How to Calculate Rolling Returns

How to Calculate Rolling Returns – SmartAsset

Tap on the profile icon to edit
your financial details.

When comparing investments in your portfolio, you may be concerned primarily with the returns a particular security generates over time. Rolling returns measure average annualized returns over a specific time period and they can be helpful for gauging an investment’s historical performance. Knowing how to calculate rolling returns and interpret those calculations is important when using them to choose investments. A financial advisor can familiarize you with several other metrics to gauge your investments’ progress.

What Are Rolling Returns?

Rolling returns represent the average annualized return of an investment for a given time frame. Specifically, rolling return calculations measure how a stock, mutual fund or other security performs each day, week or month from the time frame’s beginning to ending dates.

Essentially, rolling returns breaks a security’s performance track record into blocks. Investors can determine what return data to focus on for a particular block of time. For example, you may use rolling returns to measure a stock’s monthly performance over a five-year period or its daily returns for a three-year period.

Rolling returns calculations can measure an investment’s return from dividends and price appreciation. Typically, it’s more common to use longer periods of time such as three, five or even 10 years, to measure rolling returns versus to get a sense of how an investment performs. That’s different from annual return, which simply measures the return a security generates within a given 12-month period. It’s also different from yield.

How to Calculate Rolling Returns

If you’re interested in using rolling returns to evaluate different investments, there’s a step-by-step process you can follow to calculate them. The first step is choosing a start date and end date for which to measure returns. For example, say you want to measure rolling returns for a particular stock over a 10-year period. If you’re specifically interested in how well the stock performs in recessionary environments, you might set the tracking to extend from Jan. 1, 2006, to Jan. 1, 2016, which would include performance history for the Great Recession.

The next step is determining the return percentage generated for each year of the period you’re tracking. To do this, you’ll need to know the starting price and ending price for the stock or other security for the applicable years. Take the ending price and subtract the beginning price, then divide that amount by the beginning price to find that year’s return.

Next, you’ll use averaging to calculate rolling returns. Add up the return percentages you calculated for each year of the time period you’re tracking. Then divide the total by the number of years to get the average annualized return.

To find rolling returns, you’d simply adjust the time frame being measured. So, if you started with Jan. 1, 2006, for example, you could adjust your time frame to track the period from Feb. 1, 2006 to Feb. 1, 2016. Or you could look at rolling returns on a yearly basis, which means removing returns for 2006 and recalculating using returns for 2017.

This makes it fairly easy to customize rolling returns calculations when evaluating investments. You could use rolling returns calculations to mimic your typical holding period for a stock or mutual fund. For example, if you normally hold individual investments for five years then you might be interested in isolating rolling returns for that same time frame.

Rolling Returns vs. Trailing Returns

When comparing investments, you may also see trailing returns mentioned but they aren’t the same as rolling returns. Trailing returns represent returns generated over a given time period, e.g. one year, five years, 10 years, etc. For that reason, they’re often called point-to-point returns.

Trailing returns can be helpful if you’re interested in getting a snapshot look at an investment’s performance history. That’s useful if you want to know exactly how an investment performed at any given time. Trailing returns can be problematic, however, since it’s difficult to use them to gauge how an investment might perform in the future.

What Rolling Returns Tell Investors

Rolling returns can be useful for comparing investments because they can offer a comprehensive view of performance and returns. Specifically, examining rolling returns rather than focusing solely on annual returns allows you to pinpoint the periods when an investment had its best and worst performance. For example, you could use a five-year rolling return to determine the best five years or the worst five years a particular stock or fund offered to investors. This can help with deciding whether an investment is right for your portfolio, based on your goals, risk tolerance and time horizon for investing.

If you lean toward long-term buy-and-hold strategies versus shorter-term day-trading, for instance, then rolling returns can give you a better idea of how well an investment may pay off while you own it. Looking only at average annual returns may skew your perception of an investment’s performance history and what it’s likely to do in the future.

You may use rolling returns as part of an index investing strategy. Index investing focuses on matching the performance of a stock market benchmark, such as the S&P 500 or the Nasdaq Composite. It’s possible to calculate rolling returns for a stock index in its entirety, which can make it easier to see where the high and low points are for performance.

If you prefer actively managed funds in lieu of index funds, calculating rolling returns can also be helpful. In addition to assessing the fund’s performance over a specified time frame, rolling returns can also offer insight into the fund manager’s skill and expertise. If, for example, an actively managed fund outperforms expectations during an extended period of market volatility that can be a mark in favor of the fund manager’s strategy.

The Bottom Line

Rolling returns can make it easier to set your expectations for a particular investment, based on its best and worst historical performance. Calculating rolling returns isn’t difficult to do, and it’s something to consider if you’re focused on the long-term with your investment strategy.

Tips for Investing

  • An investment calculator can give you a quick estimate of how your investments will be doing in the years to come. Just put in the starting balance, yearly contribution, estimated rate of growth and time horizon.
  • Consider talking to your financial advisor about rolling returns and how to calculate them. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors locally. If you’re ready, get started now.

