POSSIBILITIES. Caring for Your Aging Parents. 2 Financial Planning: Helping You See the Big Picture. 4 Funding Your Future with a Fixed Annuity

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1 POSSIBILITIES FINANCIAL INSIGHTS FOR INDIVIDUALS AND BUSINESSES APRIL 2012 Caring for Your Aging Parents Caring for your aging parents is something you hope you can handle when the time comes, but it s the last thing you want to think about. Whether the time is now or somewhere down the road, there are steps that you can take to make your life (and theirs) a little easier. Some people live their entire lives with little or no assistance from family and friends, but today Americans are living longer than ever before. It s always better to be prepared. Mom, Dad. We Need to Talk Your first step should be to talk to your parents. Find out what their needs and wishes are. In some cases, however, they may be unwilling or unable to talk about their future. This can happen for a number of reasons, including: Incapacity Fear of becoming dependent Resentment toward you for interfering Reluctance to burden you with their problems If such is the case with your parents, you may need to do as much planning as you can without them. If their safety or health is in danger, however, you may need to step in as caregiver. The bottom line is that you need to have a plan. If you re nervous about talking to your parents, make a list of topics that you need to discuss. That way, you ll be less likely to forget anything. Here are some things that you may need to talk about: Long-term care insurance: Do they have it? If not, should they buy it? Living arrangements: Can they still live alone, or is it time to explore other options? Medical care decisions: What are their wishes, and who will carry them out? Financial planning: How can you protect their assets? Estate planning: Do they have all of the necessary documents (e.g., wills, trusts)? Expectations: What do you expect from your parents, and what do they expect from you? Preparing a Personal Data Record Once you ve opened the lines of communication, your next step is to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die. Here s some information that should be included: Financial information: Bank accounts, investment accounts, real estate holdings Legal information: Wills, durable power of attorneys, health-care directives Funeral and burial plans: Prepayment information, final wishes Medical information: Health-care providers, medication, medical history Insurance information: Policy numbers, company names Advisor information: Names and phone numbers of any professional service providers Location of other important records: Keys to safe-deposit boxes, real estate deeds Be sure to write down the location of documents and any relevant account numbers. It s a good idea to make copies of all of the documents you ve gathered and keep them in a safe place. This is especially important if you live far away, because you ll want the information readily available in the event of an emergency. Caring for Your Aging Parents continued on page 6 inside 2 Financial Planning: Helping You See the Big Picture 4 Funding Your Future with a Fixed Annuity 7 Divorce and Estate Planning

2 2 POSSIBILITIES Financial Planning Helping You See the Big Picture Do you picture yourself owning a new home, starting a business, or retiring comfortably? These are a few of the financial goals that may be important to you, and each comes with a price tag attached. That s where financial planning comes in. Financial planning is a process that can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources. Why is Financial Planning Important? A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you ll be better able to focus on your goals and understand what it will take to reach them. services. Best of all, you ll have the peace of mind that comes from knowing that your financial life is on track. The Financial Planning Process Creating and implementing a comprehensive financial plan generally involves working with financial professionals to: Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities, and evaluating your insurance coverage, your investment portfolio, your tax exposure, and your estate plan Establish and prioritize financial goals and time frames for achieving these goals Implement strategies that address your current financial weaknesses and build on your financial strengths Choose specific products and services that are tailored to meet your financial objectives Monitor your plan, making adjustments as your goals, time frames, or circumstances change Some Members of the Team The financial planning process can involve a number of professionals. Financial planners typically play a central role in the process, focusing on your overall financial plan, and often coordinating the activities of other professionals who have expertise in specific areas. Accountants or tax attorneys provide advice on federal and state tax issues. One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related- -for example, how saving for your children s college education might impact your ability to save for retirement. Then you can use the information you ve gleaned to decide how to prioritize your goals, implement specific strategies, and choose suitable products or Estate planning attorneys help you plan your estate and give advice on transferring and managing your assets before and after your death. Insurance professionals evaluate insurance needs and recommend appropriate products and strategies. Investment advisors provide advice about investment options and asset allocation, and can help you plan a strategy to manage your investment portfolio.

