Planning

OK, so you’re engaged. Congratulations! For the foreseeable future, your life will revolve around your plans for joining together in matrimony. But what about your plans for joining finances? Unfortunately, when it comes to money, most engaged couples would rather do, well, just about anything instead of talk finances. But if you’re engaged, the time to hash out your financial life together is now, before you take your trip down the aisle.

Lay all your cards on the table

What do you own? What do you owe? How many credit cards do you have? And more importantly, what are the balances? Rarely do people enjoy talking about money unless they have it — but if there’s one person in the world that deserves to know what kind of money manager you are, it’s your future spouse. Talk openly and honestly now and you’ll both have a better sense of where you are individually and where you can go together.

Yours, mine, and ours

Once you’ve overcome your anxiety about discussing money, the next big hurdle is deciding how — or even if — you want to combine your accounts. Financial independence is something we all work hard for and opening a joint account can feel like giving some of that independence away. Here are a couple things to consider:

• For many couples, a good approach is to keep their individual accounts, while opening a joint account for shared expenses. This gives you time to adjust to your new reality, while getting a sense of how your spouse manages money.
• On the other hand, some couples think that separate accounts are a recipe for poor money management and you’ll know where you stand as a couple when it comes time to make big financial decisions.

A merger of equals

No matter how hard you both work or how dedicated you are to your careers, it’s common for one spouse to earn more than the other. But the last thing you want is a power struggle over your money. Regardless of who contributes more, it’s a good idea for both of you to have access to equal amounts of discretionary income.

Go, team!

Whatever path you go down, don’t forget that you’re a team. So, while you may have different ideas about how money should be handled, your goals and dreams are likely the same. That’s part of why you’re getting married in the first place, right? Talk openly and regularly and it’ll be easier to find financial common ground.

Wills and trusts are the two main documents used for estate planning. Each can be simple or decidedly complex, depending on the value and complexity of your estate. But whatever size your estate is, knowing the ins and outs of each can help ensure your wishes are more closely followed.

A will for your wishes

Anyone who owns anything of value should have a will. It’s the most basic estate-planning document detailing your wishes, including who receives your assets. You can specify if the assets are to be distributed immediately or over a period of time through a trust. If you have minor children, you can name who becomes legal guardian for them. You can name the executor of your estate — they make sure the will is executed according to your instructions. If you die without a will, called dying intestate, the probate court will make decisions on the passing of your assets according to your home state’s laws, and decide who gets what.

You don’t need a lawyer to make a will — there are many books and online resources that show you how to draft one for little to no cost — but a poorly written will could be challenged in court. Think about working with an estate attorney to make sure your wishes are clearly communicated.

Note that not all your assets pass through the direction of your will. If it‘s owned jointly, has a named beneficiary or has a “payable on death” title, the asset won’t pass through the will.

Should you trust in a trust?

A trust is a legal entity that holds the title to property and assets that would otherwise be registered in your name — such as your home, cars and financial accounts. A trust offers flexibility and protection. In a trust, you can give detailed conditions on how your assets are distributed, such as delaying an inheritance to a child until a specified age or until some goal is achieved, like graduating from college.

Many people set up what’s called a revocable living trust. Revocable means the trust can be changed by you at any time and you control all the assets in the trust. Because of this hands-on control, the IRS considers the trust assets to be part of your estate and subject to estate taxes — but it’s possible to structure a trust in a way that may reduce these taxes.

Like a will, a trust is a legal document. It can be a good idea to enlist the services of an attorney to draft a trust. Look for an attorney who specializes in the areas of probate, trusts and the estate planning laws for your state.

A living trust offers a couple of advantages:

• Probate avoidance – Probate is the court-supervised process of organizing and distributing assets according to a will. It can be time-consuming and typically costs 3%-10% of an estate’s value. Property held by a trust does not go through probate. You can include a provision called a pour-over will, which automatically transfers any assets that were not already in the trust at the time of death into it.
• Privacy – A living trust never becomes public record. Instructions are kept private, so no one needs to know that your 17-year-old son just became a millionaire.

A word about taxes

Some states impose an inheritance tax on the people (beneficiaries) who receive assets through a will or trust. Often, spouses and children of the deceased may be taxed at a lower rate than other heirs. The federal government also imposes a tax on your entire estate value.