Photo credit: ©iStock.com/guvendemir, ©iStock.com/MarsYu, ©iStock.com/Chainarong Prasertthai

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

Read next article

About Our Investing Expert

Have a question? Ask our Investing expert.

smartasset.com

Indexed Universal Life (IUL) vs. 401(k)

Indexed Universal Life (IUL) vs. 401(k) – SmartAsset

Tap on the profile icon to edit
your financial details.

When creating your personal retirement plan, there are a variety of tools you can use to fund your long-term savings goals. An employer-sponsored 401(k) is one of them while indexed universal life insurance (IUL) is another. A 401(k) allows you to invest money on a tax-deferred basis while also enjoying a tax deduction for contributions. Indexed universal life insurance allows you to secure a death benefit for your loved ones while accumulating cash value that you can borrow against. Understanding the differences and similarities between IUL vs. 401(k) matters for effective retirement planning. Working with a financial advisor can also make a substantial difference in the amount of money you’ll have when you retire.

What Is Indexed Universal Life Insurance?

Indexed universal life insurance is a type of permanent life insurance coverage. When you buy a policy, you’re covered for the rest of your natural life as long as your premiums are paid. When you pass away, the policy pays out a death benefit to your beneficiaries.

During your lifetime, an IUL insurance policy can accumulate cash value. Part of the premiums you pay are allocated to a cash-value account. That account tracks the performance of an underlying stock index, such as the Nasdaq or S&P 500 Composite Price Index. As the index moves up or down, the insurance company credits the cash value portion of your policy each year with interest.

IUL is different from fixed universal life insurance or variable universal life insurance. With fixed universal life insurance your rate of return is guaranteed, making it the least risky of the three. With variable universal life insurance, your cash value account is invested in mutual funds and other securities so you’re exposed to more risk. An indexed universal life insurance policy fits in the middle of the risk spectrum.

Cash value that accumulates inside an IUL insurance policy grows tax-deferred. You can borrow against this cash value if necessary, though any loans left unpaid at the time you pass away are deducted from the death benefit.

What Is a 401(k)?

A 401(k) is a type of qualified retirement plan that allows you to set money aside for retirement on a tax-advantaged basis. Contributions are deducted from your paychecks via a salary deferral. Your employer can also offer a matching contribution. The IRS limits the amount you can and your employer can contribute each year.

With a traditional 401(k), contributions are made using pre-tax dollars. Any money you contribute is automatically deducted from your taxable income from the year. When you begin taking money out of your 401(k) in retirement, you’ll pay ordinary income tax on withdrawals. Any withdrawals made before age 59.5 may be subject to a 10% early withdrawal penalty as well as income tax.

Traditional 401(k) plans allow you to invest in a variety of securities, including mutual funds and exchange-traded funds. Target-date funds are also a popular option. These funds automatically adjust your asset allocation based on your target retirement date.

There’s no death benefit component with a 401(k). This is money you save during your working years that you can tap into in retirement. Unless you’re still working with the same employer, you’re required to begin taking minimum distributions from a 401(k) beginning at age 72. Failing to do so can trigger a tax penalty equivalent to 50% of the amount you were required to withdraw.

IUL vs. 401(k): Which Is Better for Retirement Savings?

Indexed universal life insurance and 401(k) plans can both be used as investment tools for retirement. But there are some important differences to note. With IUL, returns are tied to the performance of an underlying index. If the index performs well, then your policy earns a higher interest rate. If the index underperforms, on the other hand, your returns may shrink. Your insurance company can also cap the rate of return credited to your account each year, regardless of how well the underlying index does. For instance, you may have a cap rate of 3% or 4% annually.

In a 401(k) plan, you have the option to invest in index mutual funds or ETFs but you’re not locked in to just those investments. You can also choose actively managed funds, target-date funds and other securities, based on your time frame for investing, goals and risk tolerance. Your rate of return is still tied to how well those investments perform but there’s no cap. So, if you invest in an index fund that goes up by 20%, you’ll see that reflected in your 401(k) balance.

A 401(k) also affords the advantage of an employer matching contribution. This is essentially free money you can use to grow retirement wealth. With an indexed universal life insurance policy, you’re responsible for paying all of the premium costs.

Another big difference between the two centers on tax treatment and withdrawals. With an indexed universal life insurance policy, you can borrow against the cash value at any time. You’ll pay no capital gains tax on loans and no penalties unless you surrender the policy completely or fail to repay what you borrow. Death benefits pass to your beneficiaries tax-free.

With a 401(k), you generally can’t tap into this money penalty-free before the age of 59.5, even in the case of a hardship withdrawal. You may be able to avoid a tax penalty if you’re withdrawing money for qualified medical expenses but you’d still owe income tax on the distribution. You could take out a 401(k) loan instead but that also has tax implications. If you separate from your employer with an outstanding loan balance and fail to repay the loan in full, the entire amount can be treated as a taxable distribution.

Qualified distributions in retirement are taxable at your regular income tax rate. And if you pass away with a balance in your 401(k), the beneficiary who inherits the money will have to pay taxes on it. Talking with a tax professional or your financial advisor can help you come up with a plan for managing tax liability efficiently both prior to retirement and after.

