Reverse Mortgages: Generating Cash Flow for Seniors

Just as a Living Trust has become an important part of financial planning, a reverse mortgage can play a role in generating extra revenue for retired seniors. Reverse mortgages have been arounds since 1961, and they’ve always been somewhat controversial. Yet a reverse mortgage can be a real difference-maker for seniors who need cash flow to supplement their retirement income.

In its simplest form, a reverse mortgage is a loan
Warning signs. A broker who:

• Uses high-pressure tactics to talk you into a reverse mortgage.

• Won’t disclose the fees, conditions and risks that come with taking out a reverse mortgage, including the possible loss of the home, which serves as collateral.

Do your research if you’re considering a reverse mortgage: Look to HUD, FTC

• HUD and theFederal Trade Commission have plenty of excellent information.

• Talk to a trusted financial adviser or attorney before you sign anything.

• If the reverse mortgage is a federally insured Home Equity Conversion Mortgage (HECM), as most are, you are required by law to meet with a government-approved counselor.

• Be wary if someone selling home-improvement services suggests taking out a reverse mortgage to pay for renovations or repairs.

• Be very suspicious of claims that a reverse mortgage will get you free anything–income or a free home. You should know by now that nothing’s free.

• Do know that you usually have the right to cancel a reverse mortgage within three days after closing.

Don’t:

• Sign any loan paperwork that you don’t completely understand.

• For married couples: Don’t take out a reverse mortgage using just one spouse as the borrower. A reverse mortgage in one borrower’s name comes due when that person dies. The consequences for the surviving spouse could include collection proceedings and loss of the home.

• Listen to scammers telling you that reverse mortgages are a way to avoid foreclosure or get out of debt.

A Living Trust is an important part of financial planning  

A reverse mortgage lets you access the equity you’ve built up in your home. As a borrower, you get a tax-free advance on your own home equity. You can choose how you want to receive this advance—it can be a line of credit, fixed monthly payments or a lump sum.

For most reverse mortgages, you must use the proceeds to pay off your existing mortgage; the remainder of the loan comes due when you move, sell the house or die. Reverse mortgages are somewhat complicated, and they can be risky. Because the audience is older Americans, the industry seems to be populated with more than its share of scammers who can’t wait to take advantage of older homeowners.

While a reverse mortgage can be an important source of income for many seniors, a Living Trust is a critical part of financial planning. Our Trust package includes a Power of Attorney, an Advance Healthcare Directive and a Will. We guide you through the process and we prepare the legal documents. Schedule an appointment with Guideway today.

We service the entire East Bay and North Bay areas

Berkeley, El Cerrito, Richmond, Pinole, Alameda, San Leandro, Castro Valley Newark, San Lorenzo, Concord, Alamo, Danville, Lafayette, Orinda, Moraga, Pleasant Hill, Martinez, Pittsburg, Antioch, Brentwood, Oakley, Discovery Bay, Pleasanton, San Ramon, Livermore, Tracy and Fremont. Our clients also live in the Napa Valley, Benicia, Vallejo, Martinez, Fairfield.

It’s Tax Season: Be on the Lookout for Tax Scammers

I just read about a taxpayer (in this case, we’re using the term loosely), whom we’ll call Victor. He has a good job, has raised three kids and put them all through college. He saves for retirement. His taxes are regularly withheld from his paycheck, so there are probably no big tax debts from which he is hiding. But he has not been current with the IRS for 30 years.

I do intend to file.” Yet it never quite happens

“I’ve often thought about why I do this,” he said. “I have theories, but none has helped me get past the fear of filing and doing it on time. I rationalize. I think I’m just a small guy and the IRS wouldn’t be interested in me.

Unlike Victor, most of us do file our annual taxes, but it’s generally with some trepidation

For the 37% of American workers who are employed as independent contractors, there is the uneasiness of wondering if they’ve claimed enough in their quarterly filings. No one wants a big surprise during tax season.