3 Financial Services 3 The most important member of the team, however, is you. Your needs and objectives drive the team, and once you ve carefully considered any recommendations, all decisions lie in your hands. Why Can t I Do it Myself? You can, if you have enough time and knowledge, but developing a comprehensive financial plan may require expertise in several areas. A financial professional can give you objective information and help you weigh your alternatives, saving you time and ensuring that all angles of your financial picture are covered. Staying on Track The financial planning process doesn t end once your initial plan has been created. Your plan should generally be reviewed at least once a year to make sure that it s up-to-date. It s also possible that you ll need to modify your plan due to changes in your personal circumstances or the economy. Here are some of the events that might trigger a review of your financial plan: Your goals or time horizons change You experience a life-changing event such as marriage, the birth of a child, health problems, or a job loss You have a specific or immediate financial planning need (e.g., drafting a will, managing a distribution from a retirement account, paying long-term care expenses) Your income or expenses substantially increase or decrease Your portfolio hasn t performed as expected You re affected by changes to the economy or tax laws Common Questions About Financial Planning What if I m too busy? Don t wait until you re in the midst of a financial crisis before beginning the planning process. The sooner you start, the more options you may have. Is the financial planning process complicated? Each financial plan is tailored to the needs of the individual, so how complicated the process will be depends on your individual circumstances. But no matter what type of help you need, a financial professional will work hard to make the process as easy as possible, and will gladly answer all of your questions. What if my spouse and I disagree? A financial professional is trained to listen to your concerns, identify any underlying issues, and help you find common ground. Can I still control my own finances? Financial planning professionals make recommendations, not decisions. You retain control over your finances. Recommendations will be based on your needs, values, goals, and time frames. You decide which recommendations to follow, then work with a financial professional to implement them. n C O N TA C T Talk to your local Eide Bailly financial advisor Call for more information

4 4 POSSIBILITIES Funding Your Future with a Fixed Annuity A fixed annuity is a contract between you and an annuity issuer, usually an insurance company. In its simplest form, you pay money to the annuity issuer; the issuer invests the funds and pays the principal and its earnings back to you or to your named beneficiary. What s fixed about a fixed annuity? The issuer guarantees (subject to its claims-paying ability) a minimum rate of interest on your investment and a fixed benefit amount if you elect to annuitize. When is an Annuity Appropriate? Annuity contributions are made with after-tax dollars and are not tax deductible. That s why it s often advisable to fund other retirement plans first. However, if you ve already contributed the maximum allowable amount to other plans and want to save more toward your retirement, an annuity can be an excellent choice. There s no limit to how much you can invest in an annuity, and the funds grow tax deferred until you begin taking distributions. Once you begin withdrawing from your annuity, you ll pay taxes (at your regular income tax rate) only on the earnings, since your contributions to principal were made with after-tax dollars. Like a qualified retirement plan, a 10% tax penalty may be imposed if you withdraw from an annuity before age 59½. Annuities are designed to be very-long-term investment vehicles. In most cases, if you take a withdrawal, including a lump-sum distribution of your annuity funds within the first few years after purchasing your annuity, you may be subject to surrender charges imposed by the issuer. However, many companies allow options for withdrawals or distributions without incurring a charge. As long as you re sure you won t need the money until at least age 59½ and you understand the costs (including fees) involved, an annuity is worth considering. Two Distinct Phases to an Annuity There are two distinct phases to an annuity contract: the accumulation phase and the distribution phase. In the accumulation phase, you re putting money into the annuity. You can choose to pay your premiums in one lump sum, or you can make a series of payments over time. These payments can be of equal amounts made at equal intervals, or of variable amounts at irregular intervals, depending on the terms of the contract. Annuities may be either immediate or deferred; the terms simply refer to when the distribution phase begins. Immediate annuities are typically purchased with a single payment and the distribution phase usually begins within a year of the purchase. While deferred annuities may be purchased with a single lump sum premium payment, they are most often purchased with a series of periodic payments. The distribution period is deferred until some time in the future. In the distribution phase, you begin taking money out of the annuity. You may withdraw some or all of the money in lump sums, or you may annuitize. Subject to the claims-paying ability of the issuer, annuitization provides a guaranteed income stream for either a specified period or for life. Why Buy an Annuity? To provide income to supplement what you receive from Social Security, pension plans, and other employer-sponsored retirement plans. To create a lifetime income stream. To maintain financial independence. For example, you can use annuity funds to pay for long-term care expenses and stay in your own home, rather than rely on your children for care. To invest for any specific purpose or long-term goal, such as providing a legacy for your heirs or making a charitable gift. To grow funds on a tax-deferred basis.

