On-Demand: Becoming a Financially Fearless Female
- Jun 9, 2021
- Miri Forster
Whether you are starting your career or thinking about retirement, learn how to achieve ultimate financial freedom.
Miri Forster:Good morning, everyone. I'm Miri Forster, co-leader of EisnerAmper's Tax Controversy and Dispute Practice and a member of the New Jersey Chapter of the Women of EisnerAmper. And I'm delighted to welcome you to today's program. I'm the oldest of three girls. My parents were wonderful. They encouraged each of us to be independent and to try new things. Always saying, "Go for it." We appreciate our friends and our family. And I can say my childhood was happy. And I'm sure I was as fearless as the rest of my teenage girlfriends at that time.
Miri Forster:But thinking aback about our wonderful family dinners, I realized that there were two important topics that we rarely talked about, finances and debt. Fast forward to college, to law school, to my first job, I vividly remember calling my dad numerous times about budgeting, about setting up a 40(k), finding first lease, buying my first car. And at that time, I certainly did not feel that I was equipped to handle any of these financial issues on my own.
And as my career progressed, other financial considerations came up. So when I connected with Marcia Mantell, one of our panelists, about a program on becoming a financially fearless female, I thought it was something that females of all ages and at all stages of their life would benefit from. And based on the turnout for today's program, I'm happy to say that many of you must agree. So thank you very much for joining us. To get started, I want all the panelists to introduce themselves. So I'll start just by how they are on my screen. Jennifer, do you want to go first?
Jennifer Johnson:Sure. Hi, everybody. My name is Jen Johnson. I'm a financial advisor with EisnerAmper Wealth Management and Corporate Benefits. I've worked with our practice for 10 years and I've been in the industry for 25 years. And what I can say is Miri's words just echo completely with me. And as I have gone through my life and my career, I have found that there's so many things that happen in life that you don't anticipate. And having a financial plan is probably one of the top things in your entire life that you could do for not only yourself, but for your family and your loved ones. I enjoy working with my clients every day, helping them make financial decisions and plan. And I'm really looking forward to this event today. So thank you so much, and look forward to getting started.
Miri Forster:Thanks so much, Jen. Lisa, you're next.
Lisa Herzer: Good morning and welcome, everyone. I'm Lisa Herzer, a tax director in the Metropark PWA group here at EisnerAmper where I specialize in estates and trust in addition to individual taxation. I've been doing this for over 35 years now. And, I guess I could say fortunately and unfortunately, I seem to be in Miri's family as well, growing up. So it was happy three sisters and we talked about everything, but not financial items. So I experienced the same as Miri. So hopefully this will help those that are watching today.
Miri Forster:Thank you, Lisa. I'm glad I'm not alone.
Miri Forster:Marcia, how about you?
Marcia Mantell:Well, good morning, everyone. I'm Marcia Mantell. Thank you so much for inviting me. I'm a 30-year veteran of the retirement industry. I had worked at Fidelity. And then the last 16 years, I had my own consultancy where I work with large financial firms and financial advisors. I think more importantly, I'm an author, and a blogger, and a speaker. And I talk to women all across the country who really have no idea what retirement is going to mean for them and they're not feeling prepared. So I think becoming financially fearless is super important.
I also have two grown daughters. They're amazing. I raised these kids before there were working-from-home options, before laptops, and before the internet. So my journey's been pretty extraordinary. And talking about money is something we do. We didn't do it growing up so much, other than we had allowances and such, but it is a core component of what my husband and I have brought to the party for our girls. And it does pay off when money is talked about. So, that's what we're doing today.
Miri Forster:Great to hear. Thank you, Marcia. And Deirdre, you're up next?
Deirdre Wheatley-Liss:Thank you, everybody. My name is Deirdre Wheatley-Liss. I am a principal at Porzio, which is an attorney firm in Morristown, New Jersey. I'm also one of the founders of Porzio Planning, which is a community that we've created to talk about all things, estate planning, special needs planning, and elder law.
From my background, I'm a tax attorney by training. But a lot of that, when I first started in the profession, was dealing with what happens to assets when you pass and how do we basically keep the government from being a beneficiary of your estate. I've moved from that. I'm also a certified elder law attorney, which is really working with families with how do we deal with the cost of long-term health care. As Marcia said, you plan for retirement but what happens if somebody gets sick?
So I am super excited to be here today. I wish, when I was 20, 25, 30, I had known how to financially fearless female. I'm excited to share some thoughts with you today.
Miri Forster:Thank you so much. I'm very excited to get started. So becoming a financially fearless female is a journey. It's about building credit. It's about creating choices for yourself. It's about planning for retirement. It's evolving process. It's not one dinner conversation, but like our speakers have already said, many over the years. And the considerations are going to change depending on what stage of the life that you're in.
So I think a good place to start is building credit. Let's talk about some of the ways to build credit and why it's important. And I think for that question, I'm going to first start with Lisa.
