What is a payable on death (POD) account?

What is a payable on death (POD) account?

A bank account can be designated as payable on death to someone of your choice. The bank pays these funds to this person almost immediately at your death, and the funds will generally not be subject to probate.

The payable on death designation is very simple and flexible. You can change the designation until your death and the individual you designate has no right to the money until your death. Indeed, the individual will not receive the account unless he or she outlives you. A POD designation can also be used with U.S. savings bonds.

A typical bank account would be subject to probate at your death. Property subject to probate generally incurs fees, such as attorney's fees, and the transfer of probate property may be subject to delays of one to several years. A POD account usually avoids probate, and the named beneficiary can generally access the funds immediately after your death, without significant delays.

The requirements for a POD account may vary somewhat under state law, and state laws determine what is subject to probate. Ask your bank, attorney, or financial advisor to make sure that the account won't be subject to probate. A POD designation used with appropriate U.S. savings bonds will not be subject to probate in any state.

You do not make a gift for gift tax purposes when you name the beneficiary of a POD account. You remain subject to any income tax on funds in a POD account while you are alive. And funds in a POD account are subject to estate tax upon your death. Of course, if your spouse is the named beneficiary, the funds would qualify for the estate tax marital deduction. If the named beneficiary is two or more generations younger than you (e.g., a grandchild), the funds may also be subject to generation-skipping transfer (GST) tax at your death. Substantial exemptions ($5,250,000 in 2013) are available to protect property from estate tax or GST tax.

A similar provision, transfer on death (TOD), is available for the transfer of stocks, bonds, and mutual funds to a named beneficiary at your death.

I just bought a vacation home. Do I need to purchase a specific type of insurance?

Insuring a vacation home is different from insuring a primary residence. As a result, you'll

want to purchase insurance that is specifically geared to provide coverage for this type of property.

When insuring a vacation home, the type and cost of coverage will vary, depending upon the insurance company and the state in which your vacation home is located.

Most insurers offer at least some type of insurance that is specifically designed for second/vacation homes. Coverage under these types of policies can range from standard coverage that protects against certain named perils, to more comprehensive coverage that protects against all perils unless specifically excluded in a policy.

Keep in mind that, depending on what is covered under the policy, you may need to obtain additional protection (e.g., property or liability coverage) through either an endorsement or separate policy. In addition, if your vacation home is located in an area that is susceptible to flood damage--which is not covered under a standard vacation home policy--you'll want to look into obtaining separate coverage for that peril as well.

Due to some of the unique circumstances surrounding vacation homes (e.g., high-risk location, not being occupied for long periods of time), vacation home insurance premiums are usually much higher than those for a primary residence.

However, you may be able to save money by insuring your vacation home with the same company that provides coverage for your primary residence (some insurers may require this). In addition, you may be eligible for other discounts, such as those offered for newly built homes, nonsmokers, and homes that have a security system installed. Policy discounts will vary by state and insurer.

Because of the vast array of vacation home insurance products on the market, you'll want to be sure to shop around for the best coverage and rates. You may also want to contact the state department of insurance where your vacation home is located for additional information on the coverage and rate options that may be available.

15 Ways to Save on Your Next Vacation

Whether your vacation budget is big or small, no one likes to spend more than necessary

when traveling. Here are some tips that can help you save on your next trip.

Air travel

Pick your travel times wisely. Popular wisdom holds that Tuesday and Wednesday are the least expensive days to travel, but this isn't necessarily the case in all markets or at all times of the year. If possible, search for airfares within two or three days of your ideal departure date, and consider off-peak flight times.

Search for flights at more than one airport. If you're willing to depart from any airport near you or arrive at any airport relatively close to your destination, you'll have a better chance of snagging a lower-cost flight.

Sign up for fare alerts. Online travel agencies, travel websites, or the airlines themselves can notify you when airfare hits a low price point or drops by a certain percentage.

Compare baggage charges. Don't settle on a fare before seeing how much extra you'll pay to check your luggage.

Save on parking. At many airports you have the option of parking in an economy lot. At larger airports, you may be able to save even more by parking offsite at private lots. Some hotels offer packages that allow you to spend the night before your flight and leave your vehicle there until you return.

