Karen Haywood Queen | October 15, 2014

People who invest in certificates of deposit are used to the concept of “laddering.” They buy CDs that mature on different dates to avoid being locked out of their cash or locked into a low interest rate for too long.

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You can build a similar ladder with life insurance, planning extra coverage for when you’ll need it the most and tapering off coverage when your needs won’t be as great. This approach can save you money.

You can ladder life insurance two ways:

• Buy policies with different term lengths at the same time: for example, one policy with a 30-year term, one with a 20-year term and one with a 10-year term.
• Buy one policy now and additional policies later. You might buy a 30-year policy early in your career or marriage and ladder on a 10- and/or 20-year policy during your peak earning and debt years, after you have children, buy a house or incur other financial obligations

Life insurance needs can go up and down

Laddering is great because most people probably don’t need much life insurance at the start of their careers, says Mike Piper, a certified public accountant in Manitou Springs, Colorado.

“After they get married, have kids and/or get a mortgage, suddenly there is somebody who would be in financial trouble if they died. So they need life insurance,” adds Piper, the author of several personal finance books and blogger at ObliviousInvestor.com.

Later, that need for life insurance should decrease as your savings grow, your debt balances shrink and children leave the nest. By reducing the amount of life insurance during that stage of life, a policyholder could save hundreds of dollars a year in premiums, Piper says.

Potential sources of savings

Laddering shorter-term policies not only is a good way to bulk up coverage during key times of your life, but it also saves on premiums, says Greg Sanders, founder of Peachtree Insurance Advisors in Marietta, Georgia.

The annual premiums on 20-year and 10-year policies would be lower than for a 30-year policy in the same dollar amount because coverage on the 10- and 20-year policies ends while the policyholder is younger and presumably in better health, he explains.

At the same time, big policies don’t necessarily bring big savings. Buying one $5 million, 20-year policy instead of two $2.5 million, 20-year policies saves only $85 a year, Sanders says.

Laddering example No. 1: Lou, 30

Here’s how laddering would work for a 30-year-old man we’ll call “Lou.” He is a nonsmoker in average health and lives in St. Louis.

If Lou were to buy a 30-year, $1.5 million term-life insurance policy, he might pay $2,050 a year in premiums, Piper says.

But with laddering, Lou might buy:

• One 30-year, $500,000 policy with an annual premium of $730.
• One 20-year, $500,000 policy with an annual premium of $475.
• One 10-year, $500,000 policy with an annual premium of $310.

Those premiums add up to $1,515, saving Lou $535 a year during the first 10 years for the same $1.5 million in coverage, Piper says. That’s $5,350 for Lou, in addition to potential interest or investment returns.

As the two shorter policies expire, after 10 and 20 years, Lou would save even more because he would no longer be paying those premiums. But he would have less coverage.

Too young to ladder?

An argument might be made against life insurance laddering for people in Lou’s younger age bracket.

“If you’re 27 years old and need $1 million worth of insurance, just buy a 30-year term policy,” says Sanders. “Don’t try to split it up. You might save a little bit of money, but the savings won’t be worth it.”

He adds: “If you get into your 30s and 40s and don’t need that much coverage, you can always call and reduce your death benefit, and the insurance company will reduce the premium.”

But the laddering strategy can work well for those in their mid-30s and older who are buying life insurance for the first time, Sanders says.

Laddering example No. 2: Stan, 43

Consider the example of another consumer we’ll call “Stan.” He also lives in St. Louis, is 43, doesn’t smoke but is overweight and takes medication for blood pressure and cholesterol. He also would be considered in “average” health, Sanders says.

Buying a 30-year, $1 million life insurance policy could cost Stan $3,221 a year, he says.

Instead, Stan could use laddering to purchase:

• One 30-year, $250,000 policy with an annual premium of $912.
• One 20-year, $750,000 policy with an annual premium of $1,522.

Those add up to annual premiums of $2,434, which would save Stan $787 a year for the same $1 million in coverage during the first 20 years. That’s a total savings of $15,740, which Stan would enjoy on top of any interest or investment gains, Sanders says. But, like Lou, Stan would have less coverage in the later years.