Lisa Herzer:I remember vividly when I was in college applying for my first credit card. And it was a Sears card. And I chose Sears not because I loved power tools and appliances, but because, at that time, you could get a credit card relatively easily. And I would be able to build the credit up from there to apply for a major credit card.
Today, of course, it is much easier to get a credit card early in life. And I remember being astonished at the applications that would come in the mail when my three kids were in college with no job, but they still poured in. But that also means many are unprepared for using credit responsibly and also what the ramifications are for that.
Missed payments while to a college student or what someone just starting out things that's no big deal, but those missed payments actually affect your credit score, which is important for not just obtaining credit, but things like a job application, renting an apartment, buying a car, obtaining insurance. It is important to know what affects that score and also how to raise it.
I'm not going really go into the particulars because there's so many articles out there that deal with how to raise it, how to build it, but I think the important thing here was to recognize how important it is from early on, and work on building that.
Miri Forster:I love that. And I have to say that every once in a while you have your credit score run.
Miri Forster:So my husband and I always kind of have a little debate, "Whose is going to be higher? Yours or mine?" Anyway, needless to say, they're both sufficiently high and we've done a good job with that. But it's always a fun time to think about that.
Miri Forster:So, Jennifer, maybe you have anything to add to Lisa's comments?
Jennifer Johnson:Sure. It makes me laugh because I can remember my freshman year at University of Delaware and they literally had a table set up from MBNA, which was headquartered in Delaware. And getting my first credit card, a $2,000 credit line when I did not even have a job or any means of adding that back. And I saw a lot of my friends get into trouble because of that if weren't thinking in a responsible manner. Which unfortunately many young folks who don't have these conversations find themselves in. And again, it can affect your entire life, because I don't think there's an understanding about how interest really builds.
So educating your children is huge I think around this, because, again, something that may not have any malintent can impact them for the rest of their lives. And I think that one thing that's important is finding out what is the need for that credit? What is an individual trying to do, whether it's an adult or a child?
So if there's a large purchase, perhaps set a goal for that. And then have a separate bucket that you're saving towards, if it's something that maybe you don't need to put unnecessary credit toward. Because an interest rate may be much higher for one particular type of purchase than it would be for something else. So whether you're looking for an auto loan, it's may be more cost-effective to finance that or to have a lease. Whereas if you're buying something for a home that's a new refrigerator, while it might make more sense to purchase that on credit, understanding the different programs that are available.
It's really just being knowledgeable and doing your due diligence. And every choice that you make, making sure that you think about what the pros and cons of those choices are. And if that's something that you're not able to do, maybe yourself or it's an individual who's younger, starting out, that's kind of where the benefit of working with someone who does planning really comes in. Because they can help you walk through those choices. It's not necessarily just about investments, it's about anything that impacts your financial life and how to protect that as well
So I think definitely just being smart about things and doing your homework and educating yourselves is something really important to make sure you're making proper choices around the best way to utilize credit and when not to.
Miri Forster:I think it's great to start with a goal and then to sort of plan around that goal so that you can make the choices and succeed for those goals. So since we're talking about creating choices, Marcia, I'm going to ask you this question. We talked before the session about how important it is for women, and particularly married women, to create their own freedom fund. Can you tell us what that really means and why it's a critical component, financially, for women?
Marcia Mantell:Oh, sure, Miri. This concept of the freedom fund, I actually have to credit my husband. So I met Dan in college. We've been married 38 years now. And when we got married right after college, we had maybe a nickel between the two of us. I came in with college debt. He was a grad student. And so we always pooled all our money. And it was our money.
Well, 15 years later, I decided at one point I wanted my own money. And that was kind of a deal breaker. That was a renegotiating the contract, as you might say. And Dan was really not at all delighted about. But what I wanted to do was quit my job. And I wanted to take a year off to be with my girls when they were pretty little.
You just can't quit your job. You've already put a stake in the ground. We had a mortgage, we had two kids, we had cars, you have to eat. So how do you do that? How do you navigate those big life changes when you're not inheriting millions of dollars kind of thing?
It was a few months and finally Dan conceded and said, "All right, fine. You can have your own damn freedom fund." Is what he said. And we point that now. And I have mine, he has his. And it literally is an individual account. It's not a Dan and Marcia joint account. It's a Marcia account. And we don't fund it with a lot. Initially, I did. I was banking my bonuses when I was working at Fidelity so that I could take that year off. I couldn't just jump ship with no financial underpinnings.
So this became that underpinning where I could leave my job when I was just fed up. Which I did in 2005. And it turns out it only lasted a month. And I never used this freedom fund, but it is an account in my name and my name only. It has money in it for me without negotiating spending. Dan has the same on his side. So if he wanted to buy a pickup truck, I can't say no because that's his freedom fund. But it is this idea, especially for married women, we very often tie all of our assets together.
And one of the wake-up calls I had was a divorced woman I know was sharing with me as she figured out the marriage was not lasting. She ended up hiding money. She was taking some money out in cash and hiding it because she was so concerned that after the divorce she wouldn't get enough to really start her in whatever new life was going to be. And that's just a terrible situation for women to be in.