The Bottom Line

Indexed universal life insurance and a 401(k) plan can both help you build wealth for retirement but they aren’t necessarily interchangeable. If you have a 401(k) at work, this may be the first place to start when creating a retirement savings plan. You can then decide if IUL or another type of life insurance is needed to supplement your workplace savings as well as the money you’re investing an IRA or brokerage account.

Tips for Investing

  • When using a 401(k) to invest for retirement, pay close attention to fees. This includes the fees charged by the plan itself as well as the fees associated with individual investments. If a mutual fund has a higher expense ratio, for instance, consider whether that cost is justified by a consistently higher rate of return.
  • Consider talking with a financial advisor about how to maximize your 401(k) plan at work and whether indexed universal life insurance is something you need. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to get personalized recommendations for professionals in your local area in just minutes. If you’re ready, get started now.

Photo credit: ©iStock.com/yongyuan, ©iStock.com/kupicoo, ©iStock.com/Piotrekswat

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

Read next article

About Our Retirement Expert

Have a question? Ask our Retirement expert.

smartasset.com

Should I Move the Money in My 401(k) to Bonds?

Should I Move the Money in My 401(k) to Bonds? – SmartAsset

Tap on the profile icon to edit
your financial details.

An employer-sponsored 401(k) plan may be an important part of your financial plan for retirement. Between tax-deferred growth, tax-deductible contributions and the opportunity to take advantage of employer matching contributions, a 401(k) can be a useful tool for investing long term. Managing those investments wisely means keeping an eye on market movements. When a bear market sets in, you may be tempted to make a flight to safety with bonds or other conservative investments. If you’re asking yourself, “Should I move my 401(k) to bonds?” consider the potential pros and cons of making such a move. Also, consider talking with a financial advisor about what the wisest move in your portfolio would be.

Bonds and the Bear Market

Bear markets are characterized by a 20% or more decline in stock prices. There are different factors that can trigger a bear market, but generally they’re typically preceded by economic uncertainty or a slowdown in economic activity. For example, the most recent sustained bear market lasted from 2007 to 2009 as the U.S. economy experienced a financial crisis and subsequent recession.

During a bear market environment, bonds are typically viewed as safe investments. That’s because when stock prices fall, bond prices tend to rise. When a bear market goes hand in hand with a recession, it’s typical to see bond prices increasing and yields falling just before the recession reaches its deepest point. Bond prices also move in relation to interest rates, so if rates fall as they often do in a recession, then bond prices rise.

While bonds and bond funds are not 100% risk-free investments, they can generally offer more stability to investors during periods of market volatility. Shifting more of a portfolio’s allocation to bonds and cash investments may offer a sense of security for investors who are heavily invested in stocks when a period of extended volatility sets in.

Should I Move My 401(k) to Bonds?

Whether it makes sense to move assets in your 401(k) away from mutual funds, target-date funds or exchange-traded funds (ETF) and toward bonds can depend on several factors. Specifically, those include:

  • Years left to retirement (time horizon)
  • Risk tolerance
  • Total 401(k) asset allocation
  • 401(k) balance
  • Where else you’ve invested money
  • How long you expect a stock market downturn to last

First, consider your age. Generally, the younger you are, the more risk you can afford to take with your 401(k) or other investments. That’s because you have a longer window of time to recover from downturns, including bear markets, recessions or even market corrections.

If you’re still in your 20s, 30s or even 40s, a shift toward bonds and away from stocks may be premature. The more time you keep your money in growth investments, such as stocks, the more wealth you may be able to build leading up to retirement. Given that the average bear market since World War II has lasted 14 months, moving assets in your 401(k) to bonds could actually cost you money if stock prices rebound relatively quickly.

On the other hand, if you’re in your 50s or early 60s then you may already have begun the move to bonds in your 401(k). That might be natural as you lean more toward income-producing investments, such as bonds, versus growth-focused ones.

It’s also important to look at the bigger financial picture in terms of where else you have money invested. Diversification matters for managing risk in your portfolio and before switching to bonds in your 401(k), it’s helpful to review what you’ve invested in your IRA or a taxable brokerage account. It’s possible that you may already have bond holdings elsewhere that could help to balance out any losses triggered by a bear market.

There are various rules of thumb you can use to determine your ideal asset allocation. The 60/40 rule, for example, dictates having 60% of your portfolio in stocks and 40% dedicated to bonds. Or you may use the rule of 100 or 120 instead, which advocate subtracting your age from 100 or 120. So, if you’re 30 years old and use the rule of 120, you’d keep 90% of your portfolio in stocks and the rest in bonds or other safer investments.

Consider Bond Funds

Bond mutual funds and bond ETFs could be a more attractive option than traditional bond investments if you’re worried about bear market impacts on your portfolio. With bond ETFs, for example, you can own a collection of bonds in a single basket that trades on an exchange just like a stock. This could allow you to buy in low during periods of volatility and benefit from price appreciation as you ride the market back up. Sinking money into individual bonds during a bear market or recession, on the other hand, can lock you in when it comes to bond prices and yields.