Take control of your estate

Your estate consists of everything you own. It includes your cash, investments, life insurance policies and personal property. Having a will and perhaps a living trust that are regularly updated will give you more control and make it easier for those involved to manage your estate plan. Consider working with an attorney to determine whether a will or a trust makes sense for you.

Everyone has an estate. And everyone dies. But not everyone has a plan for their estate when they die. That’s when things can get messy. By getting your estate in order now, you can help avoid potential problems at a time when family members are already dealing with the loss of a loved one.

Now what happens?

When you die, what happens to your assets? If you still have young children, who looks after them? Will estate taxes leave little for your heirs? Proper estate planning can help ensure these and other important issues are addressed before you die — so you don’t leave behind a legacy of headaches.

Contrary to many people’s beliefs, estate planning is not only for the wealthy. It’s for anyone with an estate. And that includes just about everyone.

An estate — simply stated

An estate is all the things you own at death — from your bank accounts, life insurance and retirement plan assets to your house, furniture and jewelry. An estate plan communicates how you wish to distribute those things upon your death. An estate plan can also limit the impact of estate taxes on the assets you leave your heirs, while providing instructions for family and friends regarding your final arrangements.

Where there’s a will, there’s a way

Most people assume that their assets automatically get passed on to their spouse, children or other family members. Not necessarily. Without a will, all your assets are transferred to your estate, and then a probate court determines who gets your stuff. Do you really want someone else deciding how to allocate your things among family members?

A will provides a basic list of instructions that tells the courts exactly how you want your estate settled. If you die without a will, your estate will be left to the courts, which could tie up your assets for a long time and diminish your estate with taxes that might have been avoided. And, most important, your estate may not be distributed according to your wishes.

Choose wisely

When planning your estate, in addition to deciding how to distribute your assets, a number of other important choices must be made, including:

• Beneficiaries – Determine your intended heirs and who would benefit most from your accumulated assets. Be sure your beneficiary designations on life insurance, retirement accounts and other investment contracts reflect your wishes. Note that the beneficiary designation for these types of financial instruments will be governed by the beneficiary designation on record with your plan sponsor or investment provider, and not according to the beneficiary designations under your will. So be sure to keep them up to date.
• Executor – Choose an executor of your estate who will be responsible for carrying out your wishes, paying applicable taxes and handling other aspects of your estate. Whether you choose a family member, friend or financial institution, be sure to discuss your decision at length with the person.
• Guardian/Trusts – Appoint a guardian if you have children under age 18. This becomes important if either the other parent is not living, or if both parents die at the same time. If you do not name a guardian, a family court will do it for you. Also consider establishing trusts to fund children’s care.
• Living Will/Power of Attorney – Consider a living will, or healthcare proxy, that appoints someone else to make decisions about your medical care should you become incapacitated and unable to make such decisions yourself. A more powerful document to consider is a durable power of attorney, which permits someone else to make financial decisions on your behalf.

Taxes — even in death!

Estate taxes can take a large chunk from the value of your estate upon your death. The American Taxpayer Relief Act of 2012 (ATRA) established an exemption base of $5,000,000 for gift taxes, estate taxes and generation skipping transfer taxes. This base is indexed for inflation annually and in 2014 the inflation adjusted exemption for gifts, estate taxes and generation skipping transfers is $5,340,000. Inflation adjustments in future years should cause these exemption amounts to increase further. Transfers that exceed the applicable exemption amounts are subject to a top marginal tax rate of 40%.

The bill also provides for “portability,” which would allow a surviving spouse to elect to take advantage of the unused portion of the estate tax exclusion of his or her predeceased spouse, thereby providing the surviving spouse with a larger exclusion amount.

Final considerations

Final arrangements can become a topic of contention among family members if they don’t know your personal wishes. Be sure to record your wishes regarding funeral, burial or other arrangements in a document other than your will. Discuss your wishes with loved ones, if you can, and make sure someone knows where you recorded your preferences.

Also, be sure to have enough money available to cover the immediate costs of settling your estate. If properly structured, life insurance can provide your family with immediate access to money, since it does not pass through probate and is not subject to estate or income taxes.