So this idea of an independent account, just your name, you fund it, bits at a time. It is not your emergency fund. This is not repair the washer. This is really what is for you to make your own financial decisions. And it gets you in the game. Because you got to manage this money, decide if you're going to invest it or not.
And the last thing I'll say here is, an IRA is a really good way to dip your toe in the water. It doesn't have to be an account to leave your job, though. Planning for job loss or planning to just take a detour, or start your own business at some point, you need a big bucket of freedom cash on hand.
But the IRA affords you an independent individually-named account where you also get to direct where that money goes when you die. So I think that's an incredibly important vehicle to think about as your own, as well as a taxable account that's in your own name. So that's the behind-the-scenes of what happened with the freedom fund and why I think it's so important. It is for financially fearless women that have some of their own money, even when they're married.
Miri Forster:I love that. And I love that you negotiated with your husband and finally it worked out and you each had your own freedom funds. It wasn't just you, it was both you and he who had won.
Miri Forster:Yeah. So, Jennifer, I want to switch gears a little bit. I have two kids in college. I think some of the other panelists do or have in the recent past. Are there any important considerations for the kids when they're going off to college? I mean, they're 18, they're treated as adults, but I don't know. There's still always going to be my babies. So just wanted to get your thoughts on that.
Jennifer Johnson:Sure. No, a very great question because there are some things that I think are really important to remember and to plan for when you have kids going off to college. I have a stepdaughter who is now 30. I hate to say it, but when she went to school we made sure to establish a checking account for her. I was on the checking account with her, however, because of the fact that she is 18 and not really experienced yet with money, if there were any financial questions or issues with her account and I was not, or an adult was not on the account with her, you would not be able to assist with that account, because, again, she's an adult. They're they have their right to privacy and you can't just pick up the phone, whether it's your child or not, once they're 18 and say, "Hey, there was an overdraft on this account. What was the reason?" They will not tell you at the bank.
So I think having a joint-checking account for them to start learning and to kind of coach them around how to utilize that responsibly, and how do you balance, I mean, it sounds old school, but how do you balance out your checkbook? Even though we have online banking now, it's still important to understand the credits and debits that are coming out and so forth. And again, how do you utilize those accounts responsibly?
And I think that another thing that we as parents don't think about, and I learned this the hard way through a client many years ago, is if you have a child that's going to college out of state, God forbid there's an accident or something that happens and the child is in the hospital, you'll get a phone call from the hospital saying so-and-so, your daughter is in the hospital. That's pretty much the only information they're going to give you because of HIPAA, which protects the patient now that they're 18.
If you do not have a legal document that's giving you permission to speak to the hospital on behalf of your child needing a power of attorney and a medical directive and so forth, they're not going to give you any information. So you will not know if your child simply needed stitches or if they needed a life-saving operation. We had a client that got that call had to drive eight hours to the town that their child was in and where the hospital was before they could find out any information. And I cannot imagine what that drives through the middle of the night had to be like.
And the other thing to keep in mind is if you follow the statutes of that particular state. So the documentation needs to go by whatever state their college is in. So I think that's a huge, huge thing to keep in mind. Because, God forbid there is a medical situation, you want to be able to find out right away what's going on. Because, as you know as a parent, I couldn't imagine getting that call and not being able to know what was happening or have any say in what's going on with my child. Because even though they're 18, they're still your baby. And how do you deal with something like that? They're going to need your help. So that's a huge thing in my mind to keep in consideration.
Miri Forster:No, but I'm really glad you brought that up. Because I'll tell you, like I said, I have two kids in college. And in each of them in their freshman year, they had friends with things that happen medically. And I was just very grateful that I had, in my drawer, those power of attorneys, God forbid, something had happened. And it wasn't real to me until my children experienced those situations with their friends. I just would have never thought that would have been part of their college experience. So thank you for bringing that up. Super important.
So I want to switch gears to retirement. I guess I'll send this question over to Marcia. We talk a lot about saving for retirement Like it's really easy, but what are some of the things that women should think about when they hear a save for retirement?
Marcia Mantell:Yeah, it does seem like such an easy like, "Oh yeah, you just save for retirement. Whatever." It's not. I guess I would start this way, Miri. It's a perspective and a mindset. So we need to understand, whether you're 23 years old and just getting started or if you're on the point of retiring, that we're going to own this spinal chapter, not only in what we do and how we create the third chapter, but how we finance it as well.
The earlier we know this, the easier it's going to be along the way, because we can take smaller steps and smaller financial moves. But we need to understand that retirement is a long time. It's a really long time for most of us. And we're going to own it. Full on, this is what women need to plan for.
So a couple of stats and facts that may help put this in perspective. The first is that women live longer, as you know, both life expectancy we live longevity. We live longer. Think about when you want to retire, whether it's 55, 60, 65, 70, you still got 25 to 30 years. How are you going to afford those 30 years when you're not working?
