Montana Standard Life Planning by Montana Standard

LIFE PLANNING GUIDE 2011 A special supplement to

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Estate Planning Pre-Planned Funeral Reverse Mortgages Taxes

JANUARY 2011

Money Matters The ins and outs of investing By Paula J. McGarvey for The Montana Standard If you are taking a road trip, it’s best to travel with a map or GPS. The same rule applies when it comes to your finances—only your guide comes in the form of a financial planner, investment counselor or accountant. “Start that conversation with a financial advisor and work out a financial plan,” said Martin Lewis, Wells Fargo regional manager for Montana and Wyoming, based in Helena. Lewis said that any financial plan should start with an analysis of your own personal goals and issues. Goals include things, such as what you want to accomplish in life, major purchases you plan to make and plans you have for your retirement years. Issues include any concerns or threats that could prevent you from attaining these goals, such as changes in your income or the value of your investments. Once you’ve figured out what you want to accomplish and what might stand in your way, the next step is generating a net worth statement.

To calculate net worth, Lewis said that people need to look at three things: assets, liabilities and cash flow. • Assets include money in accounts or investments, property and possessions. • Liabilities include any outstanding debt in MARTIN LEWIS, Wells Fargo the form of bills, credit card balances, loans regional manager for Montana and mortgages. and Wyoming • Cash flow includes your income from all sources balanced against the cost of living for food, housing, utilities, and other necessary expenses. “If you have an understanding of what goes in and out in relation to assets and liabilities it allows you to diversify assets in the best manner possible,” Lewis said. Continued on page 3

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LIFE PLANNING GUIDE 2011

Assets can be diversified through your choices of how to invest your money. And investments always come with a certain risk. Therefore, Lewis said that the next step in financial planning should involve performing a risk assessment. “It’s getting that clear understanding of how comfortable clients are with risk,” he said. People have different tolerances for coping with changes in the value of their investment portfolios, which can fluctuate with the stock market. A financial planner can help you tailor your investments to create the best mix of both conservative and riskier investments in the right proportions for whatever your stage of life and comfort level may be. Specific investment advice is different for each investor. “Don’t pick an investment based on returns, pick an investment that blends to your needs for your cash flow and your risk,” Lewis said. Investments can come in the form of bonds, commodities, mutual funds, real estate and stock. Specialized investments for kid’s college, such as UTMA or 529 accounts, or retirement accounts, such as IRAs and 401Ks, also exist. “There’s a gamut of investments out there,” Lewis said. Once you decide on where to invest your money, Lewis adheres to the adage “pay yourself first,” suggesting that people should get in the habit of putting some money away on a regular basis. Most banks offer automatic transfer options that make it easy to regularly invest.

“The key to investing is consistency,” he said. When it comes to investing in your retirement, Lewis noted that it’s never too early to start. He suggests researching what, if any, retirement plans your company might offer. “If you work for a company that offers a 401K, take advantage of it,” he said. Those investments provide an even better return if the company matches employee contributions. Whatever your investments, when combined with your possessions and property, they help make up your estate. Lewis advises that regardless of your age, you should create an estate document checklist, because like investments, life also comes with risks. That list should include a will, living will, medical privacy release (HIPAA), and durable power of attorney for health, legal and financial matters. Lewis advises people to gather up their assessments of their goals, issues, cash flow, risk and their estate documents and file it away in a secure place in an organized fashion. “I encourage people to put them in a binder,” he said. Lewis also encourages people to take out their financial information and periodically review it—making modifications when necessary to adjust to changes in their goals, issues, cash flow and life situation.

