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Financial Matters

By Richard D. Rooney,

Richard D. Rooney, a graduate of Oberlin College and the Wharton Graduate Division of the University of Pennsylvania, is a partner in the Annapolis, Maryland financial planning firm of Roche-Rooney. He has been a financial services practitioner for more than 20 years in the Annapolis area.

In addition to his professional activities, Mr. Rooney is an avid golfer and an active community volunteer including service as Chairman of the local United Way campaign, President of the Rotary Club, and a member of the Board of Trustees of the local community hospital. He is the father of three children and proud grandfather to four children.

Financial Planning

Financial planning for caregivers and the people for whom they care involves a number of facets:

  1. Cash Flow
  2. Legal Documents
  3. Insurance
  4. Investments
  5. Income and Estate Taxes
Cash Flow

A central element of prudent financial planning requires a budget-a summary of expected expenses compared against income. If there is a deficit (an excess of expenses over income), some way to correct the deficit must be found. People can look for new or increased sources of income and they can reduce expenses. To achieve and maintain sound financial health, one must have income and expenses in balance.

Legal Documents

Everyone has a will. If you have not prepared a will, your state of legal residence has a default will for you. Oftentimes, the state-provided default will fails to take into account special needs and circumstances of family members. Therefore, prudent financial planning calls for the preparation of a will prepared by a qualified lawyer suitable to your circumstances. Once a will is completed, you should periodically review its provisions to insure it expresses your wishes-your will. The expense of a well-prepared will is minimal compared to the comfort and convenience provided to one's heirs.

A durable power of attorney is an extremely useful document for protection of legal and financial rights of people who become incapacitated. It must be properly prepared according to the laws of your state of residence prior to one's incapacity.

Similarly, a medical power of attorney provides authority to someone to direct medical care of a person suffering a disability. Once again this must be done before it is needed.

Many states provide a standard living will which offers directions on life-saving medical treatment, hydration, etc.-measures for people in failing health.

Insurance (see also Insurance Issues)

We recommend everyone have some kind of health or medical insurance to provide coverage for major medical expenses. Typically, this is obtained through one's employer and includes coverage for the employee as well as dependants. U.S. citizens age 65 and older are eligible for Medicare and can supplement that coverage with private supplementary insurance.

People who are employed should also have long-term disability insurance to provide continuing income in the event of a disability which causes a loss of earned income. Once again, many employers provide such coverage, but individually owned policies are available.

Life insurance is a necessity for many people who are providing financial support to others. Employers often provide life insurance as part of their group benefits, but once again, individually purchased life insurance may be necessary to provide sufficient coverage.

Long-term care insurance is recommended for people age 50 and above to provide for the expense of nursing home care, care in assisted living facilities, home-based care or adult day care. A few employers offer group long term care insurance at this time, but most long term care coverages are purchased through individual policies.

You should also have homeowners insurance (or renters insurance) to protect your household goods. If you have valuables such as jewelry or other collectibles, you should make sure your policy includes coverage for them either as a part of the main contract or as a special rider.

Investments

People who have investments such as retirement plans (IRA's, 401k's, and other pension or profit-sharing plans) as well as private investment either in mutual funds, stocks, bonds, savings accounts, or certificates of deposit should take care in how they own those assets. Retirement assets (IRA, 401k, pension and profit-sharing) must be owned by the individual for whom the benefit is provided. Other investment vehicles can be owned in any number of ways. An annual review of one's financial circumstances should include an examination of how assets are titled-joint with rights of survivorship, joint tenants in common, individually, in a trust, etc.

Proper management of investments includes maintaining current records of what your investments are, where they are held, and how they are titled. Periodic statements from brokers and banks should be kept in a safe place where trusted family or friends know about their existence.

Income and Estate Taxes

Anyone with earned income is required to file federal and (in most states) income taxes, so it is important to keep a record of income sources and amounts as well as items that may be deductible against your income taxes. Estate taxes are the government's final taxation-they get us even after our death! Estates in excess of $675,000 (in the year 2001) must pay estate taxes. This amount will gradually increase to $1 million in 2006.

Transfers of assets to a surviving spouse are excluded from estate taxation at the death of the first marital partner, but will be subject to estate taxes at the death of the surviving spouse.

Summary

We recommend that people make a checklist of things to do as part of their financial planning. As they complete a task, check it off and note the date they have completed the task.

This all may seem like a great deal of work, but taken on a piecemeal basis it can be accomplished in relatively short order and with good feelings.

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