The other thing to think about is women tend to live about five years longer than men. So if you are attached to a man, whether a partner or a spouse, odds are, he will die first and you will be around for another five years managing your own money when you're your oldest ages. And maybe not as cognitively there. So having lots of pins in place before you get there. That's what we're talking about. We talk about retiring.
And there's a statistic going around right now in the industry that talks about 80% of men die while they're married. So I will be taking care of Dan and then he dies kind of thing. But 80% of women die single. So that's when we talk retirement and why we're saving. That's the view. That's the perspective. Now, what can you do?
All right. So if you are out there and you're quite young, you're my kids, they're 25 and 30, they contribute well into their 401k. So they couldn't max their 401k contributions initially. You got to pay rent, student loans, and such, but you do the increment that you can do. And then every year increase it by one percentage point. Get your Roth IRA going. Also, it's usually your lowest earning year's early. So take advantage of the Roth. So you can take key steps to just at least start. And that's the key. Get started.
If you're mid-career. Now it's time to reassess. And Jennifer, I love your ideas around the planning and your comments about planning and having a plan. Because this is where you don't miss opportunities. So when you turn 50, shocking as it, is now you're 50 and you have new doors that open to contribute more to your IRA, to your 401(k), 403(b). And at 55, to health savings accounts. So don't miss those opportunities. We're getting your last years of working, working harder for you.
And then if you're the one who's retiring soon, lucky for you. That's awesome. But you want to set up a comprehensive retirement income plan. And this is now where you're going to see how your money is going to stretch out over 30 years to make sure you can still shop and do things for your kids and your grandkids and travel and all those things you want your third chapter to be.
So what's the issue? They seem like pretty simple steps. The issue is we don't have any time. And every woman will tell you, we don't have the time. I'm going to challenge you, though. We tend to spend on average almost three hours a day on social media, ladies. So you know what? If we've got three hours to goof around with our phones, we can carve out an hour of that to be for our own financial freedom.
And that means, fine, you want to be on your phone, be on social media, follow bloggers who are really good in the retirement space. Listen to podcasts that are a financial nature. Because it's over time that we learn these tips and tricks of the trade. And that's what you want to focus in on. So sure be on Facebook, but follow Twitter, follow whomever that something in your arsenal is financially and retirement related.
The second thing I think, particularly the young folks already figured this out, but it's automate everything. You don't want to overthink things, just do it once, set up that contribution from your checking account to your IRA. That's it. You're done a hundred bucks a month, 200 bucks a month.
If you don't want to be an investor, because the first part is saving, you got to get that discipline down. Then you need to invest that money so that it's growing and taking advantage of the market gets. Well, if you don't want to be an investor, and that takes a lot of time, in addition to everything else, I've talked about, hire someone to do it. You do not have to do this by yourself. There are really wonderful experts out there who love to play with the market expectations, capital markets assumptions, figure out what's happening with inflation.
That's really great. If that's not your thing, hire it out and be comfortable with that. But that doesn't mean you can abdicate. It just means you're hiring out a function. And it gives you some extra time. You can do things at a smaller pace, but you still have to be involved with your money in some way. So great. Hire it out, but stay involved.
And the last thing is, and I learned this really early in my very poor upbringing and beginning. As I mentioned, when Dan and I got married, he was in graduate school. And he was in the lab. He's studying chemistry. So Friday nights were not date night. There were Dan in the lab night and I ended up bouncing our checkbooks. So what didn't start out as an intentional thing, it became a habit.
So every Friday night, for years and years, it was checkbook night. And it kept me very in touch with tangibleness of money. Well, over the years we have kids, other things happen, I'm not quite as disciplined anymore, but every month, at a minimum, it's on a Sunday, I watch the cooking shows, and I bounced the checkbook. Once a year, Dan and I, we used July 4th, and we mark it on the calendar. The July 4th weekend is our money weekend. And that's all we do. We talk about our money. We do our balance sheet. We lay up, "Oh, how much do you have here? How much do I have there?"
You have to actually schedule this stuff on a calendar. That is the only way it fits into your very busy lives. So I knowledge that we are too busy for this, I acknowledge that it's something you might not want to do, but neither of those can be excuses. So retirement is about the long-term. It's about being old. It's about embracing that. It's about aging gracefully and having the money to do it all. So that's what I have to say, Miri, about retirement.
Miri Forster:Thank you very much, Marcia. And like you said, retirement is not one small step to think about. It's a lot. Over years and years and years. And going on I want to switch to Jennifer. In terms of retirement, should we consider our future health care costs as part of that? And then as a follow-up, I wanted to talk about elderly parents. What's the best way to care for them without jeopardizing our own financial security?
Jennifer Johnson:Sure. Those are great questions. And as women in particular, there is a much greater likelihood that at some point we will care for an elder parent. It's just the nature of our gender that we have the more, not to say caring type of bones inside of us, who we are, but that is women. We do take care of people. So it naturally, in almost all cases, that's how the situation plays out. And many times, you'll have to leave a job for a period of time to help take care of an elderly parent. And it could even be for a child that ends up having some type of special needs or whatnot. It's could have a huge impact on your life.
