The 25 Biggest Mistakes Seniors Make
Tuesday, 09 September 2008
Print this page out and put a check-mark next to any mistake you may be making or have not fully explored.
1. You have not taken all steps legally allowed you to protect your assets, especially your home, from frivolous lawsuits or creditors. (A Living Trust provides no protection.)
2. You have not taken all steps legally allowed you to transfer your assets from a taxable environment, to an environment that can generate a tax-free retirement income to you and pass income and estate tax-free to your heirs.
3. You are not aware that IRAs and annuities are the two assets that are subject to double taxation upon death, and have not taken all steps possible to avoid this.
4. You have not done adequate IRA Distribution Planning, with the objective to minimize or avoid taxes on the dollars distributed from your IRAs. You have not explored ways that may result in distributing part or all of your IRA tax-free.
5. You have merely postponed or deferred taxes on highly appreciated assets, such as real estate or stocks, through 1031 exchanges, thereby leaving assets subject to high income or estate taxes to yourself or heirs, versus using legally allowable means to by-pass capital gains taxes upon the sale of an appreciated asset (Capital-Gains By-Pass Trust). "A bird in the hand is worth two in the bush."
6. You consume non-IRA dollars first while leaving IRA dollars to grow, taking only the "required minimum distribution," when working the numbers often yields that you should be consuming IRA dollars first.
7. You have not taken steps to assure that unintended persons do not unwittingly become the beneficiaries of your estate, in spite of the traditional use of wills, living trusts, and the customary beneficiary designations on IRAs, annuities, and life insurance policies.
8. You are paying taxes on income you are not using (on interest that is being reinvested annually), rather than using all steps legally allowed you to avoid those taxes and only pay taxes on dollars you are using.
9. You have not taken the steps legally allowed you to avoid taxes on your Social Security Income.
10. You do not understand that income tax rates are as high as 65% on much of your retirement income, not 25%-35% as you supposed, or how to legally avoid this.
11. You have not taken steps legally allowed you to avoid state income taxes on investment income, state sales taxes on major purchases, or state property taxes on major personal property items (i.e., autos).
12. You have not taken steps to earn interest that participates in growth-type investments, i.e., the stock market indices, while insuring your accounts against any downside market risk or losses. Every year all gains are locked-in.
13. You have too many of your dollars tied-up in so-called "safe" assets (such as CDs) such that, after subtracting taxes and after-inflation, you are actually losing dollars. You feel paralyzed without choices, and are not aware of the safe alternatives.
14. You do not understand why inflation is the #1 enemy of longevity, nor the devastating long-term effect of inflation on investments, especially bonds, whether or not you hold the bonds to maturity.
15. You do not understand how to manage away each of the various types of risks out of your investment portfolio: default or fundamental risk, market risk, inflation risk, interest-rate risk; and how you are most vulnerable given the most probable future world economic conditions.
16. You do not realize that your life expectancy is longer than you think, and you have not made provisions to guarantee that you cannot outlive your income.
17. You do not understand the most common mistakes made by owners of annuities and life insurance, and what your insurance agent did not do when establishing those policies, or why you could end-up paying more than 50% of those annuities and/or death benefit proceeds in taxes.
18. You do not understand why transferring your home from Joint-Tenancy into your revocable living trust could have devastating implications, or how to rectify.
19. You do not take advantage of many tax breaks available for retirees simply because you are not aware of them, and you have not re-structured your assets and income to take maximum advantage of potential tax breaks.
20. Because of a lack of planning, your heirs receive a fraction of what they could receive without any additional significant effort, or complexity.
21. Because of a lack of planning, assets are passed to your heirs via the typical living trust in a manner that aggravates or creates ill feelings between heirs and weakens their character, rather than passing assets in a way to strengthen family togetherness and strengthen character.
22. You do not take advantage of special provisions of the tax code that could allow you to: increase your retirement income, plus pass twice as much to your heirs as currently, plus pass an equal amount to a church or charities of your choice, and get the IRS to essentially pay for the strategy. (Give your estate away twice and have IRS pay for it.)
23. Your estate plan consists of the usual components: Wills, Living Trust, Power-of-Attorney, Health Care Directives-Living Wills-but 9 times out of 10 you have unknowingly left one of your largest (if not your largest) asset to pass outside your estate plan and be excluded from your wishes for how your estate is to be distributed.
24. You have selected the wrong trustees for your revocable living trust and other trust(s).
25. You have left yourself or heirs vulnerable to higher fees that could otherwise have been avoided, in the areas of: asset or portfolio management fees, trust administration fees, legal fees, accounting and tax preparation fees, charges and loads on acquiring annuities or life insurance policies, and probate fees-fees and expenses that could have been avoided or minimized.
If you are making any of these mistakes, we urge you to schedule a time to come in and meet with one of our qualified financial advisors here at Brock and Associates.
Brock and Associates is a Utah based financial consulting firm specializing in retirement, estate, and tax planning. Copyright Brock Financial Network, LLC, 2006 – All Rights Reserved.
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