But there’s a bigger, more insidious surprise waiting for many unsuspecting taxpayers

The IRS calls them “ghosts”. They’re shady operators that the Internal Revenue Service (IRS) calls “ghosts”. Those who are certified to prepare tax returns for other people have a legally required 2019 Preparer Tax Identification Number (PTIN). Ghosts don’t have a PTIN and don’t sign the returns they work on, leaving their clients holding the bag for any filing falsehoods.

These ghosts are brazen, setting up shop in pop-up offices

• Ghosts set up shop around tax time in pop-up offices in malls. They pitch their services at community-gathering places such as churches or clubhouses.
• They lure customers with promises of big refunds, often predicating their fees on a percentage of the refund. Real tax preparers base their fees on their time, generally an agreed-upon rate per hour.
• They might invent income to falsely claim tax credits or fabricate deductions for business, education or medical expenses.

By the time the IRS catches on, the ghost will have vanished—with your fee

It’s your name on the return, and you’re liable. It may take some time for the IRS to catch up with you and your missing taxes. In the meantime, you will be accruing penalties and interest.

Some ghost preparers take the scam a step further, stealing refunds outright by routing them into their own bank accounts. Other tax prep fraudsters work online, sending phishing emails that appear to be from tax pros, or creating impostor websites that claim to prepare and e-file your return.

The Federal Trade Commission (FTC) warns:

“These websites looks legitimate,” but “they’re set up to collect personal information that can be used to commit fraud,” including identity theft.

Here are some red flags. Be very suspicious if your tax preparer:

• Asks for payment in cash.
• Has an excuse why you won’t receive a receipt.
• Bases fees on a percentage of the refund. Tax preparers base their fees on their time.
• Wants the refund deposited in his or her bank account. Ridiculous.
• Marks your return as “self-prepared” or affixes a business label rather than signing the form by name. A certified preparer will have a PTIN.

One more thing: IRS robocalls

Who hasn’t received an intimidating phone call that starts with “This is the IRS”. Hang up and report it—this is a robocall. Never return a phone call from someone claiming to be the IRS. The IRS never discusses personal tax issues through unsolicited emails, texts or over social media.

We look forward to assisting our clients with their uncontested legal matters

Taxes and Living Trusts are important parts of estate planning. Our Living Trust package includes a Power of Attorney and an Advance Healthcare Directive. We guide our clients through the process. We prepare the legal documents and file them with the courts. For most of our services, we charge one flat fee. We’re helpful, compassionate and affordable. Schedule an appointment today at one of our three Bay Area offices.

The Fed: Helping Us Save for Retirement

The government is responding to statistics showing that current generations are not saving for retirement. Unlike their thrifty parents, many baby boomers are alarmingly ill-prepared for retirement. Many other employees are more focused on present financial needs than future ones. The implications of generations of people who are unable to work–but without resources to live–present a potentially overwhelming burden on the government. Finding ways to help people prepare for retirement is in everyone’s best interest.

The recession gave birth to entrepreneurs and consultants

Remember the recession? Those who couldn’t get jobs started their own businesses. They learned they couldn’t depend on someone else for a job. This was especially true for older workers. Companies were looking for a younger, cheaper workforce. There’s a good chance those companies are not providing retirement plans, that they’re outsourcing work rather than hiring employees and having to pay for benefits.

• A study shows that only 51% of Americans are employed by companies withretirement plans.
• Of those employees, only 40% actually participate.
• In addition, experts say one in three Americans has less than $5,000 in retirement savings and 21% have none.

Financial planners recommend seniors save $1M before retiring

Because life expectancies are much longer than they were for previous generations, financial planners recommend that seniors save a minimum of $1 million before retirement. Clearly, many are falling short of that goal. In an effort to change this gloomy retirement forecast, the U.S. House of Representatives passed The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The bipartisan bill attempts to address the financial readiness of seniors for retirement.