And to touch back, first of all, around healthcare costs. So I'll go back to that and then, I'll come back to the parent elderly parent caring for. Because there's some other things I want to say. But you absolutely, absolutely, need to take into consideration future healthcare costs when planning for retirement. Because that turns out to be most likely the greatest expense that you will have in retirement.
we see healthcare now, the cost that we incur for many different medical conditions or premiums or whatever the case may be, it's only getting more and more expensive. Part of the business that my firm does is working with small businesses and providing healthcare for their employees. And we see those costs to the individuals increase exponentially each year. And you have the ability while you're working, in many cases, to have a large part of your care cost covered by your employer and by the insurance that you're paying for.
Well, when you're done working, yes, you have Medicare, but that does not encompass everything and all of the expenses that you have. So there's supplemental cost that you need to take care of and pay. And that does not take into consideration many times if there's a catastrophic health event, if there's things that may not necessarily be covered. And then if there is a situation where you need care in a long-term care type of facility, in a nursing home, or home health care, those costs can deplete an entire balance sheet that you've worked so hard for your entire life.
So there's things to take into consideration as far as additional insurances that might be able to offset the cost of many of those type of situations when you're in retirement and not working anymore, and you don't have the ability to pay the kind of expenses that you might've had to pay while you were working. So healthcare costs, when I'm doing planning for a client and my team, we build that into the goals that we're projecting out for our clients. And we have that inflating because what costs a dollar today will cost many more dollars in the future.
So we want to make sure that we are adequately covering those type of future costs for our clients. So absolutely, when you're doing planning for yourself, or if you're working with a planner, make sure that that's one of the goals that is absolutely factored in as a need, not as something you want or something that you wish for, but that's a need that you need to cover with your other day-to-day expenses in retirement. So absolutely, you need to factor that in.
And then back to our parents. So one of the things that I think is very important, and this is what I did with my parents. Miri, you stated initially that conversations were not had in your family growing up around money and things of that nature. Well, my parents being that I am in this industry, many years ago I sat them down and we had a conversation about what happens if something happens to one of you and you need additional care? What if my dad who is 10 years older than my mom, what if he passed away and my mom has left on her own? What does that look like?
These are real conversations that are not easy to have, but I promise you, you will feel so much better and it will save a great deal of pain and heartache in the future by dealing with those types of uncomfortable conversations now. My parents both got long-term care. I will tell you it, worked in their benefit because my father did have a need where he had an in-home health care, and that covered the cost.
He passed away a few years ago and my mom, she gets very upset every time she has to write the check for her long-term care policy, because it's not cheap, but we say, "Mom, you don't want us to have to take care of you, right? Me and my two brothers? No. Then just write the check. We'll write it for you. Whatever. I'll pay it if you think you can't, but we need you to have this in place."
It's the right thing for you, not just you, but for your whole family, because one of your goals, and this is something that we talk about with our clients is to not have to be a burden on your family. What does that mean to her if he doesn't want us to have to stop working to take care of her?
So definitely have those conversations with your parents. if you have to take a step away from work to care for one, because maybe those conversations weren't had, maybe your parents are very old school and don't want to have those conversations, then you need to plan, as part of your goals in your financial plan, that there may be a situation in the future where you may have to care for your parents because they do not have the financial independence to be able to self-fund any type of medical situation or care that they might need. So you may need to build that into your actual financial plan to see what that means. So that whether it's stepping away from work and losing income, or actually needing to provide financial assistance to your family, that it doesn't break your plan and your goals for your own individual family.
So in essence, it kind of becomes building that into your plan if you know that there's a likelihood that your parents have had health issues in the past and you have an idea that maybe they're not as financially well set as you would hope. so these are all things to definitely take into consideration. So again, have the conversation have that family meeting if you can. Many times, if your parents work with an advisor already, or if you do, they would encourage you, trust me, to have a family meeting with them present or with routine present.
If not, again, try and build it into your own individual plan with your planner or whomever you work with to just say, "Okay, if something happens, it's not going to blow up my plan and those goals and dreams that I have with my family." And actually build that in as one of your potential goals.
Miri Forster:Thank you, Jen, so much. There's a lot there. And now I think we're going to move to estate planning, and Deirdre has been so patient. So I hope you don't mind the multifaceted question. But wanted to know what is the most important aspect of your estate plan when you're either starting out, when you have young children, when you're looking at retirement? I'm sure the answers are different depending on the stage. So if you could share, that would be awesome.
Deirdre Wheatley-Liss: Sure. Absolutely. To let everyone know a fun fact, all of us are going to die someday. It may not be fun to think about, but a couple of things happen. The government, that's a time when they'd like to have some interest in your money. You, who is listening right now, have every opportunity under the law to decide and design where your money goes. But unfortunately, about 70% of people never take advantage of that and they pass away hat's called intestate. Which means that the state that you live in has come up with the design of who's going to get your money and how they're going to get it.