Lodging

Check hotel websites. Many list their rate calendars on their reservations page so you can see for yourself when rooms are available (and at what price).

Look for freebies. For example, does the hotel offer complimentary transportation to the airport, restaurants, or local attractions? Does the rate include breakfast (having a meal included can save you a bundle, especially on longer trips or family vacations).

Share amenities. Love the amenities at a luxury resort but not the price tag? Book a room at a lower-priced hotel that allows you to use the facilities of a higher-priced sister property.

Watch out for taxes. Though you can't avoid them, lodging taxes vary by location and are based on the room rate, so you can save money on taxes by booking a lower rate or, in some cases, by choosing a different location (a property outside the city, for example).

Compare extra person charges. Will your kids stay for free? Hotel chains often allow up to two adults and two children age 17 and younger to stay in one room for the same rate, but policies vary, and smaller properties may require you to pay more or book extra rooms.

Rental cars

Look for coupon codes or discounts. These are available through many sources, such as your road and travel plan, your insurance company, and your credit card issuer.

Choose the vehicle class that offers the best value. Smaller cars are often less expensive, but not always. Rates vary widely, so check out all rental companies before settling on one. And although you can't count on getting one, it never hurts to ask for a free upgrade at the rental counter.

Pay attention to fuel costs. If you're going to be driving long distances, make sure the rental vehicle has good fuel economy. And decide whether you want to pay for a full tank of gas up front, with the option of returning the vehicle on empty. The per-gallon price is usually posted at the rental counter and may be more or less than what you'll pay if you fill it up yourself off-property.

Consider insurance before you get to the rental counter. Avoid buying duplicate coverage by checking with your insurer to see how your auto policy covers you in a rental vehicle. Some credit card companies also offer some insurance protection for rentals.

Compare extra driver fees. You may pay a surcharge if you add an extra driver, and fees and terms vary by company and location.

Coping With Seasonal Allergies

As many as 35 million Americans are affected by seasonal allergies. During the spring, summer and fall months, seasonal allergies are typically caused by the body’s reaction to pollen and mold spores that are in the air. Here are some tips to avoid being exposed to pollen and molds:

·          Control your environment. Knowing what you are allergic to and avoiding those environments will help.

·          When pollen and mold levels are reported to be high, stay indoors.

·          Avoid hanging clothes or sheets outside to dry.

·          At night, keep windows closed and use air conditioning if needed.

·          Washing your pet clears them of irritants they may have picked up outside.

·          Keep windows closed while driving a car.

·          Steaming your face refreshes and soothes irritated sinuses. 

·          Saline solution can help remove irritants that become lodged in the nose.

·         Drinking peppermint tea provides relief for clogged-up nose and irritants.

Are You Prepared If a Natural Disaster Strikes?

Question: Are You Prepared If a Natural Disaster Strikes?

 

It seems as though there's always a hurricane, tornado, earthquake, flood, fire, blizzard, or mudslide happening somewhere in the United States. A storm or other natural disaster could destroy your home, business, or workplace and put you in financial straits, but there are things you can do both before and after the event to help you recover quickly.

Pre-disaster

Create a financial emergency kit. Put together a kit that contains some cash and checks, a list of important contacts (e.g., your insurance agent), and copies of important documents, including identification cards, birth and marriage certificates, insurance policies and inventories, wills, trusts, and deeds. Make sure your kit is stored in a safe and secure place in your home.

 Protect your assets. Take some commonsense precautions to safeguard your home, business, car, boat, and similar assets against damage from wind, water, fire, or other risks.

Take inventory. Create and maintain an inventory of your valuables, including appliances, electronics, furniture, clothing, jewelry, and artwork. Record models and serial numbers, and take pictures or a video of the items. This will help when it comes time to file insurance claims and purchase replacements.

Check your insurance coverage. Make sure your insurance policies (e.g., homeowners, auto) include all the coverage you need, and understand that damage caused by natural disasters may not be covered under general types of policies. You may need to consider buying separate coverage for hurricanes, floods, earthquakes, or other disasters

Post-disaster

In the immediate aftermath, proceed with caution. While the disaster may have passed, health and safety hazards still may exist. Be aware that any building you're in, including your home, may not be structurally sound, so carefully look for any apparent damage. Also, report contamination from spills of oil, gas, chemicals, or any hazardous substance.

