That’s true even if you do not get a job in the new trade or business.

Work-related education expenses are an itemized deduction when you’re an employee and a business expense when you’re self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.

For more information, please contact our office.