If you’re weighing individual bonds, remember that they aren’t all alike and the way one bond reacts to a bear market may be different than another. Treasury-Inflation Protected Securities or TIPS, for example, might sound good in a bear market since they offer some protection against inflationary impacts but they may not perform as well as U.S. Treasurys. And shorter-term bonds may fare better than long-term bonds.

How to Manage Your 401(k) in a Bear Market

When a bear market sets in, the worst thing you can do is hit the panic button on your 401(k). While it may be disheartening to see your account value decreasing as stock prices drop, that’s not necessarily a reason to overhaul your asset allocation.

Instead, look at which investments are continuing to perform well, if any. And consider how much of a decline you’re seeing in your investments overall. Look closely at how much of your 401(k) you have invested in your own company’s stock, as this could be a potential trouble spot if your company takes a financial hit as the result of a downturn.

Continue making contributions to your 401(k), at least at the minimum level to receive your employer’s full company match. If you can afford to do so, you may also consider increasing your contribution rate. This could allow you to max out your annual contribution limit while purchasing new investments at a discount when the market is down. Rebalance your investments in your 401(k) as needed to stay aligned with your financial goals, risk tolerance and timeline for retiring.

The Bottom Line

Moving 401(k) assets into bonds could make sense if you’re closer to retirement age or you’re generally a more conservative investor overall. But doing so could potentially cost you growth in your portfolio over time. Talking to your 401(k) plan administrator or your financial advisor can help you decide the best way to weather a bear market or economic slowdown while preserving retirement assets.

Tips for Investing

  • It’s helpful to review your 401(k) at least once per year to see how your investments are performing and whether you’re still on track to reach your retirement goals. If you notice that you’re getting overweighted in a particular asset class or stock market sector, for example, you may need to rebalance to get back on track. You should also review the fees you’re paying for your 401(k), including individual expense ratios for each mutual fund or ETF you own.
  • Consider talking to a professional financial advisor about the best strategies to implement when investing in bear markets and bull markets as well. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors online. It takes just a few minutes to get your personalized advisor recommendations. If you’re ready, get started now.

Photo credit: ©iStock.com/BraunS, ©iStock.com/Aksana Kavaleuskaya, ©iStock.com/izusek

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

About Our Investing Expert

Have a question? Ask our Investing expert.

smartasset.com

Indexed Universal Life vs. Whole Life Insurance

Indexed Universal Life vs. Whole Life Insurance – SmartAsset

Tap on the profile icon to edit
your financial details.

Life insurance can provide a measure of financial protection against the worst-case scenario. Whole life insurance and indexed universal life insurance (IUL) are two types of permanent policies you might consider if you’re interested in lifetime coverage. While both policies can offer the opportunity to accumulate cash value while leaving behind a death benefit for your loved ones, they aren’t exactly the same. Understanding the differences between IUL vs. whole life insurance can help you decide which one may be right for you.

A financial advisor can help you sort through all the decisions that go into successful financial planning, not just deciding which type of insurance is appropriate.

Whole Life Insurance, Explained

Whole life insurance is a type of permanent life insurance. When you buy a whole life policy, you’re covered for life as long as your premiums are paid. This is different from term life insurance, which only covers you for a set term, say 20 or 30 years.

With a whole life insurance policy, you have a guaranteed death benefit that’s paid out to your beneficiaries when you pass away. Premiums usually remain level even as you age and the policy accumulates cash value over time.

You can borrow against that cash value if needed or use it to cover the premiums for your policy. Any outstanding loans remaining when you pass away are deducted from the death benefit that’s paid to the policy beneficiaries.

Indexed Universal Life Insurance, Explained

Indexed universal life insurance is also permanent life insurance coverage. Similar to whole life insurance, IUL insurance policies can accumulate cash value over time. You can take out loans against the cash value or leave it in the policy to grow.

The biggest difference between whole life and IUL is how cash value accumulates. With a whole life insurance policy, the cash value is guaranteed by the insurance company. If you’re using life insurance as an investment, that means the rate of return on your policy is fairly predictable.

Indexed universal life, on the other hand, works differently. The rate of return and the rate at which cash value accumulates in the policy is based on the performance of an underlying stock market index. Stock market indexes track a particular sector or segment of the market. So, for example, your IUL policy may track the movements of the S&P 500 Composite Price Index or the Nasdaq.

While the return potential for an indexed universal life policy can be higher than whole life insurance, returns aren’t unlimited. Insurance companies can impose a cap rate or ceiling on your returns each year. For instance, your policy might have a cap rate of 3% or 4% annually. The insurance company may also offer a minimum guaranteed rate of return.

IUL vs. Whole Life: Which One Is Better?

Indexed universal life insurance and whole life insurance can both help you accumulate cash value while retaining a death benefit. But one may suit you better than another, depending on your financial needs and goals. This is where it helps to understand what each one is designed to do. For instance, you might choose a whole life insurance policy if:

  • You’re interested in guaranteed, stable returns year over year
  • You want reassurance that premium costs won’t increase over time
  • You want a guaranteed death benefit with the option to borrow cash from the policy if needed

Whole life insurance is more expensive than term life insurance, but it can be less expensive than indexed universal life insurance. Guaranteed returns also make it the less risky option of the two, which may appeal to you if you’re looking for a more conservative addition to your financial plan.

