Articles for June 2012

Why the National Debt is Higher Than You Think

We all can recite some of the biggest accounting scandals in history.  Lehman Brothers, Enron, and AIG all come to mind. Each of their accounting “practices” lost their investors money. But would you believe that our government is also using accounting tactics to make the deficit appear smaller than it really is?

According to a recent report by USA Today the US government reports that the federal deficit is at $1.3 trillion. However, those calculations do not include liabilities for retirement programs such as Social Security and Medicare. Those two liabilities alone rose $3.7 trillion in just the last year.

So, how can the federal government make such a large discrepancy in the national debt? Congress actually exempts itself from having to include retirement liabilities in its debt projections. Yet all other business-like entities including corporations and state and local governments are required by law to report their retirement liabilities on their financial statements.

What does this mean for younger workers?  You may not believe that this will have an effect on you but if you’re not yet retired, it may.  There is a chance that the government may increase taxes and/or decrease retirement benefits in the years ahead out of necessity. If tomorrow, Congress passes a law that increases taxes by 15% to try and get the deficit under control, would you feel comfortable in your current financial situation?  Consider that question carefully as the deficit continues to grow.

June 2012- Parents, Alzheimers, and Money

Every eighth American aged 65 and older has Alzheimer’s disease, and 43% of Americans aged 85 and older have it, according to the Alzheimer’s Association. Consider those percentages in light of the Social Security Administration’s estimate that about 25% of today’s 65-year-olds will live past age 90. These shocking statistics have serious implications for family wealth.1,2

Your choices. What are your options when it comes to helping a parent out with money management? Informally, you can “lend a helping hand” and check in with mom and dad to make sure that bills and premiums are paid, and deadlines are met. But if you elect to formally take the financial reins, you are looking at a two-phase process:

* You can get a power of attorney and assume some of the financial responsibilitiesA power of attorney is a detailed and strictly constructed legal document that gives you explicitly stated measures of financial authority. If you try to handle financial matters for your parent(s) without a valid power of attorney, the financial institution involved may reject your efforts.3

durable power of attorney lets you handle the financial matters of another person immediately. The alternative – a springing power of attorney – only takes effect when a medical diagnosis confirms that person’s mental incompetence. Copies of the power of attorney should be sent to any financial institution at which your parents have accounts or policies.It may be wise to get a durable power of attorney before your parent is unable to make financial decisions; many investment firms require the original account owner to sign a form to allow another party access to an account owner’s invested assets.4

  • You are going to have to hunt for information, such as…
  • – Where mom or dad’s income comes from (SSI, pensions, investments, etc.)
  • – Where the wills, deeds and trust documents are located.
  • – Who the designated beneficiaries are on insurance policies, IRAs, etc.
  • – Who the members of mom or dad’s financial team or circle are. You need to talk with them; they need to talk with you.
  • – The crucial numbers: checking and savings accounts, investment accounts, insurance policies, PIN numbers and of course Social Security numbers.
  • – It will also help to learn about their medical history and prescriptions.

If the disease progresses to the point where your mom or dad can’t make competent financial decisions, then you are looking at a conservatorship. In that case…

*You can act to become your mom or dad’s conservator. This means going to probate court. You or your parent can initiate a request for conservatorship with a family law attorney; if the need is more immediate, you or your family’s attorney may petition the court. In either case, you will need to show documentation that your parent is no longer financially competent. You must provide medical documentation of his or her dementia to the court as well

The court will interview the involved parties, look at the documentation and perform a background check on the proposed conservator. This is all pursuant to a hearing at which the court presents its decision. If conservatorship is granted, the conservator assumes control of some or all of the protected party’s income and assets.5

How do conservatorships differ from guardianships? A guardianship gives a guardian control over many aspects of a protected person’s life. A conservatorship limits control to the management of the protected person’s assets and financial affairs.5

What if I don’t want to assume this kind of responsibility? Some wealth management firms offer daily money management as an option in a “family office” suite of services. The firms make home visits to help with bill paying, filing medical claims and other recurring tasks; carefully scrutinize anyone offering this service. (Visit aadmm.com for the American Association of Daily Money Managers.)6

The other choice is to give a relative, a financial services professional, or a family lawyer durable or springing power of attorney or limited or full conservatorship. Such a decision must not be made lightly

Keep your parents away from unprincipled people. These steps may prove essential, yet they will not shield your family from scam artists. Be on the lookout for new friends and acquaintances. If your instincts tell you something is wrong, investigate.

CITATIONS:

1 – www.alz.org/downloads/facts_figures_2011.pdf [2011]
2 – money.usnews.com/money/blogs/planning-to-retire/2010/07/22/predicting-your-own-life-expectancy [7/22/12]
3 – www.law-business.com/powers-of-attorney [4/27/12]
4 – http://www.kiplinger.com/magazine/archives/managing-your-parents-money.html [4/27/12]
5 – dhs.sd.gov/gdn/guardianshipfaqs.aspx [6/2/12]
6 – www.smartmoney.com/retirement/planning/talking-to-mom-about-alzheimers-and-her-money-1335192298522/ [5/7/12]
DISCLOSURE:
This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.