Assess your property for damage. Take pictures of damaged areas both inside and outside your home, including trees, landscaping, and yard structures such as sheds.

File insurance claims immediately. Contact your insurance agent and file claims as soon as possible. The quicker you do so, the sooner you can get back on your feet.

5 Anti-Aging Foods

You can add years to your life by making smarter food choices! There are many variables involved in how long you live but by following a healthy lifestyle, staying active and eating a nutrient-packed diet, you can help slow the aging process and perhaps even stave off age-related diseases, included osteoporosis, diabetes and heart disease. Start now by adding these super foods to your diet. Here’s to a good diet!

1.        Olive Oil – contains powerful anti-oxidants to prevent age related diseases.

2.        Yogurt – Rich in calcium and contains “good bacteria”.

3.        Fish – an abundant source of Omega-3 fats which help prevent cholesterol buildup in arteries and protect against abnormal heart rhythms.

4.        Chocolate -  Rich in flavanols that help preserve healthy function of blood vessels and lowers risk of high blood pressure, type 2 diabetes, kidney disease and dementia.

5.        Wine – Red wine contains resveratrol, a compound that likely slows the genes of cellular aging.

Key Estate Planning Documents You Need

There are five estate planning documents you may need, regardless of your age, health, or wealth:

1.       Durable power of attorney

2.       Advanced medical directives
3.       Will
4.       Letter of instruction
5.       Living trust

The last document, a living trust, isn't always necessary, but it's included here because it's a vital component of many estate plans.

Durable power of attorney

A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. If no one is ready to look after your financial affairs when you can't, your property may be wasted, abused, or lost.

A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.

There are two types of DPOAs: (1) a standby DPOA, which is effective immediately (this is appropriate if you face a serious operation or illness), and (2) a springing DPOA, which is not effective unless you have become incapacitated.

Caution:   A springing DPOA is not permitted in some states, so you'll want to check with an attorney.

Advanced medical directives

Advanced medical directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can't express your wishes yourself. If you don't have an advanced medical directive, medical care providers must prolong your life using artificial means, if necessary. With today's technology, physicians can sustain you for days and weeks (if not months or even years).

There are three types of advanced medical directives. Each state allows only a certain type (or types). You may find that one, two, or all three types are necessary to carry out all of your wishes for medical treatment. (Just make sure all documents are consistent.)

First, a living will allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death." In those states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.

Second, a durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or won't have.

Finally, a Do Not Resuscitate order (DNR) is a doctor's order that tells medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.

Will

A will is often said to be the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. If you don't leave a will, disbursements will be made according to state law, which might not be what you would want.

There are two other equally important aspects of a will:

1.        You can name the person (executor) who will manage and settle your estate. If you do not name someone, the court will appoint an administrator, who might not be someone you would choose.

2.        You can name a legal guardian for minor children or dependents with special needs. If you don't appoint a guardian, the state will appoint one for you.

Keep in mind that a will is a legal document, and the courts are very reluctant to overturn any provisions within it. Therefore, it's crucial that your will be well written and articulated, and properly executed under your state's laws. It's also important to keep your will up-to-date.

Letter of instruction

A letter of instruction (also called a testamentary letter or side letter) is an informal, non-legal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will (or about other things, such as your burial wishes or where to locate other documents). This can be the most helpful document you leave for your family members and your executor.

Unlike your will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public.

A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.

Living trust

A living trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it's meant to function while you're alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.

Not everyone needs a living trust, but it can be used to accomplish various purposes. The primary function is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate.

Depending on your situation and your state's laws, the probate process can be simple, easy, and inexpensive, or it can be relatively complex, resulting in delay and expense. This may be the case, for instance, if you own property in more than one state or in a foreign country, or have heirs that live overseas.

Further, probate takes time, and your property generally won't be distributed until the process is completed. A small family allowance is sometimes paid, but it may be insufficient to provide for a family's ongoing needs. Transferring property through a living trust provides for a quicker, almost immediate transfer of property to those who need it.

Probate can also interfere with the management of property like a closely held business or stock portfolio. Although your executor is responsible for managing the property until probate is completed, he or she may not have the expertise or authority to make significant management decisions, and the property may lose value. Transferring the property with a living trust can result in a smoother transition in management.