But needs may not change

A laddering plan presumes that life insurance needs will shrink, but unexpected issues often arise — such as boomerang children returning to the nest, a mortgage refinance that increases housing debt or the purchase of a second home, says Craig DeSanto, senior vice president in charge of life insurance for New York Life.

“What they initially thought they would need ends up changing over time,” he says. “If you’re going to execute a strategy like this, it’s really important that you buy term insurance from a carrier that allows conversions to permanent insurance to give you the option to keep the policy in place if your needs have changed.”

If you find yourself wanting to replace laddered policies with longer-term coverage that’s potentially more expensive, you might reduce your benefit to save on premiums, DeSanto says.

Don’t forget your policies

Let your heirs know about your life insurance ladder: how many policies you have and with what companies. “It’s important that they know all of the policies you have in place,” Piper says.

Finally, don’t forget you have more than one policy when it comes time to pay the bills on them. “You wouldn’t want to let one policy accidentally lapse by missing a premium payment thinking, for instance, that you already paid the life insurance bill last month,” he says.

Karen Haywood Queen | October 7, 2014

Karen Haywood Queen | September 28, 2014

Help heirs find your paperless accounts after your death

As we spend more of our lives online — banking, collecting credit card rewards points, playing virtual reality games, creating photo albums, emailing, tweeting — it’s increasingly important to consider how beneficiaries can access those accounts and any assets they hold, once we’re gone.

“It used to be when someone passed away, there were all these clues — a paper trail around the house about what the deceased person owned and owed,” says Karin C. Prangley, an estate attorney at Krasnow Saunders Kaplan & Beninati in Chicago. “Now there is no more paper trail. All of that is digital. It’s a big deal because it’s hard to get at that digital information.”

Ignorance can be costly. “If you can’t get into this person’s email account, if you have no idea where this person banks … the [deceased] person may have a million dollar account at Fidelity, but you just don’t know, says Prangley.

“Maybe the person had an insurance policy, maybe the person had an online store selling a specialized product, maybe there was some sort of business you as the heir don’t know about. The money goes right to the grave.”

Not having access to the deceased’s online accounts or email alerts could mean that bills normally paid online go unpaid. Since the estate is responsible for existing debt, missing those payments could cause headaches as you straighten out the problem, says Deborah L. Jacobs, author of “Estate Planning Smarts.” “If you don’t find credit card accounts quickly and bill paying is delayed and finance charges are assessed, you can most likely get the credit card companies to forgive the finance charges,” Jacobs says. “But you may have to fight them.”

The opposite situation is also a problem. Recurring bills that are on auto-pay may continue to be paid even after the product or service is no longer needed.

“We’ve seen instances where someone has been dead for years and they’re still paying for The Economist online,” says Jacobs.

Finding financial accounts

Without a list of financial accounts, finding them can be tricky, but there are steps you can take. The easiest: check the person’s wallet, pocket, desk and drawers for the receipts, Jacobs says. “Even if you’re doing almost everything online, those receipts may be in their pockets.”

To find open accounts, such as credit cards that aren’t regularly being used and generating receipts or bills, you can get a copy of the deceased person’s credit report from one or all of the three consumer credit reporting agencies, TransUnion, Experian and Equifax. But you’ll need documentation, agency representatives say.

For example, all three require a copy of the death certificate and proof that you have power of attorney or are executor of the estate.

Beyond banking

In addition to banking and investment accounts, many people access their airline, hotel and other rewards programs online, says Glenn C. Williamson, CEO and founder of WebCease Inc. in Portland, Ore., which helps heirs track down those digital assets. “I personally have half a million Hyatt points, valued at $35,000 to $45,000,” Williamson says.

… Maybe there was some sort of business you as the heir don’t know about. The money goes right to the grave.
— Karin C. Prangley, Estate planning attorney

The potential dollar loss goes beyond financial accounts and rewards programs to items you may not think of immediately, Prangley says. “What’s the cost of losing a lifetime of photos? What happens to unique weapons held by a World of Warcraft master? What about wins in offshore, online poker accounts?”