So one thing that happens here is, let's say that you have children. You don't have intestate plan in place. You have children. They're under the age of 18. Well, they're not legal adults, so they can't have money. So the money has to be held until they're 18. I want everybody to think about their 18-year-old self. Okay? And imagine what would happen if somebody handed you 50,000, 100,000, a million dollars. Because that life insurance policy may pay out when you were 18 years old. How many of you honestly think that you would have said, "You know what? I'm going to sit down for financial advisor about what it is that I should about this."
Chances are you might've bought a Ferrari or something along those lines. So intestate plan is really a gift to your family when it comes to your wealth, but it also addresses what Jennifer has alluded to before, and in Miri also, with substituted decision-making. Sometimes bad things happen, so you can't be balancing your checkbook. Sometimes you're in the hospital, and because of the HIPAA authority, you need to be able to let somebody else make decisions for you or at least get access to your medical records. So when intestate plan also includes documents around that kind of substituted decision-making.
So let's say that you're starting out early in your career. This is similar to that we know when you go off to college. When my son's friends all went off to college, I gifted them with the graduation presence of powers of attorney and healthcare powers. That was me, maybe not everybody would have done that. You need to have those in place. Okay?
So yeah, maybe you're going to name your parents at that point in time to make financial decisions for you if you can't. Maybe you're going to name your parents or a sibling to make medical decisions for you. You also have to look at your beneficiary designation. But what's that? Well, when you started the job, in the old days, we used to have a stack of paperwork this high to sign. Instead, now you have a DocuSign that you scroll through and you scroll through about your 40(1) benefits and who's the beneficiary, your life insurance, and your accident insurance and whatever the case may be. And you probably haven't given a thought to those since the day that you signed them. Those documents will control who gets that money.
So maybe it's a good idea to make a note to say, "Hey, maybe I'll go log in and see who the beneficiaries of those documents are right now." And you don't need to hire an attorney to get a power of attorney and a healthcare power at this stage of your career. Feel free. You can go a LegalZoom is a resource. There's a resource called Trustate, T-R-U-S-T-A-T-E. These are sort of do-it-yourself forms. If you need advice, if you have questions, absolutely see an attorney about those. But if you feel confident that I just want something limited to make sure that I'm covered, it's a very cost-effective way of being able to do that. Okay?
You've moved on in life. You've gotten married. You have young children. You must have a will if you have young children. I'll repeat that. You must have a will if you have young children. Why? I don't care who you are leaving your money to, the will is the only place you can name a guardian for your children. Okay? But we don't want to think about it. I think one of the most important things that we have to do as parents is design how our kids would be cared for if we can't care for them. The will is the only place you can name a guardian.
And I have to tell you. If you don't name a guardian, you will have a very cranky judge, who you have never met, and does not know you, determining who's going to raise your kids. Again, get a will, say, "My sister is going to be the guardian. My mother's going to be the guardian." A lot of times I get people say, "Well, this is so hard because I don't want my mother to know that I'm not naming her as the guardian."
Here's another fun fact. She's not going to know until you're no longer here. So there's really not a lot to get upset about. Okay? You and your spouse can't decide who should be the guardian? Solution. You pass away. Between January 1st and June 30th, it's person A. July 1st and December 31st, it's person B. It sounds somewhat sarcastic, but you have to make a decision about this. Because it is critically important that you have this.
Another document is something called a standby guardian. And this, during the whole pandemic, was very important particularly for parents who were single. What happened if I got sick and I'm suddenly in the hospital and no one can take care of my kids. Well, your neighbor can't just come over and say to the police, "Hey, I take care of the kids and they can come stay with me." Somebody needs to have that authority. So a standby guardian is a document that you can sign to say, "My neighbor Jill has the emergency authority if I cannot take care of my children to be able to take care of my children.'
So now we have the power of attorney, the healthcare power, the will, which names the guardian, and then the standby. Okay? Moving along. You're now looking at retirement. Hopefully, you've been a financially fearless female and you've accumulated some wealth. Well, another fun fact. The more money you have, the more interest the government has in your money.
So now is when you really do want to engage with an attorney. You want to engage in doing some tax planning. You want to pull your accountant into this conversation, your financial advisor into this conversation, so that you have a estate plan document that looks at the goal of how do we best preserve wealth. It could be around taxes. It could be, "Well, my kid's 27, but if I give them a dime, they're going to spend it like it's a quarter." It could be, I have a special needs child. It could be, I need pair for my parents. Whatever that case is, you have the power to say where my money goes to solve those needs if you go and you make a plan. And that's when you should be speaking with someone.
Now, I just want to touch on what happens if you are caring for elderly parents. And there's so many of us that are in the situation that our kids were adults, but not necessarily fully adults. And our parents maybe need some care. And we may be at sort of the highest income earning parts of our career. And we're getting pulled in a lot of different directions. And then there was a global pandemic that we had to deal with.
Having a plan around your parents' finances, you are not responsible to pay for your parent's care. Long-term care, on which Jennifer mentioned, that can be a solution. Unfortunately, many people don't look into it until they wouldn't qualify because they're already sick. Making sure your parents have a power of attorney because of Alzheimer's dementia. What if they lose the ability to be able to make decisions? We don't want to have to go to court and get a guardianship.