Finally, avoiding probate may be desirable if you're concerned about privacy. Probated documents (e.g., will, inventory) become a matter of public record. Generally, a trust document does not.

Caution:   Although a living trust transfers property like a will, you should still also have a will because the trust will be unable to accomplish certain things that only a will can, such as naming an executor or a guardian for minor children.

Tip:   There are other ways to avoid the probate process besides creating a living trust, such as titling property jointly. Caution:   Living trusts do not generally minimize estate taxes or protect property from future creditors or ex-spouses. 

Question: Can I deduct premiums paid for long term care insurance (LTCI)?

Answer: It depends on several factors. Your LTCI contract must be a qualified one, and the total of your medical expenses (including your LTCI deduction) must exceed 7.5 percent of your adjusted gross income (AGI). Qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within certain limits, based on your age.

Note: Starting in 2013, the threshold to deduct medical expenses will be raised from 7.5 percent of adjusted gross income to 10 percent. The threshold increase will be delayed until 2017 for those age 65 or older. If you bought your policy before January 1, 1997, and it met the requirements of the state in which it was issued, it is automatically considered a qualified policy. LTCI contracts issued subsequently are only considered qualified for a tax deduction if they meet certain federal standards. In 2012, qualified LTCI premiums are deductible as medical expenses (subject to the 7.5 percent of AGI floor) within the following limits, based on your age at the end of the tax year. For more information, consult a tax professional.

Age:	Limit on Deduction:
40 or less	$350 (up from $340 in 2011)
41-50	$660 (up from $640 in 2011)
51-60	$1,310 (up from $1,270 in 2011)
61-70	$3,500 (up from $3,390 in 2011)
71 and older	$4,370 (up from $4,240 in 2011)

 

Four Common Questions about Social Security

As you near retirement, it's likely you'll have many questions about Social Security. Here are a few of the most common questions and answers about Social Security benefits.

Will Social Security be around when you need it?

You've probably heard media reports about the worrisome financial condition of Social Security, but how heavily should you weigh this information when deciding when to begin receiving benefits? While it's very likely that some changes will be made to Social Security (e.g., payroll taxes may increase or benefits may be reduced by a certain percentage), there's no need to base your decision about when to apply for benefits on this information alone. Although no one knows for certain what will happen, if you're within a few years of retirement, it's probable that you'll receive the benefits you've been expecting all along. If you're still a long way from retirement, it may be wise to consider various scenarios when planning for Social Security income, but keep in mind that there's been no proposal to eliminate Social Security.

If you're divorced, can you receive Social Security retirement benefits based on your former spouse's earnings record?

You may be able to receive benefits based on an ex-spouse's earnings record if you were married at least 10 years, you're currently unmarried, and you're not entitled to a higher benefit based on your own earnings record. You can apply for a reduced spousal benefit as early as age 62 or wait until your full retirement age to receive an unreduced spousal benefit. If you've been divorced for more than two years, you can apply as soon as your ex-spouse becomes eligible for benefits, even if he or she hasn't started receiving them (assuming you're at least 62). However, if you've been divorced for less than two years, you must wait to apply for benefits based on your ex-spouse's earnings record until he or she starts receiving benefits.

If you delay receiving Social Security benefits, should you still sign up for Medicare at age 65?

Even if you plan on waiting until full retirement age or later to take your Social Security retirement benefits, make sure to sign up for Medicare. If you're 65 or older and aren't yet receiving Social Security benefits, you won't be automatically enrolled in Medicare Parts A and B. You can sign up for Medicare when you first become eligible during your seven-month Initial Enrollment Period. This period begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65.

The Social Security Administration recommends contacting them to sign up three months before you reach age 65, because signing up early helps you avoid a delay in coverage. For your Medicare coverage to begin during the month you turn 65, you must sign up during the first three months before the month you turn 65 (the day your coverage will start depends on your birthday). If you enroll later, the start date of your coverage will be delayed. If you don't enroll during your Initial Enrollment Period, you may pay a higher premium for Part B coverage later. Visit the Medicare website, www.medicare.gov to learn more, or call the Social Security Administration at 800-772-1213.

Will a retirement pension affect your Social Security benefit?