On the other hand, there are some benefits to choosing an IUL policy over whole life. For example, you may consider an indexed universal life policy if:

  • You’re interested in earning higher returns
  • You need or want flexible premiums
  • You’re looking for a way to supplement retirement income

Indexed universal life insurance carries more risk since your returns hinge on how well the policy’s underlying index performs. It’s possible that you could even lose money but those losses may be limited if your insurance company offers a guaranteed minimum rate of return.

You also have more leeway with IUL insurance premiums compared to whole life insurance premiums. For example, you may be able to adjust your premium amount or temporarily suspend making premium payments and allow them to be covered by the policy’s cash value.

With both types of policies, the cash value can grow on a tax-deferred basis. You wouldn’t owe capital gains tax on earnings unless you were to surrender the policy. And any death benefits passed on to your policy beneficiaries would be tax-free.

How to Choose a Life Insurance Policy

Life insurance is something most people need to have and there are several questions to consider when choosing a policy. Specifically, ask yourself:

  • How long you need coverage to remain in place
  • What amount of coverage is appropriate for your financial situation
  • How much you’re comfortable paying toward premium costs
  • Whether you’re interested in accruing cash value
  • What degree of risk you’re comfortable taking

These questions can help you determine whether term life or a permanent life insurance policy is the better fit. And if you opt for permanent life insurance, they can also help you decide between IUL vs. whole life insurance.

Don’t forget that there’s also a third permanent life insurance option available: variable universal life insurance. With variable universal life insurance, you’re investing the cash value portion of the policy directly into mutual funds or other securities, rather than tracking a stock market index. This type of policy can offer the highest return potential but it can also carry the most risk.

Talking to an insurance agent or broker can help you decide whether IUL vs. whole life insurance or another type of life insurance, makes the most sense. You may also want to talk to your financial advisor about how to use life insurance effectively when crafting your estate plan.

The Bottom Line

Indexed universal life insurance essentially combines an investment tool with a life insurance policy. You might find that attractive if you’ve exhausted your 401(k) contributions or IRA contributions for the year but still have money to invest. On the other hand, you might lean toward whole life insurance if you want a guaranteed death benefit with lifetime coverage.

Tips for Estate Planning

  • Using an online life insurance calculator can help you determine how much life insurance you need. Generally, financial experts often recommend having anywhere from 10 to 15 times your annual income in coverage but the specifics of your situation may dictate having a larger or smaller death benefit.
  • Talk with your financial advisor about the best type of life insurance for your needs and how much coverage to get. If you don’t have a financial advisor yet, finding doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in minutes. If you’re ready, get started now.

Photo credit: ©iStock.com/AleksandarGeorgiev, ©iStock.com/PeopleImages, ©iStock.com/designer491

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

Categories

Source: smartasset.com

How to Make a Living Will

How to Make a Living Will – SmartAsset

Tap on the profile icon to edit
your financial details.

A living will is a legal document that allows you to specify the kind of care you’d like to receive in end-of-life situations. This is different from an advance healthcare directive, though either one can be an important part of an estate plan. If you’d like to draft a living will, you could get help from an estate planning attorney or you may try using an online software program to create one. Regardless of which one you choose, it’s important to understand how to make a living will to ensure that yours is valid and your wishes are upheld. A financial advisor can offer valuable insight and guidance as you make an estate plan.

What Is a Living Will?

Living wills can be used to spell out what type of healthcare you do or don’t want to receive in end-of-life situations or if you become permanently incapacitated or unconscious. This document tells your doctors and other healthcare providers as well as your family members what type of care you prefer in these situations.

For example, you can include instructions in your living will regarding things like resuscitation, life support and pain management. If you don’t want to be left on life support in a so-called vegetative state, you could communicate that in your living will. Or if you’re terminally ill and only want to receive palliative care you could include that as well.

A living will can be part of an advance healthcare directive that also includes a healthcare power of attorney. This type of document allows someone else, called a healthcare proxy, to make medical decisions on your behalf when you’re unable to. A living will typically only applies to situations where you’re close to death or you’re permanently incapacitated while an advance directive can cover temporary incapacitation. So if you’re unconscious after a car accident, for instance, your healthcare proxy could direct doctors regarding what type of care and treatment you should receive.

How to Make a Living Will

The first step in making a living will is deciding whether you want to do it yourself or hire an estate planning attorney. Making a living on your own using an online software program may cost less than paying an attorney’s fee. But if you want to be certain that your living will is drafted accurately and legally, you may feel more comfortable getting help from an estate planning professional.