If they don't have a lot of assets, there are governmental programs that can supplement or cover their cost of care. If they have assets, not a little amount and not a huge amount, they really need to plan for, how do we take advantage of what the government will provide for us? How do we protect so that we have as much security in terms of what we're doing?
So my one thing here is please don't be the person who relies on what the State of New Jersey said, or New York, or Maryland, or Hawaii, about who gets your assets. Please take control of putting your documents together. Please take control of what those beneficiary designation say so that you know that your assets are going to the people that you want.
Miri Forster:Thank you so much, Deirdre. It is so, so important. I want to ask you one more question, if you don't mind. Since it is Pride Month, I wanted to ask you about a state planning for the LGBTQ community. Are there any other considerations that we should mention.
Deirdre Wheatley-Liss:There absolutely are. There's two things to consider. One is, are you married or are you not married? If you're married under federal law, under state law, you have the same protections as a spouse as you would with a different sex couple. What changes, however, is who are the parents of the children? Did you adopt your children? Did one partner have the child and the other partner is a partner in the relationship, or did they adopt the child? Were there other individuals involved in the reproduction of the child?
Every state has different laws regarding that. So as an example, in New Jersey, if you are married to the biological mother, you were going to be deemed to be the parent of the child. If you were in South Dakota, you would have no rights as a parent to that child unless you adopted the child.
So you need to be very, very careful regarding the issue of parental rights for what it is that you have. And let's say that you're not married, you're in a cohabitation relationship, you have children together, you are a family, but you don't have that legal piece of paper that says that we're married. In some states, because you're not married, there's inheritance taxes that would be assessed. There could be additional estate taxes.
So if you are a member of that community, or if you have a relationship with someone, a family relationship and you are not married, I do strongly suggest that whatever stage you're in in your life, you do get some qualified tax advice. Because the general rules that we're talking about here today will not apply to your situation.
Miri Forster:Great. Thank you so much. So, Deirdre, you talked about how wealth may not be in your own hands if you don't put it in the document and designate, and that the government could take your money. And we know with the Tax Cut and Jobs Act that passed in 2017 and impacted 17, 18, and forward, and now with Biden's tax proposal, there's lots of other things to consider.
So, Lisa, I want to ask you, with the Biden proposals that are out there, is there anything to talk about, about transfers at death or anything else that you think would be relevant to today's conversation?
Lisa Herzer:Absolutely. The current proposed tax law changes have thrown the tax planning world into overdrive. For estate planning, it's especially challenging. And for lack of time here, I'm not going to go into all of the changes that have been proposed. You gave a great presentation on Monday. We have a lot of webinars. But the one that I think has thrown everything that we normally plan with upside down is Biden's proposal that would raise capital gains rates to 43.4% from 23.8%. And it would also tax appreciated assets above a million dollars at death instead of them receiving a stepped up basis at death, which is a useful planning tool.
So if and when, which are important words to remember, these proposals do become law, in whatever shape or form, it's important to review your estate planning documents regularly with your attorney and advisors. And I'm going to give you an example. So prior to the exemption being raised to the current $11.7 million level, many wills contains provisions that anything above the exemption amount goes to the spouse and the exemption amount goes into a credit shelter trust for your kids.
So that makes sense when the exemption is a million or $3 million and you have a $5 million estate, let's say, but not when the exemption is 11.7 million. Because then, everything is going into that credit shelter trust and the spouse has nothing. And that was a surprise to many people that had not reviewed their wills for a long time.
So the document should change as your life changes, for example, moving to another state, as we just talked about, as well as tax law changes. It's a fluid, changing document and should be reviewed regularly, whether it's for tax law changes or whether it's for life changes. So I think the important thing is maybe, Marcia, she has her July 4th date that they review things financially, that you set up a date to review those important documents.
Miri Forster:Thanks so much, Lisa. It's a critical point. People put things away in the door and then they never opened it for 20 years, and they're shocked.
Miri Forster:So we have about eight to 10 minutes left and I wanted to switch gears to money mistakes. Everybody makes them. So I thought maybe everybody could spend a couple of minutes just talking about some money mistakes that they've seen people make and some tips to prevent them. And, Lisa, since are up, I'll start with you.
Lisa Herzer:Great. I would say one of the mistakes that I don't even think someone would think as a money mistake but relates to foreign gifts and bequests. The U.S has so many first and second generation immigrants where many family members still residing in the country of birth. So the laws dealing with foreign reporting are complex and they contain many high-dollar penalties.
The penalties were put into place to really affect those trying to hide offshore accounts and not report income on those accounts. Many innocent taxpayers have paid the price. And I'm just going to give some examples of what I have seen. If you receive a gift or bequest from a foreign source, say an aunt or a grandparent who lives in a foreign country, while there may be no income tax implications, there's still a reporting requirement. If the total of gifts and bequests that received were greater than $100,000, the penalty of not reporting could be 25% of that gift. So it's important to know the laws related to foreign gifts.
