Are Taxes a Good Reason to Relocate in Retirement?

There are states where taxes are lower than others. However, if you plan to move to a state that has low tax rates or tax breaks designed to help older residents, make sure to look at the entire picture, advises the article “Should You Relocate to Trim Taxes in Retirement?” from Kiplinger.

Especially now that tax reform has put the kibosh on the federal deduction for state and local income taxes (SALT), seniors preparing to leave the workplace are feeling the tax pain more than ever before.

There are some savings to be had by moving from a high-tax state to a low-tax state. If you live in a state like New York or California, and move to Florida, you’ll definitely enjoy the fact that Florida has no state income tax.

However, a quick fix isn’t always the solution. If you move to Dallas or Seattle, your property taxes will take a skyward leap. If you end up flying back to your hometown several times a year, how much will you be saving? If you continue to earn income in the state you leave behind, you’ll need to pay non-resident taxes. Not paying could cost a hefty sum.

There are other costs associated with relocating. High-tax states, including New Jersey and Connecticut, are actually doing their best to make it hard to leave, imposing tax surcharges or tax prepayments on high-end homeowners who relocate. You’ll need to be extra detail-oriented about establishing residency in your new home state, from signing up with a new network of healthcare providers to joining a local neighborhood group. High tax states have become super-aggressive about investigating former residents. Just keeping a pocket diary of the dates you live in another state or saving receipts from E-Z-Pass to document your travels won’t be enough. You’ll really need to cut ties with your old state.

Losing that SALT deduction has meant that people who might have stayed in a high tax state in the past, are heading for the exit.

Moving can be financially beneficial, even if you’re not in a high-tax state. If retirement income is limited to a pension and IRAs, moving to a lower cost state can give you a pay raise. For one New Jersey resident, the realization that two months of property taxes in New Jersey would cover his entire year of property taxes in Florida was all the impetus he needed to set his sights on the Sunshine State. By moving South, he’s also getting rid of state tax payments.

There are several bills in the U.S. House that might raise or eliminate the SALT deduction cap. That cap is scheduled to expire, along with other provisions of the 2017 Tax Cuts and Jobs Act after 2025.

If you do move to another state, remember that each state has its own estate laws. Therefore, you’ll want to be sure to meet with a local estate planning attorney to be sure that your will, power of attorney and other documents are valid in your new home state.

Reference: Kiplinger (Oct. 28, 2019) “Should You Relocate to Trim Taxes in Retirement?”

Suggested Key Terms: Retirement, Relocation, SALT, Property Taxes, Federal Deduction, State Income Tax

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Sharing Legal Documents and Passwords

While parents are alive and well is the time to prepare for the future, when they begin to decline. An adult child who is a primary agent and also executor has questions about organizing documents and managing storage in a digital format, as well as how to secure their passwords for online websites. The advice from the article “Safe sharing of passwords and legal documents” from my San Antonio is that these two issues are evolving and the best answers today may be different as time passes.

Safe and shareable password storage is a part of today’s online life. However, passwords used to access bank and investment accounts, file storage platforms, emails, online retailers and thousands of other tools used on a desktop are increasingly required to be strong and complex and are difficult to remember. In some cases, facial recognition is used instead of a password.

Many rely on their internet browsers, like Chrome, Safari, etc., to remember passwords. This leaves accounts vulnerable, as many of these and other browsers have been hacked.

The best password solutions are stand-alone password managers. They offer the option of sharing the passwords with others, so parents would provide their executor with access to their list. However, there are also new laws regarding digital assets, so check with your estate planning attorney. You may need to create directives for your accounts that specify who you want to have access to the accounts and the data that they contain.

Storage of legal documents is a separate concern from password-sharing. Shared legal documents need to be private, reasonably priced and secure.

Some password managers include document storage as part of the account. The documents can be uploaded in an encrypted format that can be accessed by a person, who is assigned by the account owner.

Document vault websites are also available. You will have to be extremely careful about selecting which one to use. Some of the websites resell data, which is not why you are storing documents with them. One company claims to offer a “universal advance digital directive,” which they say can provide digital access worldwide to documents, including an emergency, critical and advance care plan.

The problem? This company is located in a state that does not permit the creation of a legally binding advance directive, unless it is in writing, includes state-specific provisions and is signed in front of either two qualified witnesses or a notary.

Talk with your estate planning attorney about securing estate planning documents and how to protect digital assets. Their knowledge of the laws in your state will provide the family with the proper protection now and in the future.

Reference: my San Antonio (October 14, 2019) “Safe sharing of passwords and legal documents”

Suggested Key Terms: Advance Directives, Online Storage, Cloud, Digital Assets, Estate Planning Attorney, Password Sharing

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Don’t Ask Heirs to Guess What You Wanted—Have an Estate Plan

With an estate plan, you can distribute your assets according to your own wishes. Without one, your heirs may spend years and a good deal of money trying to settle your estate, reports U.S. News & World Report in the article “5 Reasons to Make an Estate Plan.”

If there is no estate plan in place, including a will, living trust, advance directives and other documents, people you love will be put in a position of guessing what you wanted for any number of things, from what your final wishes would be in a medical crisis, to what kind of a funeral would like to have. That guessing can cause strife between family members and worry, for a lifetime, that they didn’t do what you wanted.

Think of your estate plan as a love letter, showing that you care enough about those you love to do right by them.

What is estate planning? Estate planning is the process of legally documenting what you want to happen when you die. It also includes planning for your wishes in case of incapacity, that is, when you are not legally competent to make decisions for yourself because of illness or an injury. This is done through the use of wills, trusts, advance directives and beneficiary designations on accounts and life insurance policies.

Let’s face it, people don’t like to think about their passing, so they postpone making an appointment with an estate planning attorney. There’s also the fear of the unknown: will they have to share a lot of information with the attorney? Will it become complicated? Will they have to make decisions that they are not sure they can make?

Estate planning attorneys are experienced with the issues that come with planning for incapacity and death, and they are able to guide clients through the process.

The power of putting wishes down on paper can provide a great deal of relief to the people who are making the plan and to their family members. Here are five reasons why everyone should have an estate plan:

Avoid Probate. Without a will, the probate court decides how to distribute your estate. In some states, it can take at least seven months to allow creditors to put through claims. The estate is also public, with your information available to the public. Probate can also be expensive.

Minimize Taxes. There are a number of strategies that can be used to minimize taxes being imposed on your heirs. While the federal estate tax exemption is $11.4 million per individual, states have estate taxes and some states impose an inheritance taxes. An estate planning attorney can help you minimize the tax impact of your estate.

Care for Minor Children. Families with minor children need a plan for care, if both parents should pass away. Without a will that names a guardian for young children, the court will appoint a guardian to raise a child. With a will, you can prevent the scenario of relatives squabbling over who should get custody of minor children.

Distributing Assets. If you have a will, you can say who you want to get what assets. If you don’t, the laws of your state will determine who gets what. You can also use trusts to control how and when assets are distributed, in case there are heirs who are unable to manage money.

Plan for Pets. In many states, you can create a Pet Trust and name a trustee to manage the money, while naming someone in your will who will be in charge of caring for your pet. Seniors are often reluctant to get a pet, because they are concerned that they will die before the pet. However, with an estate plan that includes a pet trust, you can protect your pet.

Reference: U.S. News & World Report (October 18, 2019) “5 Reasons to Make an Estate Plan”

Suggested Key Terms: Estate Plan, Pet Trust, Asset Distribution, Beneficiaries, Minor Children, Guardian, Probate

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