5 Financial Services 5 How a Fixed Deferred Annuity Works 1. In the accumulation phase, you (the annuity owner) send your premium payment(s) (all at once or over time) to the annuity issuer. These payments are made with after-tax funds, and you may invest an unlimited amount. 2. The annuity issuer places your funds in its general account.* Your annuity contract specifies how your principal will be returned as well as what rate(s) of interest you ll earn during the accumulation phase. Your contract will also state what minimum interest rate applies.** 3. The compounding interest on your annuity accumulates tax deferred. You won t be taxed on these earnings until funds are withdrawn or distributed. 4. The issuer may collect fees to manage your annuity account. You may also have to pay the issuer a surrender fee if you withdraw money in the early years of your annuity. 5. Your annuity contract may contain a guaranteed** death benefit or other provisions for a payout upon the death of the annuitant. (The annuitant provides the measuring life used to determine the amount of the payments if the annuity is annuitized. As the annuity owner, you re most often also the annuitant, although you don t have to be.) 6. If you make a withdrawal from your deferred annuity before you reach age 59½, you ll not only have to pay tax (at your ordinary income tax rate) on the earnings portion of the withdrawal, but you may also have to pay a 10 percent premature distribution tax, unless an exception applies. 7. After age 59½, you may make withdrawals from your annuity without incurring any premature distribution tax. Since annuities have no minimum distribution requirements, you don t have to make any withdrawals. You can let the account grow tax deferred for an indefinite period. However, your annuity contract may specifiy an age at which you must begin taking income payments. 8. To obtain a guaranteed** fixed income stream for life or for a certain number of years, you could annuitize which means exchanging the annuity s cash value for a series of periodic income payments. The amount of these payments will depend on a number of factors including the cash value of your account at the time of annuitization, the age(s) and gender(s) of the annuitant(s), and the payout option chosen. Usually, you can t change the payments once you ve begun receiving them. 9. You ll have to pay taxes (at your ordinary income tax rate) on the earnings portion of any withdrawals or annuitization payments you receive. * These funds are invested as part of the general assets of the issuer and are therefore subject to the claims of its creditors. ** All guarantees are subject to the claims-paying ability of the issuing company n CONTACT Talk to your local Eide Bailly financial advisor Call for more information

6 6 POSSIBILITIES Caring for Your Aging Parents from page 1 Where Will Your Parents Live? If your parents are like many older folks, where they live will depend on how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. Or, you may insist that they come to live with you. If money is an issue, moving in with you may be the best (or only) option, but you ll want to give this decision serious thought. This decision will impact your entire family, so talk about it as a family first. A lot of help is out there, including friends and extended family. Don t be afraid to ask. Evaluating Your Parents Abilities If you re concerned about your parents mental or physical capabilities, ask their doctor(s) to recommend a facility for a geriatric assessment. These assessments can be done at hospitals or clinics. The evaluation determines your parents capabilities for day-to-day activities (e.g., cooking, housework, personal hygiene, taking medications, making phone calls). The facility can then refer you and your parents to organizations that provide support. If you can t be there to care for your parents, or if you just need some guidance to oversee your parents care, a geriatric care manager (GCM) can also help. Typically, GCMs are nurses or social workers with experience in geriatric care. They can assess your parents ability to live on their own, coordinate round-the-clock care if necessary, or recommend home health care and other agencies that can help your parents remain independent. Get Support and Advice Don t try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don t know where to find help, contact your state s department of eldercare services. Or, call (800) to reach the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Some of the services available in your community may include: Caregiver support groups and training Adult day care Respite care Guidelines on how to choose a nursing home Free or low-cost legal advice Once you ve gathered all of the necessary information, you may find some gaps. Perhaps your mother doesn t have a health-care directive, or her will is outdated. You may wish to consult an attorney or other financial professional whose advice both you and your parents can trust. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information