Another foreign issue would be with the example of foreign bank accounts. So even those that understand that foreign bank accounts need to be reported if they contain a balance that's greater than $10,000. I've seen where a parent or a relative is still living in a foreign country and includes the child in the U.S as a joint owner on the account without their knowledge. It is still a foreign bank account owned by that U.S resident and must be reported. And here again, the penalties are high, 10,000 per year.
So I think here, the advice is really ask. Ask if you have parents or other relatives. And make sure that you're not on the account. Or if you are, that you report correctly. Because again, the penalties are high.
Miri Forster:And you're right, Lisa. As the tax controversy and dispute resolution colled in the office, we see lots of these situations where people, unfortunately, find out they have an account or were gifted something late, they have hundreds of thousands of penalties being imposed by the IRS. And we're trying to help them get them abated because they weren't the one targeted for this reporting in the first place. Like you said, it was the people who were trying to hide the money.
Lisa Herzer:Mm-hmm (affirmative). Exactly.
Miri Forster:Thank you. So, Marcia, let's move on to you. Can you share some money mistakes?
Marcia Mantell:Sure. I think there are two really important money mistakes for us to remember, thinking about your retirement. The first is that while the 401(k) that you have and you're building millions of dollars in that account, if you're married, that 401(k) is not all yours. It is meant to pay out income for you and your spouse in retirement. And yes, it's an individual account, but it was intended for two. So not only is your 401(k) shared by your spouse, your spouse's 401(k) is shared by you. So you need to collaborate together on these decisions for the investments and the distributions.
The second important thing I want to leave you with, and we make mistakes around social security. Social security is a pay in to pay out program. So you need to pay in throughout your career. Which sounds great if you're a career woman. But a lot of us are popcorn moms and we pop in and out of our careers over time. And social security will still look at your highest 35 years of earnings that were reported and that you paid FICA tax on to calculate your benefit. So the more zeros on your record, the lower your benefit. So those are two things to keep in mind for retirement.
Miri Forster:Great. Thank you so much, Marcia. Deirdre, how about you? Anything to share?
Deirdre Wheatley-Liss: Just trying to follow up on what Lisa said about the foreign accounts, oftentimes, because we live in such a diverse area of the country, which is so wonderful. And many times we have people coming where their parents or grandparents may have been first generation here and now they're in the United States, but not only did they have the kitchen conversations, but if they did, it was around laws that were entirely different.
So I would encourage folks to look at making sure that their family is educated about how the laws work in the United States. Many countries have automatic inheritance, as an example, which we do not have in the same manner that they do. In many countries, they don't tax wealth transfers the same way that we do.
The concept of a trust, which is a staple of good estate and tax planning, doesn't exist in countries that are under civil law. Most of Europe as an example. So I think having those generally those conversations with other folks in your families, if you were excited about what we were talking about here today, would be a terrific idea.
Miri Forster:Great. Thank you. Jennifer, Do you have any that you'd like to share?
Jennifer Johnson:Sure. One thing I think that I see is when we're talking about investing, per se. And one point too is, and I'd say this is kind of a misconception maybe, when we're thinking about financial planning, it's not just investments. It's planning in general around, investments is one piece of it, but then there's making sure that you have proper insurances in place, and your estate planning as we've talked about. So that's one mistake right there, is don't just look at things in a silo, it's everything all together.
But another thing I'll say around investments, specifically, is not to act emotionally. Especially this past year, we've seen so much happen between the pandemic, and the election. And a lot of times people get nervous and their first gut reaction is to sell, put everything in cash. And when that happens, you're usually doing the exact opposite of what we should be doing as far as our investment philosophy of buying when things are low and selling when things are high. We tend to do the opposite when we're not thinking rationally.
So basically, what I'm saying is try not to look at your statements every day and log on the computer. As hard as it is, stay the course. Have a plan that is adaptable through the changes that happen in your life, because reality is not just a straight line, there's ups and downs and you need to make sure that you're being rational and not overreacting when situations are crazy and hard.
And believe me, I know it's so hard, it's such an emotional topic in general, but stay the course, make sure you just kind of have faith in yourself, and your goals, and your plan and the individual team that you're working with. And things usually get better. Markets will go up, markets will go down, but over time, things usually smooth out. Just try not to get stressed out and do things when your frame of mind is not where it should be.
Miri Forster:Thank you so much. And now we're at 10 o'clock. So we're at the end of our program. I want to thank Deirdre, Marcia, Lisa, Jen, for the great conversation today. There's been a lot of chats that I see people have been answering during the presentation. Please feel free in the bio section, everyone. Bio is there, everyone. Emails is there. Please feel free to reach out to any of our presenters. And thank you again for joining us today. And let's all be financially fearless females. Thanks again, and enjoy your day.
Transcribed by Rev.com
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Miri Forster, National Leader of the Tax Controversy & Dispute Resolution practice group, has over 20 years of experience providing tax dispute resolution services to public and private corporations, partnerships and high net worth individuals on a wide range of technical and procedural issues.
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