If you choose to make a living will on your own, you can find the necessary forms online. Keep in mind that your state may have a specific form you’re required to use for your living will to be considered valid. There may also be minimum requirements, in some cases identical to what would be required for a simple will, you’ll need to meet to make a living will in your state, including:

  • Being at least 18 (or 19 in some states)
  • Being of sound mind
  • Having the will be properly witnessed
  • Getting the document notarized once it’s complete

Those are the technical aspects of how to make a living will. Your main focus may be on what to include. Again, your state may have a specific format you’ll need to follow. But generally, you’ll need to leave instructions regarding the following:

  • Life-prolonging care. You’ll need to decide what types of life-prolonging treatments, such as blood transfusions, resuscitation or use of a respirator, you do or don’t want to receive.
  • Intravenous feeding. You’ll also need to specify whether you want to be given food and water intravenously if you’re incapacitated and can’t feed yourself.
  • Palliative care. If you’re facing a terminal illness, palliative care can be used to manage pain if you decide to stop other treatments.

It’s important to be as thorough and specific as possible when outlining your wishes so there’s no confusion later on. This ensures that your wishes are carried out and it also relieves your loved ones from the burden of having to guess at what you do or don’t want.

What to Do After Making a Living Will

If you’ve drafted a valid living will according to the laws of your state, the next step is to make your wishes known to other relevant parties. This includes passing copies of your living will to your doctors, hospital and loved ones. If you’re drafting a living will as part of an advance healthcare directive, you’d also want to make sure your healthcare proxy has a copy.

It’s also important to review your living well regularly to make sure it’s still accurate. If you change your mind about the type of care you’d like to receive, then you’d want to update or rewrite your living will to make sure that’s reflected. If not, then your doctors and loved ones would be left to carry out the terms of your original living will, which may conflict with what you actually want.

Who Needs a Living Will?

A living will is designed for people who have specific wishes regarding care in situations where they have a terminal illness or become permanently incapacitated. If you’re comfortable letting your loved ones decide which type of care should be given to you, then a living will may not be necessary. On the other hand, if you absolutely don’t want a certain type of treatment then a living will is the best way to make that clear to your doctors and family members.

You might consider drafting a living will along with a healthcare power of attorney to ensure that all of the bases are covered, so to speak, when it comes to healthcare decision-making. Having a healthcare proxy can ensure that the terms of the living will are upheld and they can also make decisions about your care for you in situations where you’re only temporarily incapacitated. When choosing a healthcare proxy, it’s important to select someone you can rely on to adhere to your wishes.

The Bottom Line

A living will can be an important part of preparing your family for your death. This kind of document is a relatively straightforward legal document that you may consider including in your financial plan or estate plan if you have specific wishes regarding end-of-life care. Knowing how to make a living will and what it covers can help you decide if it’s something you need to have in place.

Tips for Estate Planning

  • A living will is not the same thing as a last will and testament. Living wills cover healthcare decision-making while a last will and testament deals with the distribution of your assets once you pass away. A will is important to have, since without one your assets are distributed according to the inheritance laws of your state. An estate planning attorney can help you draft a last will and testament as well as a living will. Or you can use online will-making software programs to create a simple will on your own.
  • Consider talking to a financial advisor about whether a living will is something you need. If you don’t have a financial advisor yet, finding one doesn’t have to be a complicated process. SmartAsset’s financial advisor matching tool can get you personalized recommendations, in minutes, for professional advisors in your local area. If you’re ready, get started now.

Photo credit: ©iStock.com/GCShutter, ©iStock.com/zimmytws, ©iStock.com/FluxFactory

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

Categories

Source: smartasset.com

How to Avoid Paying Taxes on Your Social Security

How Can I Avoid Paying Taxes on Social Security? – SmartAsset

Tap on the profile icon to edit
your financial details.

Social Security benefits can provide an additional income stream in retirement alongside withdrawals from a 401(k), individual retirement account or brokerage account. Part of shaping a retirement plan around Social Security income means planning ahead for taxes. Social Security benefits are considered taxable for some retirees, though whether yours are can depend on your income. If you’re wondering, how you can avoid paying taxes on Social Security, there are some strategies you can try.

Do you have questions about your overall tax situation? Speak with a financial advisor today.

When Are Social Security Benefits Taxable?

Generally, Social Security benefits are only taxable when your income reaches certain thresholds. Those thresholds vary, based on your tax filing status. The amount of your benefits that are taxable depends on both.

For Social Security to be tax-free, your annual combined income must be:

  • Below $25,000 if you’re a single filer
  • Below $32,000 if you’re married and file a joint tax return

The Social Security Administration considers combined income to be the total of your adjusted gross income, not counting Social Security income, tax-exempt interest and 50% of your Social Security income.

If your income is above the threshold specified for your filing status, there’s a second test that determines how much taxes you’ll pay on Social Security benefits. Specifically, you may be subject to one of two tax rates:

  • Up to 50% of your benefit is taxable if you’re a single filer with a combined income between $25,000 and $34,000
  • Up to 85% of your benefit is taxable if you’re a single filer with a combined income above $34,000
  • Up to 50% of your benefit is taxable if you’re married filing jointly with a combined income between $32,000 and $44,000
  • Up to 85% of your benefit is taxable if you’re married filing jointly with a combined income above $44,000

It’s worth noting that if you’re married but file separate returns, the Social Security Administration says you’ll most likely pay taxes on your benefits.

How Can I Avoid Paying Taxes on Social Security?