If your pension is from a job where you paid Social Security taxes, then it won't affect your Social Security benefit. However, if your pension is from a job where you did not pay Social Security taxes (such as certain government jobs) two special provisions may apply.

The first provision, called the government pension offset (GPO), may apply if you're entitled to receive a government pension as well as Social Security spousal retirement or survivor's benefits based on your spouse's (or former spouse's) earnings. Under this provision, your spousal or survivor's benefit may be reduced by two-thirds of your government pension (some exceptions apply).

The windfall elimination provision (WEP) affects how your Social Security retirement or disability benefit is figured if you receive a pension from work not covered by Social Security. The formula used to figure your benefit is modified, resulting in a lower Social Security benefit.

3 Ways to Relieve Stress in Under 60 Minutes

10 Minutes: Chew a Stick of Gum

Researchers from Australia and England found that in moments of stress, gum chewers felt less anxious and had 18 percent less cortisol (the stress hormone) in their saliva. Chewing increases  blood flow to the brain—which may make us feel more alert—and it may also distract us from stress.

12 Minutes: Brew Some Black Tea

People who drank four servings of black tea a day for six weeks were able to de-stress faster and had lower levels of cortisol after a stressful event, according to a study from University College London. Chemical compounds in the antioxidant-packed beverage may relax us through their effect on neurotransmitters in the brain.

30 Minutes: Put on Music You Love

 

Music can elicit positive emotions and reduce your levels of stress hormones. A study in the Journal of Advanced Nursing found that

patients who listened to songs of their choice were less anxious before surgery. Boost your mood even more by dancing along to trigger the release of feel-good endorphins.

Cost-of-Living Adjustments: What they are and why they matter

The rising costs of food, gas, electricity, and health care can strain anyone's budget. The situation is even worse if your living expenses increase while your income stays the same, because your purchasing power will steadily decline over time. That's why cost-of-living adjustments, or COLAs, are especially valuable to retirees and others living on fixed incomes.

How COLAs work

A COLA is an increase in regular income you receive (such as a Social Security or pension benefit) that is meant to offset rising prices. It's important protection because price inflation has occurred almost every year in the last 40 years.

 

Data Source:   Bureau of Labor Statistics

It's easy to think of a COLA as a "raise," but a COLA is meant to help you maintain your standard of living, not improve it. For example, let's say you receive a $2,000 monthly retirement benefit, and the overall cost of the things you need to purchase increases by 3% during the year. The next year, you receive a 3% COLA, or an extra $60 a month, to help you manage rising prices.

That 3% COLA doesn't sound like much, but without a COLA, inflation can seriously erode your retirement income. Assuming a 3% inflation rate, in just 10 years, the purchasing power of your $2,000 benefit would drop to $1,520, and in 25 years, the purchasing power of your benefit would be only $963, less than half of what you started with.

Who receives COLAs?

Social Security is the major source (and in some cases the only source) of inflation-protected retirement income for many Americans. Social Security COLAs are announced each October, based on increases in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was payable to the third quarter of the current year. For example, because the CPI-W rose 1.7% between August 2011 and August 2012, Social Security and SSI beneficiaries received a 1.7% COLA, beginning with December 2012 benefits. However, if there is no rise in the CPI-W, then beneficiaries will not receive a COLA.

COLAs are also commonly paid to retirees who are covered by state or federal pensions. However, most private pensions do not offer COLAs.

Less commonly, employers offer COLA increases as part of compensation packages. You may also purchase riders to certain insurance policies (such as disability income and long-term care policies) that ensure that benefits you receive keep pace with inflation.

Should you count on COLAs?

As important as COLAs are, they are still vulnerable to cutbacks. For example, pension plans that are underfunded may view reducing COLAs as a relatively simple way to cut costs, and some plans have attempted to eliminate COLAs altogether, although there have been legal challenges. Changing the COLA formula that the Social Security Administration uses has also been proposed as a way to save money and strengthen program reserves.

So while you should appreciate the value of COLAs, you should also take other measures to account for the effect of long-term inflation. These include using realistic inflation and investment return assumptions when planning for retirement, maintaining a diversified portfolio that reflects your time horizon and tolerance for risk, and considering investments that have historically held their own against inflation.