The SECURE Act:

• Encourages small businesses to offer employee retirement plans.The bill lets small businesses cut through administrative red tape and ignore certain legislative mandates to tailor retirement plansto their needs. It also permits multiple small employers to band together and create 401k plans. Under the bill, some part-time employees may also have access to employer retirement plans.
• Permits retirees to accumulate more retirement savings over a longer period of time. The bill raises the required minimum distribution age for retirement plans from 70.5 to 72. In addition to permitting retirement plans to earn more over an extended period of time, the bill will also make retirement savings last longer. The year-and-a-half delay in distributions will result in a larger retirement account and prevent seniors from spending their savings sooner.
• Removes the age limits on contributions to IRAs.Previously, no contributions were permitted after age 70.5. The bill removes that restriction.
• Creates more payout options for annuities purchased through employer retirement plans.The SECURE Act would permit lifetime-income investments, such as annuities, to be paid out in monthly installments as well as in a one-time lump sum.
• Changes payout options for beneficiaries of retirement plans. Currently, beneficiaries of retirement plans can stretch out distributions over their expected lifetimes, permitting the funds to continue to grow tax-free. The SECURE Act eliminates this stretch-out option, requiring that nondesignated beneficiaries, such as Trusts, receive all retirement benefits within five years of the retirement fund owner’s death.
• Expands the use of 529 account funds.The House Ways and Means Committee removed a provision that would permit beneficiaries of 529 college saving plans to use such plans to pay for homeschooling, special needs students, and private education. However, the new bill does authorize penalty-free withdrawals of not more than $10,000 to pay for certain student loans and apprenticeships.

The U.S. Senate is considering its own financial retirement measure—The Retirement Enhancement and Savings Act (RESA similar to SECURE). The differences lie in proposed changes to the stretch-out rules. There is bipartisan support for the SECURE Act; it passed by 417 to 3 votes in the House and has the greatest chance of being enacted. The act must pass a vote in the Senate to become law.

Creating a Living Trust is an important part of financial planning

California Document Preparers assists our clients in the preparation of their Living Trusts. Our Living Trust portfolio includes a Power of Attorney and Advance Healthcare Directive. Most of our clients are surprised at how easy it is. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Peter Rothstein likes that his job has a social purpose. It expands clean energy to mitigate climate change. Best of all, he will soon be able to support that mission in his retirement plan. Socially conscious investing is gaining ground.

Identifying 401k offerings that support environmental, social and governance (ESG) factors

The Northeast Clean Energy Council, where Mr. Rothstein is president, will revise its 401k plan offerings to include mutual funds promoting those sustainability goals. The revamped plan will include a target date fund series that screens for environmental, social and governance factors, called ESG investing. The council, a nonprofit business alliance of 250 companies, will continue to offer traditional choices such as total-market index funds, but the ESG option will be the default investment choice for Mr. Rothstein’s staff of about a dozen employees.

“These new business models have the potential to be climate solutions and to grow the economy at the same time,” he said. “It makes sense for us to incorporate ESG investing for our retirement plan.”

The idea of investing with a social purpose is gaining ground

• Sustainable and responsible investing in the US grew 38% from 2016 to the start of 2018, to $12 trillion in assets under management, according to the US Sustainable and Responsible Investment Foundation (SIF). SIF is a US-based membership association that advances sustainable, responsible and impact investing across all asset classes.
• Morningstar reported that 2018 marked the third consecutive year of record flows into sustainable funds; the number of sustainable funds also jumped nearly 50%.

Most sustainable investments are held by institutional and high-net-worth investors

US SIF data showed that of the $12 trillion invested last year, 72% was held by pension funds, insurance companies and educational and philanthropic groups; 25% by high-net-worth clients or individual investors.

Many think 401k plans will play a larger role in ESG investing, driven partly by demand

• A Morningstar study published this year found that more than 70% of the US population has “at least a moderate interest” in sustainable investing.
• The appetite is especially strong among younger workers: 67% of millennials would be more likely to contribute, or increase their plan contributions, if they knew their investments were contributing to social good.

Most ESG mutual funds rely on ratings systems that score securities for their exposure to indirect financial factors, including a company’s environmental impact, governance policies or how they treat employees or monitor their supply chains.