If you believe your income will put you over the threshold and require you to pay taxes on Social Security benefits, there are a few things you can do to potentially minimize what you owe. You may only have to worry about this, however, if your adjusted gross income would put you over the limit. Remember that for tax purposes, adjusted gross income (AGI), which is your gross income that accounts for certain deductions (which usually make it lower than your gross income), includes:

  • Wages earned from a job
  • Self-employment earnings
  • Interest earnings
  • Dividends
  • Required minimum distributions (RMD) from qualified retirement accounts, such as a 401(k) or traditional IRA

If you have any types of taxable income that would affect your AGI calculation, the first thing you could try and avoid taxes on Social Security is to contribute to tax-advantaged accounts. Specifically, that includes Roth accounts.

Roth IRAs and Roth 401(k) accounts allow for 100% tax-free distributions in retirement. A Roth IRA is also exempt from required minimum distributions starting at age 72. Withdrawals made in retirement from a Roth IRA wouldn’t affect your AGI calculations when determining which part of your Social Security benefits, if any, are taxable. If you already have a traditional 401(k) at work, you could use a Roth IRA to help offset some of your tax liability in retirement.

You could also consider a Roth IRA conversion if your assets are currently held in a traditional IRA. This allows you to essentially swap your current IRA for a Roth version, allowing you to tap into the benefit of tax-free withdrawals in retirement. But there’s a catch. You’ll owe income tax on any amounts you convert at the time the conversion happens.

Another option for minimizing Social Security taxes is to draw down taxable income as much as possible before taking benefits. Remember, the earliest age at which you can begin taking Social Security is 62. But if you have a 401(k) or IRA, you can begin taking money from those accounts without facing a tax penalty starting at age 59.5.

If you have money in a traditional 401(k) or traditional IRA, you may consider taking money out of those accounts before taking Social Security benefits. That way, you can pay the tax on those amounts and they won’t be factored in for AGI calculations since you’ll have already withdrawn them. You could then put the money into a taxable brokerage account so it can continue to be invested and grow over time.

While RMDs are unavoidable, barring a steep tax penalty, you can take steps to minimize what counts as income. For example, you can withdraw up to $100,000 from a traditional IRA and donate it to charity, with the withdrawn amount counting toward your RMD for the year.

You may also be able to defer RMDs and thus avoid paying tax on Social Security benefits using a qualified longevity annuity contract or QLAC. You can put up to $135,000 in IRA funds into a QLAC and defer taking required minimum distributions up to age 85. At the same time, the QLAC could make income payments back to you, though that can have its own tax implications.

Should You Avoid Paying Taxes on Social Security Benefits?

You might be focused on how to avoid paying taxes on Social Security but it’s important to consider whether you should.

For example, say your initial goal is to begin taking benefits at age 62 while continuing to work part-time. Doing so would mean having to keep a close eye on your income from part-time work to ensure that you don’t tip the threshold for having your benefits taxed. You’d also have to observe the annual earnings limits to avoid having your benefit amount reduced.

It’s worth noting also that taking Social Security prior to reaching your full retirement age would reduce your benefit amount. So, by working and receiving benefits early, you could effectively ding yourself financially three times over through benefit reductions and having to pay taxes on them.

When determining ways to avoid paying taxes on Social Security, it’s important to consider the bigger tax picture. That includes where withdrawals from both tax-advantaged retirement accounts and taxable brokerage accounts fit in. It’s also important to consider your timing when taking benefits. If you’re able to delay Social Security to age 70, for example, you could get 132% of your benefit amount.

Moving money from a taxable account, such as an IRA, to a brokerage account can also trigger problems. While your money can still be invested and grow, you’ll now be subject to capital gains tax on any profits you realize when selling investments. You could use tax-loss harvesting to offset gains with losses you may not escape taxes entirely. Talking to a financial advisor and/or a tax planning professional can help you decide which route to take as you approach Social Security benefits.

The Bottom Line

Social Security benefits are taxable for some, though not all, retirees. If you anticipate having to pay taxes on your benefits in retirement, the time to start planning for that eventuality is now. Just keep in mind that there are some reasons why you may not want to avoid paying taxes on Social Security benefits. By taking proactive measures to mold your financial plan, you can minimize your overall tax liability.

Tips on Taxes

  • Consider talking to a financial advisor about where Social Security benefits fit into your retirement income plans. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area. It takes just a few minutes to get your personalized advisor recommendations online. You can then decide which advisors you’d like to connect with. If you’re ready, get started now.
  • If you’re not retired or receiving benefits yet, you can use a Social Security calculator to estimate how much you might be eligible for. You could then use that number to create a plan for managing taxes on Social Security benefits.

Photo credit: ©iStock.com/BackyardProduction, ©iStock.com/Kriangsak Koopattanakij, ©iStock.com/Jorge Villalba

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

About Our Taxes Expert

Have a question? Ask our Taxes expert.

smartasset.com

A Guide to Estate Planning for Second Marriages

A Guide to Estate Planning for Second Marriages – SmartAsset

Tap on the profile icon to edit
your financial details.