North American respondents to a survey by security giant McAfee valued their digital assets at an average of $54,722 with listed assets including music downloads, photos, emails, financial and health records, career information and contacts, and hobbies and creative projects.

Even a great-grandfather may have digital assets if he’s been online, says Williamson. “We did one 91-year-old guy who didn’t even have an email address and he had hotel points,” he says. Another man in his 80s had a separate Facebook account for selling RVs — news to his family, Williamson says.

Finding assets online can be time-consuming. First, heirs have to know an account exists. Second, they have to be able to gain access to that account via usernames and passwords.

“People are grieving,” says Jacobs, the author. “This is adding an extra hardship.”

Williamson estimates it took him 25 hours to find his mother’s online accounts after she passed away, which gave him the idea for WebCease. WebCease routinely searches about 60 nonfinancial online accounts, including photography sites such as Flickr, hotel and airline rewards programs, social media sites and e-commerce sites including Amazon, PayPal, Netflix and eBay.

WebCease researchers will personalize the search and look for additional accounts when necessary, Williamson says. For instance, in the case of the RV enthusiast, they searched various campground websites to see if the deceased had a membership with valuable rewards or resale potential. “We wouldn’t typically search on those, but when my researchers make a correlation they will go further than our standard list.”

WebCease lets its clients know what it finds, and then gives them each site’s policies and information on how to transfer the digital assets and how to shut down the account, Williamson says.

Rescuing vital records

Passwords are the next hurdle. Even if you as the executor or heir have written permission from the deceased account holder to access accounts, without the proper passwords, online providers may not give you the content, says Hazel Sanchez, estate planning attorney at the Law Offices of Rhonda H. Brink in Austin, Texas.

Some online providers, if they were to find out the account holder is deceased, would simply close the account and delete all the information on it.
— Hazel Sanchez, Estate planning attorney

“Each one has different procedures,” says Sanchez. “Some online providers, if they were to find out the account holder is deceased, would simply close the account and delete all the information on it.”

Sanchez recommends that if you do have access to usernames and passwords, you print out hard copies of financial information so that even if the accounts are later deleted, you’ll have the information you need.

Technically in these cases, you could be liable for unlawful access of data, but it’s not likely an heir would be prosecuted. “They talk about liability of unauthorized access, but nobody ever enforces it,” Sanchez says. “It’s more important for the fiduciary to gain control of assets and prevent deletion of information before anything happens.”

Sanchez says a little pre-emptive action can prevent any problems related to unauthorized access. “We recommend will provisions that give the executor authority to access the deceased’s digital assets and accounts,” she says.

Shutting down fraud

Eventually, though, you’ll want to make sure you close accounts for security reasons. The identities of nearly 2.5 million people are misused every year to apply for credit, according to a 2012 study by ID Analytics.

“You don’t want mom’s profile out there,” says WebCease’s Williamson. “When you die, it’s public record. It’s so much easier to steal a deceased person’s identity.”

When you die, it’s public record. It’s so much easier to steal a deceased person’s identity.
— Glenn C. Williamson, CEO and founder of WebCease

To prevent fraud and identity theft, notify credit card companies and other lenders that the person has died, says Maxine Sweet, president of public education at Experian. “They will report the deceased status to the credit reporting companies and it will automatically become part of the file, preventing fraud,” she says. “If the deceased was receiving Social Security benefits, the Social Security Administration also should be notified and [SSA] will also report that information to us.”

Even if you’re not looking for open accounts, you still should contact the credit reporting agencies with a copy of the death certificate, so the credit file can be updated, says Clifton O’Neal, vice president of corporate communications at TransUnion.

You may also want to contact the Direct Marketing Association to have the deceased removed from marketing mailing lists, Sweet says. “Having those arrive in the mail can be painful for the relatives,” she says.