Getting your estate in order

Estate planning is important if you want to settle your estate the way you see fit — and not leave it to someone else. By drafting a will, updating your beneficiaries and talking to your family about your final wishes, you’ll be taking the first steps towards getting your estate in order, while helping your family avoid possible problems later. To learn more about estate planning, contact your financial professional or tax consultant.

For many people, buying a second home or a vacation home is part and parcel of the American dream — a place where you can unwind with family and enjoy some well-deserved leisure time. If you’re planning to buy a home away from home, just be sure that you can manage the expenses of two homes.

As with any major financial decision, there are oodles of pros and cons to consider. How you weigh them will help you decide whether your new home will be a place where you can relax and unwind, or one that winds up stressing you out.

The good

On the upside, vacation homes can be a great place to get away, decompress and take your mind off the stresses and strains of everyday life. They can also be a convenient family gathering spot where you can enjoy a vacation and yet feel instantly at home. You might be able to offset some of your mortgage expenses by renting the home when you’re not using it. And a second home could prove to be a good long-term investment, especially if the property appreciates in value or if you plan to live there when you retire.

The not-so-good

On the downside, buying a second home may put an unhealthy dent in your savings and a strain on your finances. This could limit your flexibility for spending money on other things or taking vacations elsewhere. And aside from a second mortgage, you’ll also need to factor in the time and money you’ll need to spend taking care of a second set of monthly bills, regular maintenance and repair issues. As with your primary residence, if you have a leaky roof or the furnace breaks down, you’re responsible for it.

Weigh the pros and cons

If you can afford it, buying a second home can be a good decision and a good investment to boot. But before you jump in, be sure to factor in the time and costs involved. One of our financial advisors will be happy to help you consider how it may affect your overall financial well-being and plans for retirement.

For many, property and the American dream are inextricably linked — it’s a huge milestone on the path to success and security. If you’re looking to buy a house, it’s important to go into the process with as much information as possible. That way, you can strut confidently towards your own slice of the American dream.

If you dream of owning a home, we’ll be the last to persuade you otherwise. But it shouldn’t come at the expense of your financial security. Here are a few things to look at as you pursue home ownership.

How much house can you afford?

Generally speaking for conventional mortgage (Fannie Mae and Freddie Mac) income qualifications, your monthly mortgage payment — including principal, interest, property taxes and homeowner’s insurance — shouldn’t exceed 28% of your gross monthly income. Governmental loan programs may have higher percentage income qualifications. You’ll also need to factor in any remodeling, landscaping or other home improvement projects you want to do — both now and later — to help determine if a particular house will fit into your longer-term budget.

Don’t forget to calculate your other home expenses. There’s the down payment, mortgage payments, insurance, utilities, maintenance and taxes — to name a few. Remember to think about how your income might grow over the years. Run the numbers on several different home price points, and calculate your down and mortgage payments to get a feel for what your ideal price range is.

Saving for a rainy day

There’s nothing like a new home to keep the rain at bay. Save for it. Many people save for three to 10 years before buying a house. Setting up a separate savings account and gradually building up enough for a down payment is a great idea. Even in the midst of saving for a home, most people who are working will continue contributing to their employer’s saving plan, especially when the employer provides matching contributions. When prioritizing, it may be best to set aside an amount for your retirement accounts, and then determine an amount for your house.

Borrowing from yourself

Borrowing from a retirement plan to fund a down payment is becoming increasingly popular. It can be a great tool, but you need to be aware of the risks.

First, the good stuff. When you borrow from your retirement plan, you’re locking in today’s low mortgage rates. Also, you’re paying interest to yourself. This interest rate is typically one or two percentage points above the prime rate. Score! Another great thing about borrowing from your retirement plan is that you may be allowed up to 15 years to repay the loan — if your employer allows loan repayment periods of greater than five years. And, keep in mind, generally a 401(k) loan does not count in your debt-to-income ratio when you apply for your mortgage.

Here’s what to watch out for: You’ll need to repay the loan in full or it can be treated as if you made a taxable withdrawal from your plan — so you’ll have to pay taxes on the balance, and a 10% early-withdrawal penalty if you’re under 59½. If you’re laid off or fired from your job, you generally have only 60 to 90 days to pay off the outstanding loan. Also, borrowing from your retirement plan means less money to potentially grow, so your nest egg will likely be smaller. That dent will be even deeper if you suspend or reduce contributions to your plan while you’re paying off the loan. The tax code doesn’t work in your favor either: You’ll have to repay the loan with after-tax dollars, and you’ll pay taxes on that money again when you take withdrawals in retirement.