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Montana

THE UNIVERSITY OF MONTANA

LIFE PLANNING GUIDE 2011

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Reverse Mortgages Offering options for aging homeowners By Paula J. McGarvey for The Montana Standard Reverse mortgages are becoming an increasingly popular financial tool for aging homeowners looking to stay in their homes and balance their retirement budgets. According to Kathy Earle, a reverse mortgage consultant working for Wells Fargo Home Mortgage in Missoula, reverse mortgages have been around since the 1960s. The recent economic downturn of the past few years has only served to make reverse mortgages a more viable option for those 62 and older looking to make ends meet in the current economic climate. The U.S. Department of Housing and Urban Development (HUD) Web site (www.hud.gov), describes a reverse mortgage as a special type of home loan that allows homeowners aged 62 and older to convert a portion of their home’s equity into cash. Unlike more traditional home equity loans or second mortgages, reverse mortgages do not require repayment until the

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borrower(s) no longer use the home as their primary residence or fail to meet the obligations of the mortgage. “A reverse mortgage is a little more complicated than a regular mortgage,” Earle explained. Earle describes a reverse mortgage as a special type of home equity loan, endorsed by the FHA, where value of the loan amount is calculated using several factors including: • The age of the youngest borrower • The home’s appraised market value • The remaining balance on the homeowner’s existing mortgage, if any • Current reverse mortgage rates and programs available Put simply: “You qualify on your age, the value of your home, and the rates and programs that reverse mortgage (lenders) are offering at the time,” Earle said. The reverse mortgage works like a traditional home equity loan, only you don’t have to pay it back right away. The main benefit of a reverse mortgage is that people don’t have to repay the loan as long as the borrower(s): • Live in the home as a primary residence • Keep tax and insurance payments current • Maintain the property according to FHA standards. Those accepted for reverse mortgage loans can choose to receive their money in a variety of ways including as a lump sum, a monthly payment or as a line of credit. According to a 2006 AARP survey, most reverse mortgages are obtained to acquire funds to pay for daily living expenses and medical bills. Earle added that others benefitting from a reverse mortgage include those who have lost Continued on page 5

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Kathy G. Earle Reverse Mortgage Consultant ��-��-�� www.wfhm.com/kathy-earle

 A Professional Corporation           

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               

                              

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LIFE PLANNING GUIDE 2011

pensions or suffered a loss in value of retirement funds held in their investment portfolios. As long as one of the borrowers is living in the house, the reverse mortgage stays intact. According to HUD, the reverse mortgage must be repaid when the borrower(s) die, move, sell the home, or no longer meet the obligation of the loan, such as failure to keep up taxes and insurance. Property remains in the owner’s name(s) until they move or the home becomes part of the estate at the time of their death. At that time, the outstanding balance of the reverse mortgage can be paid from funds obtained from the sale of the home or from other assets, such as savings, investments and insurance policies. “The house doesn’t have to be sold, the reverse mortgage just has to be paid,” Earle explained. Earle encouraged people to research the current options and rates available on line and to visit with trained professionals who can help explain the pros and cons of reverse mortgages, based on the borrower’s individual financial situation. Earle added that a consultation with a HUD or FHA counselor is also required as part of the reverse mortgage application. For more information on reverse mortgages visit the following Web sites: http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm http://reverse.org/r/what-is-a-reverse-mortgage/ https://www.wellsfargo.com/mortgage/articles/reverse_mortgage

For a free referral to a list of FHA-approved lenders and the name and location of HUD-approved housing counselors, call toll free at (800) 569-4287.

Pros and Cons of Reverse Mortgages PROS - Provide cash in a monthly or lump sum - Homeowners can stay in their home without paying a monthly mortgage payment - Income and credit don’t influence loan approval - Heirs are not responsible if remaining home equity doesn’t pay off reverse mortgage - Proceeds are not taxed CONS - Value of estate inheritance may decrease over time - Fees sometimes are higher than traditional mortgages - Medicaid eligibility can be affected if the amount of funds withdrawn exceeds monthly eligibility limits

Information adapted from Reverse.org (http://reverse.org/r/what-is-areverse-mortgage/)

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Looking ahead in life planning ahead for death John Hossfeld of Wayrynen Richards Funeral Home talks about funeral pre-arrangement By Paula J. McGarvey for The Montana Standard It has been said that the only certainties in life are death and taxes. Fortunately, you can plan ahead for both. Although discussing your own mortality can be difficult, planning ahead makes good financial sense and can relieve some of the burden that your family and loved ones face during a time of grieving.