Planning your digital afterlife

You can prevent many of these hassles for your own heirs by making preparations now. A few simple measures can lessen or eliminate the need for your loved ones to become online sleuths after you’re gone.

Keep a snail mail trail

Even if you do business mostly online, elect to receive some paper statements so your heirs will find out about your accounts from mail delivery, says Jacobs, the author. “Even though I favor cutting down on the paper in our lives, this is not the place to do it,” she says.

Consolidate your accounts

Combining financial accounts or at least moving assets to a small number of providers makes them easier to keep track of, Jacobs says. “I know of a number of elderly people who have certificates of deposit at 50 different banks,” Jacobs says.

Finding the records could be sheer luck. Jacobs and her husband went to one bank her mother-in-law used to cash in one of her CDs and the bank officer told the couple she had a second CD that they hadn’t known about.

List account information

Make a list of accounts with the name of the financial institution, account number and how it’s titled and put it in a folder if you’re comfortable having that information at your house, Jacobs says.

If not, make one list of user IDs and a separate list of passwords, Sanchez suggests. Give each list to a different person and tell your executor those people’s names so the two lists can be put together when you pass away, she says.

She acknowledges that keeping the list up to date could be time-consuming, but says it’s necessary. “We think it’s very important for everybody to make a list inventory of what they have,” Sanchez says.

Name an online executor

As you make that list of user names and passwords, consider naming an online executor, who could be separate from your overall estate executor, says Prangley, the estate attorney. An online executor would identify and provide information to your family about your online accounts and digital assets and they could sell what might be useful to others, she says. Further, the online executor could delete any emails or other online communication that might hurt your family members, she says.

“Some people have separate online lives,” she says. “Your executor might delete your online flirting.”

Additional resources

An industry has cropped up to cater to today’s digital estate planning needs. For example, Eterniam, founded in 2013, preserves all your digital assets — photos, videos, documents and content from social media sites. You can bequeath each asset to chosen beneficiaries.

The Digital Beyond, created by John Romano and Evan Carroll, is a think tank for digital death and legacy issues. Its website, thedigitalbeyond.com, maintains a list of online services designed to help you plan for the future of your online content.

Karen Haywood Queen | September 28, 2014

Maybe your dad just had a stroke and can no longer handle his money. Maybe your mom’s decline has been gradual, but you realize she’s not keeping up with her bills.

Managing your own finances is tricky enough. But when you become the financial agent handling a relative’s finances, you’re navigating a minefield of legal, financial, and relationship issues. Here’s what you need to know.

About 22 million people age 60 or older have designated someone to make decisions for them as an agent under a power of attorney (POA) document. Millions more have court-appointed guardians or other fiduciaries, according to the Consumer Financial Protection Bureau (CFPB), Washington, D.C.

“It’s a big responsibility,” says Naomi Karp, project manager for the CFPB’s guides to managing someone else’s money.

“When people are given legal authority to manage someone else’s money, it’s important for them to understand their legal duties. They’re standing as a bulwark between the people in their charge and people who want to rip off vulnerable older people.”

As a fiduciary, you must observe four basic rules:

1. Act in the person’s best interest.
2. Manage money and property carefully.
3. Keep money and property separate from your own.
4. Maintain good records.

There also may be issues related to Medicaid eligibility for nursing home care. At risk are the elderly person’s assets and your family relationships. Even if you’re only managing money on an unofficial basis, these are good guidelines to keep in mind.

Obtain power of attorney

If you don’t have a POA in place for your aging parents or relatives (or yourself), get one to avoid the need for court-appointed guardianship or conservatorship in the future.

As a court-appointed guardian or conservator, “You have to file these horrendous annual accountings that can take hundreds of hours,” says Evan Farr, of the Farr Law Firm in northern Virginia. You will have to file some documents with POA but it’s not nearly as time consuming.

But although you can get a POA document free or cheap online or from office supply stores, that upfront savings may cost you and your loved one in the long term. “Not all power of attorney (documents) are created equal,” Farr says. A good POA must have asset protection authority with the ability to make unlimited gifts, create trusts, take money out of trusts, and terminate trusts, he says.