7 Financial Services 7 Divorce and Estate Planning How Does Divorce Affect Estate Planning Wills for both spouses are often drawn up sometime during the marriage--particularly if there are children involved. When divorce is contemplated, the selection of beneficiaries and executors will likely be revised to reflect the absence of your former spouse. Additionally, you will need to re-examine the gift and estate tax aspects of your estate plan. For these reasons, many divorcing couples revise their estate planning documents during the period of separation or soon after the divorce has been finalized. What should you be concerned about during the separation period? If divorce proceedings have begun, it s important to draft a formal separation agreement as soon as possible, establishing the spouses rights regarding property, debts, temporary alimony, child support, and child custody. When drafting the provisions, you (or your attorney) will want to consider the possibility of your spouse dying prior to entry of the final divorce decree. You may wish to make the agreement binding on heirs and assigns so that the obligations will continue if one party dies. If you expect to receive alimony and child support from your spouse, you may want to require (in the separation agreement) that your spouse buy a life insurance policy (or keep the existing one in force), naming you as the beneficiary. The policy should be in an amount sufficient to cover the sum of support obligations and property distribution payments contemplated. You could even be named as the owner of the policy insuring your spouse s life. Similarly, your agreement might require your spouse to maintain minimum will provisions in favor of you (and/or your children). Often, the parties to a separation agreement include a provision that both waive the right to elect a share of the estate of the other in the event that one party dies before the divorce decree is entered. When revising your estate plan, which areas require particular note? First of all, you should make the necessary changes in your will or other estate planning documents to ensure that your former spouse isn t named as your personal representative, successor trustee, beneficiary, or holder of the power of attorney. A new will will likely be drafted during the separation period. Note that in some states, wills drawn up during a marriage are considered void after a divorce unless specifically ratified after the divorce. This means that intestacy rules would apply, instead of the will being controlling. Next, consider gift tax implications if funding your children s education is required by your property settlement. Although your direct tuition Divorce and Estate Planning continued on page 8

8 th Ave S PO Box 2545 Fargo ND RETURN SERVICE REQUESTED POSSIBILITIES is distributed with the understanding that the information contained does not constitute legal, accounting or other professional advice. It is not intended to be responsive to any individual situation or concerns as the contents of the publication are intended for general informational purposes only. Content provided by Forefield, Inc. Neither Forefield Inc. nor Forefield Advisor TM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modification to its content and/ or information provided by other sources Forefield Inc. All Rights Reserved. Questions and information for publication can be submitted to your Eide Bailly representative or to the editors of the newsletter. To view this and previous issues of POSSIBILITIES, visit Managing Editor: Liz Stabenow An Independent Member Firm of HLB International Financial Advisor is a Registered Representative of and offers securities through Securities America, Inc. Member FINRA and SIPC. Investment Advisory Services offered through Eide Bailly Advisors, LLC, a Registered Investment Advisor. Eide Bailly Financial Services, LLC is the holding company for Eide Bailly Advisors, LLC. Eide Bailly Financial Services and its subsidiaries are not affiliated with Securities America companies. Divorce and Estate Planning from page 7 payments (even for adult children) are exempt from gift tax when required by a property settlement agreement, be aware that your payments for related educational expenses (e.g., books and room and board) may be subject to gift tax. Example(s): Liz and Frank have a daughter, Carol. Carol has reached the age of majority under state law. When the couple divorced, Frank agreed (as part of the settlement) to pay for Carol s college tuition, books, room, and board. During the year, Frank pays $20,000 tuition directly to Carol s university, and he gives Carol $15,000 in cash for living expenses. The tuition isn t a taxable gift, but the $15,000 in cash will be treated as a taxable gift. Finally, consider the absence of the unlimited marital deduction. A deduction is allowed for qualifying transfers to one s spouse during lifetime or at death. Because this gift and estate tax deduction is one of the most important estate planning tools for married couples, your loss of this tool at divorce can affect your tax situation adversely when you die. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information