  

JOHN HOSSFELD, director of Wayrynen-Richards Funeral Home, stands beside one of the limousines from the business’s fleet of professional vehicles.

 You know each other so well you feel you’re part of each other (and you are). But, with an event as important as your funeral, it’s still an excellent idea to discuss your choices, plan ahead, and document your wishes for others. Once you prearrange, there’s never any question about what you would have wanted.... it’s understood.

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“Having a plan makes a death more of a life-event and less of a crisis,” said John Hossfeld, funeral director and owner of Wayrynen Richards Funeral Home in Butte. Like all aspects of life, the death of a loved one has a monetary aspect. The cost of a funeral and associated expenses in southwest Montana, such as burial plots, grave markers, cremation, and flowers, can range from $2,500 to $7,000 depending on individual choices. Across the country, average costs can run even higher, Hossfeld said. Pre-payment has several advantages. In addition to preparing for the cost of the funeral, pre-payment allows individuals and family members the chance to pre-plan the details of memorial services and burial or cremation at a time when they are free of the burden of grief and feelings of loss that accompany a death. Hossfeld said that people can make an appointment to meet with a funeral director to discuss options in both pre-payment and pre-arrangement of funerals. Once decisions are made and costs are estimated, the funeral diContinued on page 7

LIFE PLANNING GUIDE 2011

rector works with clients to set up trust accounts. Wayrynen Richards uses several local banks to manage their clients’ money in certificates of deposit (CDs). “It’s a very safe investment,” Hossfeld said. Monies from these trusts can be used to cover a variety of expenses from flowers to food served at post-funeral receptions. “Anything that’s directly related to the funeral can come out of that trust,” Hossfeld said. Hossfeld said that money can be paid in a lump sum, or clients can choose to set up a payment plan. Hossfeld added that at Wayrynen Richards, options for full payment don’t lock in prices, but the interest accrued on funeral trust accounts nearly always covers the full cost of the funeral or memorial service. Hossfeld said that funeral trust accounts can be designated revocable or irrevocable. Revocable trusts allow access to the money prior to death. “If you come in and set up a trust, you can cash it in at any time,” he said, adding that interest accrued on revocable trusts is considered reportable as interest income. With an irrevocable trust, the money can’t be accessed without providing a death certificate. One benefit of an irrevocable trust is that money is not considered an asset when a person with a disability or long-term illness is going through the Medicaid application process. “Pre-funding is an acceptable and recommended spend-down practice for Medicaid eligibility,” Hossfeld said. Hossfeld explained that people must have less than $2,000 in liquid assets in order to qualify for Medicaid, but can have pre-planning funds in irrevocable trust funds, which disqualifies those monies as being considered as liquid assets. “Another benefit is that interest earned on the account is not considered reportable income,” Hossfeld said. Hossfeld said that the whole point of pre-planning is to make the process easier for loved ones and family left behind. “It’s something that everyone is going to have to deal with,” he said. It just makes sense to face those decisions sooner, rather than later.

Six Easy Steps to Pre-Planning Your Funeral 1. Meet with a trusted funeral director to discuss steps involved with pre-planning and pre-payment. 2. Assess your finances and set a budget for funeral-related costs. 3. Discuss options, based on that budget, with a funeral director. 4. Discuss your choices with your family or loved ones. 5. Put the plan in writing and make copies for the funeral director and appropriate family members. 6. Set up a pre-payment account in lump sum or through a monthly payment plan, if necessary, with your funeral director. Most funeral homes offer several pre-payment options through local banks.