Consult an eldercare attorney

Your next step is to consult an attorney. “Go to a really good eldercare lawyer in the same state as your parent—state laws vary quite a bit,” says Roxanne Nelson, of Bellingham, Wash., who shares POA responsibilities with her brother for their ailing mother in Florida. “It’s worth the investment. We paid $10,000 up front and it’s been invaluable.”

Protect assets

With the proper legal measures in place, the person in need of care can legally and ethically qualify for Medicaid-funded nursing home care without spending assets down to near zero. “Medicaid is the most complex area of law in existence,” Farr says. “It’s a minefield. If people don’t check every box properly, it can blow up and cause huge financial problems.”

An eldercare attorney will help you with what’s called Medicaid asset protection legally protecting your elderly parents’ assets from the high cost—for example $12,000 to $14,000 a month in northern Virginia—of nursing home care, enabling you to legally and ethically file for Medicaid on their behalf, says Farr, one of only about 450 certified eldercare attorneys in the country. In perspective, the cost of an attorney’s help is about the same as a month or two of nursing home care paid out of pocket.

If you have assets that you want to protect, it pays to plan ahead. Farr says the cost of hiring an eldercare attorney to shield assets five years or more from when the person needs nursing home care is $5,000 to $7,000, and 100% of assets can be protected.

The cost of hiring an eldercare attorney to shield assets in a crisis situation—at the time nursing home care is needed—is $12,000 to $25,000. In the case of a married couple, usually 100% of assets can be protected. For an individual, 40% to 70% of assets can be protected.

“Seventy percent of people are going to end up in long-term care at some point and they’re going to want to do Medicaid asset protection to shield their assets from the catastrophic expenses of nursing home care,” Farr says. “Most couples who don’t do Medicaid asset protection wind up going broke.”

Act in the person’s best interest

With a financial POA, you’re legally required to act in the person’s best interest—and that means putting your mom’s or dad’s best interests ahead of your own, Karp says. If you use your dad’s or mom’s money to buy a car to take him or her to doctor’s appointments but use the car more for your own errands, that’s putting your interests first, she says.

“Remember it’s not your money,” Karp says. “If you stray, you may go to jail.”

Manage money and property carefully

You have to avoid conflicts of interest—or even the appearance of a conflict—says Jan McCurdy, co-owner of Senior Care Management in Ewing, N.J. For example, if your son is mowing grandma’s yard for $75, get a written estimate from a local lawn care company. Then if someone—a jealous family member or judge—questions you, you can show the $200 estimate from the lawn care company.

“You have to account yearly to Social Security how that money was spent,” McCurdy says. “Adult children are always shocked to know they’re held to a fiduciary standard. It can be really devastating if you get accused of misusing someone else’s money.”

Keep money and property separate

No matter that you and your mom have always shared everything. Once you’re managing her finances, keep separate accounts.

“People put money into their [own] account just for ease of access and then they go to apply for Medicaid and realize this is big mess trying to figure out whose money is whose,” McCurdy says.

Maintain good records

You and your parents may have been flexible about taking turns to pay for a meal out, but those days are probably over, too. Whether you’re talking about a $50 meal or $5,000 to help with a grandson’s tuition, maintain a paper trail by keeping receipts, copies, or logs, for example. Karp says if your parent ends up seeking Medicaid eligibility for nursing home care, your state may “look back” to five years’ worth of records.

Avoid paying in cash. “We’re used to going to an ATM and doing business,” Karp says. “But then it’s going to be hard to account for what you did. It’s a good thing to have those records to show you did the right thing.”

Allow yourself time

Even with a good lawyer, dealing with these issues can take hours and hours, especially at first. “Be prepared,” Nelson warns. “When my mother broke her hip, my brother and I spent a week in Florida going to banks, filling out forms, talking to them in the nursing home. It was a lot of legwork. It was extremely time-consuming.”

Talk to the people at your parents’ credit union. They can help you streamline management of parents’ funds to comply with your fiduciary duties and keep things running smoothly at the same time.

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