Critics argue that investors must sacrifice strong returns in return for their socially responsible choices. But a growing body of evidence finds that ESG-screened equities were better than average on measures of quality, financial health and volatility.

A look at San Francisco’s Veritable Vegetable

Veritable Vegetable, an organic produce distributor in San Francisco with about 130 workers, has included socially responsible mutual funds in its 401k plan since 1995. “Since the beginning, we’ve been committed to promoting environmental sustainability in everything we do,” Shira Tannor, the company’s chief administrative officer, said. “We have a different vision of what profitability means,” Ms. Tannor said. “We pay a good living wage to our workers, and sustainable prices to the farmers we work with, and we help people eat healthy food. We’re a for-profit business, but if we have nothing left over after that, we consider that a success.”

Evidence that ESG can match or beat traditional investment options is sparking interest

“We’re getting more questions from plan sponsors — they’re asking if they should be adding this to their investment menus,” says Mikaylee O’Connor, head of defined contribution solutions at RVK, a New York-based investment firm that advises workplace retirement plans. “What’s driving many of the conversations is more research that supports consideration of sustainable investing.”

Fiduciary responsibilities come first

Federal law mandates that sponsors place economic interests of participants ahead of other considerations when making decisions about retirement benefits. But guidance issued in recent years by the Labor Department on whether ESG products meet that obligation has shifted repeatedly.

Some senior managers view their 401k plans simply as a cost center, rather than as a way to promote company values or retain employees. Mr. Rothstein, however, remains bullish. His council’s shift to a socially responsible 401k plan was resonating with employees. “Everyone working in this industry, and more people in general, are recognizing that this matters,” he said.

Creating a Living Trust is an important part of financial planning

California Document Preparers assists our clients in the preparation of Living Trusts. Our Living Trust portfolio includes a Power of Attorney and Advance Healthcare Directive. Most of our clients are surprised at how easy it is. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Special Needs Planning: A Multigenerational Effort

A daughter and sibling steps up to bear a heavy load

Let’s step into Sharon’s shoes. She’s the sister of Andy, who is developmentally disabled. Their elderly parents now count on Sharon’s help for shopping, getting to doctor appointments and overseeing their financial affairs.

Sharon lives the closest to their parents, so by default, the bulk of their care has become her responsibility. With their own failing health, her parents can no longer take care of Andy. Without long-term care planning, whether through savings, insurance or both, all of this family care becomes Sharon’s responsibility.

This is a heavy burden to place on anyone

This is a signifiant responsibility, especially for someone with a career, which is the case with Sharon, a CPA. She has two kids, a husband and a dog, and her life gets really nuts for at least three months every year. Sharon just turned 40, and she’s trying to save money for her kids’ college and her own retirement. Some days it all looks completely impossible.

With a special needs child, the needs grow exponentially

We talk a lot about being proactive, doing comprehensive estate planning that includes Living Trusts. But when there’s a family member with significant disabilities, the stakes quickly get higher; planning for their care becomes a family affair that transcends generations. Siblings need to be involved in the planning and care of their special-needs family member.

Parents of special needs children are focused on planning for a time when they will no longer be there to care for that child. Planning must cover a range of issues:

• Who will manage the assets set aside for the child?
• Who will oversee the child’s care needs?
• What financial planning must be done now to ensure there are adequate assets to provide for that child?

Planning and financing two retirement strategies

As parents of special-needs children plan for retirement, they need to be developing and financing two retirement programs—one for themselves and one for their special-needs child.

Sharon’s story illustrates the importance of financial planning

Many parents of special-needs children envision their special-needs child living at home with the parents throughout their lives. That’s a good strategy, but if the child outlives his/her parents, it’s short-sighted. Adjusting to a new living arrangement can be traumatic for special-needs individuals. It takes time and stamina to research and leverage government and community benefits to reduce the burden on the other family members.

Does your family need to create or update a Special Needs Trust?

Make an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.