A solid foundation

Owning a home is a major undertaking, so it’s important to know all the facts before getting in over your head. Speak to a Voya Financial Advisors retirement consultant on how to best plan for your next big investment and you’ll be well on your way to owning your piece of the American dream.

We all know the importance of saving for college. Without a college education, our kids could be at a great disadvantage later in life. But the skyrocketing costs of a college education are enough to make anyone feel a little faint. With a little planning and foresight, a great college education is actually within reach.

Yes, those costs keep going up
So how much are college costs increasing? The Bureau of Labor Statistics states that college tuition and fees in U.S. increased at an average rate of 4.9% per year, with a total increase of 63% from 2006 to 2016.¹

That’s just the tip of the iceberg
But that's not all! Tuition, fees, room and board are just part of the costs that will be incurred. As you begin looking for schools and weighing costs, you’ll need to think about computers, books, dorm furnishings, travel, entertainment and laundry. And that’s not counting the million other ways your college-aged kids will find to spend your cash. So, if sending your child or children to college is in your plans, you need to begin setting aside money immediately.

Get the government on your side
The government has a number of programs and tax laws to make saving for college easier. These are only a few examples. You should make every effort to learn as much as possible before making any decisions. A few popular options include:

529 Plans – These state-sponsored investment plans provide tax deferred earnings and income tax-free withdrawals (for qualified expenses). In addition to tuition, room and board, the money can be used for other expenses, such as books and supplies. Some state plans even allow you to deduct contributions from state income taxes. If the account’s beneficiary (your child) decides not to attend college, you may be able to put the money towards another family member’s education; otherwise, it could be taxed at your normal rate. 

You should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. More information about municipal fund securities is available in the issuer's official statement. Read the official statement carefully before investing. 

Before investing in a Section 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a Section 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state’s Section 529 plan.

Coverdell Education Savings Account – This account provides tax-deferred earnings and income tax-free withdrawals (for qualified expenses); but participants must meet specific income requirements and you can only contribute up to $2,000 annually. The fund is transferable to another child if a first child does not go to college; however, taxes and penalties may apply if it’s not used for college.

Uniform Gifts (or Transfers) to Minors Act – These allow you to transfer up to $15,000 a year (limit for 2020), without triggering the gift tax, to an account held in a child’s name; although you are the custodian. The money is no longer part of your taxable holding; so, technically, it can reduce your income tax bill. Realistically, though, the gift must be sizeable for any real tax benefit. It should also be noted that in some instances the child may have to file tax returns for taxes due (the kiddie tax). Also, it can’t be taken back; so the child can use the money for anything – not necessarily college – once he or she reaches adulthood. Rules vary by state and are dependent on state law.

Other federal government tax credits, such as the Hope Scholarship Credit and the Lifetime Learning Tax Credit, may be available subject to certain income requirements. 

Invest wisely
However you choose to save for your children’s education, your may want to choose an investment strategy  consistent with their age and number of years until college – more aggressive during their early years, when you have more time for money to compound and grow, and more conservative as the child approaches college age. You may wish to consult with your financial professional to develop a strategy that best meets your family’s needs.

Consider a helping hand
Financial aid, loans, and athletic and academic scholarships can help lighten the load. Other sources of aid include work-study programs, merit awards for academic achievement, awards for involvement in various student activities and assistance for disabled students. Contact each school for its specific programs and policies.

Think about life insurance
The death of a parent sometimes cuts off money that was to be used to put children through college. Life insurance death benefits can be used to help pay children's education expenses if a parent dies early. Loans and withdrawals from cash value policies can also help with tuition needs. College aid forms generally do not include the value of a life insurance policy when calculating financial aid. Policy loans and partial withdrawals may vary by state, generate an income tax liability, reduce available surrender value and death benefit or cause the policy to lapse.

Secure their future without risking your own
If possible, you may be able to develop a strategy that avoids paying for college by withdrawing from your retirement savings or taking out a home equity loan. Both of these could land you in hot financial water as retirement approaches. So remember that there are other approaches. With a little preparation, you may be able to have a broader range of schools from which to choose to send your kids. Maybe that can even include the school of their dreams.