Information adapted from How to Pre-Plan a Funeral to Save Money from http://www.ehow.com/print/how_2032507_pre-plan-funeral.html LIFE PLANNING GUIDE 2011

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25 W. Granite Butte, MT 59701 406.496.5500 www.mtstandard.com

f the unexpected occurs, we are a full service mortuary who can help you plan the remembrance of your loved one deserves. We can also help in advance. Preplanning is the best choice. You can New Location Coming Spring 2011 take time to make the best decision; no rushing or emotional stress.

Call Bill Feaster, Preplanning Specialist today!

213 N. Montana St. Butte, MT • (406) 723-3239 PAGE 7

Tips on Taxes By Paula J. McGarvey for The Montana Standard

Tax tips for 2010 filing With the ink barely dry on some IRS tax laws and changes made in midDecember of 2010, this year Americans may need help with their taxes more than ever. Bob Bristol, a local Certified Public Accountant (CPA) with Newland and Company in Butte, recently back from six specialized courses focusing on new tax laws, took some time from his busy schedule to share some helpful tax tips with readers of The Montana Standard. “This year is not going to be like last year,” Bristol warned. Bristol said that individuals and small businesses will be especially impacted. He encouraged people to gather up all their tax information and any financially related material that could affect their taxes for last year, as well as starting off 2011 with better record keeping. He advises that people collect and save bank statements, itemized credit card reports, any third party bills, and recurring invoices such as utility and telephone bills. “Documentation is the key,” he said. Keeping track of dollars spent is crucial if people don’t want to miss credits and deductions allowed on the new tax forms. Bristol suggests that individuals go so far as to treat their personal finances as if it were a business. “Once you get in the habit of doing it, it becomes easier,” he said. Bristol’s rule of thumb is to “follow the dollar.” Good record keeping, filing of important documents, and even specialized computer record keeping and tax software, also helps you use the new tax laws to your best advantage. “The benefit of hiring an accountant is that they can find you deductions and credits that you might miss,” he said. Bristol said that people should also remember to take advantage of federal energy credits, first time home buyer credits and dependent care credits, when applicable. Bristol added that people shouldn’t forget to report the basics. “Make sure you tell your accountant about life changes, such as marriage, divorce and births,” he said. For those looking for help with their taxes, Bristol recommends researching tax information, which can be found on the IRS Web site( www.irs.gov). He added that most CPA firms, including Newland and Company’s (www. newlandandcompany.com), have Websites available, which contain free tax related calculators and links that access IRS tax information. Bristol said that most firms have a client tax organizer. “Go on line and find one, print it out and use it. The more organized you are, the cheaper your accounting fee will be and the higher your refund,” he said. In addition, Bristol said that the American Institute of Certified Public Accountants has a good tax checklist that CPAs have access to. PAGE 8

Bob Bristol, CPA with Newland and Company in Butte

Changes for the better Bristol said that many changes in tax laws for 2010 are for the better. For example, Bristol said that there is a new tax exclusion for people hired in 2010 so that employers don’t have to pay the 6.2 percent FICA tax on that employee, if they meet certain requirements. He added that if an employee is retained for a 52 week period (even if it extends into 2011), the employer might be responsible for an additional $1,000. Bristol added that small businesses are also eligible for a new health insurance credit if they provide health insurance to their employees. “Ask your accountant,” he said. Bristol said that changes under IRS code section 179 allow small business owners to claim expenses valued up to $500,000 worth of equipment and also include new rules for real property. And even the 1040EZ won’t be so easy in the future. “There will be changes in FICA deductions beginning in January of 2011,” he said. And according to Bristol, new tax laws also mean that there has never been a better time to save. “I think everyone should save. Save something, somehow, someway,” he said.

Audit anxiety As a parting comment, Bristol said that if you find yourself facing the dreaded IRS tax audit, call a professional and gather up all your files and financial documents. “If you are audited, that information will go a long way to keep the IRS from making adjustments in your tax return,” he said. LIFE PLANNING GUIDE 2011