Getting married for a second time following a divorce or the death of your first spouse can feel like a fresh start. But it’s important to consider how joining your life with someone else’s may impact your financial plan, including how you manage your estate. What is fair in a second marriage and estate planning? It can be a difficult question to answer, especially when you or your new spouse are bringing children into the marriage or you plan to have children together at some point. Understanding some of the key financial issues surrounding a second marriage can help with reshaping your estate plan. So can consulting a financial advisor, especially one experienced in estate planning for second marriages.

Key Estate Planning Considerations for Second Marriages

Remarriage can bring up a number of important questions for estate planning. Both spouses should be aware of what the central issues are when updating individual estate plans or creating a new joint one.

Here are some of the most important questions to ask for estate planning in a second marriage:

  • What assets will be left to each of your children?
  • Do you plan to have additional children together and if so, what assets will be preserved for them?
  • Which assets will you each continue to hold individually?
  • Are there any assets that will be retitled in both of your names, such as a first home, vacation home or bank accounts?
  • Are either of you bringing any debts into the marriage or will you incur new debts after the marriage?
  • Do each of you have a will in place that needs to be updated?
  • Or will you establish a new joint will?
  • Besides a will, what other estate planning tools may be necessary, i.e. a trust, advance healthcare directive or power of attorney?
  • Will you continue working with your current financial advisors or choose a new advisor to help you manage your financial plan together?

Asking these kinds of questions can help you each get a sense of the other’s perspective on estate planning. Ideally, you should be having these types of discussions before the marriage takes place to minimize potential conflicts later. This can also help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. But if you’ve already remarried, it may be a good idea to have this discussion sooner, rather than later.

At the same time, it can also help to complete an inventory of your assets and liabilities so you both know what you’re bringing into the marriage. This can help with managing the distribution side of your estate plan later as well as planning for how any debts may need to be handled should one of you pass away.

Estate Planning for Second Marriages With Children

Having kids can add a wrinkle to your estate planning efforts when you’re getting remarried. For example, you may wish to leave certain assets to your children while your new spouse may want your assets to be equally distributed among his or her children as well as yours. Or there may be questions over who would assume control over assets on behalf of minor children should one of you die.

When there are children in the picture, it’s important to consider any provisions you’ve already made for them in a will or trust and how that might affect any assets your spouse stands to inherit. You may need to update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your children’s inheritance. Provisions may also need to be made for any children you plan to have if you’re still relatively young when a second marriage occurs.

It’s important to consider the age of your children when deciding what is fair in a second marriage and estate planning. If you have adult children, for example, it could make sense to gift some of their inheritance to them during your lifetime. But if you have minor children, you and your new spouse would need to decide who should be in charge of managing their inheritance on their behalf if one of you dies prematurely.

Check Beneficiary Designations

Assets that already have a named beneficiary may need to be updated if you’re remarrying. For example, if you named your previous spouse as beneficiary to your 401(k), individual retirement account or life insurance policy, you’d likely want to change the beneficiary to your new spouse or to a trust you’ve set up so that your former spouse can’t collect on those assets.

You should also consider other assets, such as bank accounts or real estate, should be titled. Adding your new spouse to your home as a joint tenant with right of survivorship may seem like the right move for keeping things simple in your estate plan. But doing so means that if something happens to you, your spouse will automatically assume full ownership of the home. They could then do with it as they wish, regardless of what you might have specified in a will or trust.

Look for Gaps in Your Estate Plan

When deciding what is fair in a second marriage and estate planning, consider where the gaps might exist that could leave your assets in jeopardy. Not having a will, for example, could be problematic if you pass away. Without a will, your state’s inheritance laws would be applied – not your wishes. That means your assets may not go to your children or other heirs as you’d like them to.

A trust can also be a useful tool in estate planning for passing on assets to your spouse or children as well as managing estate and inheritance taxes. If either of you are bringing considerable assets into a second marriage or you want to minimize the potential for conflicts over asset distribution later, setting up one or more trusts could be a good idea. Talking to an estate planning attorney can help you decide whether a trust is necessary and if so, which type of trust to set up.

Also, consider whether you have sufficient life insurance coverage to provide for the surviving spouse and any children associated with the marriage. Both spouses in a second marriage may need to have life insurance coverage, particularly if one person is the primary breadwinner while the other is the primary caregiver for children. Checking your existing life insurance policies and talking to your insurance agent can help you determine whether what you have is enough or if more coverage is necessary.

Finally, think about what you may need in terms of end-of-life planning. Long-term care insurance, for instance, can help pay for nursing home costs so that your spouse or either of your children aren’t left in the lurch financially. An advance healthcare directive and a power of attorney can ensure that your wishes are carried out in end-of-life situations where you’re unable to make financial or medical care decisions on your own behalf.

The Bottom Line

Deciding what’s fair in a second marriage and estate planning can be tricky and it’s important to get the conversation started early. Understanding what the biggest challenges of estate planning in a second marriage are can help you work together to shape a plan that you can both be satisfied with. And if you have adult children, it’s important to keep them in the loop so they understand how a second marriage may impact their inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the implications of a second marriage and what it might mean for your portfolio. You and your spouse may choose to maintain your current advisors or find a new advisor to work with together. In either case, finding the right professional to work with doesn’t have to be hard. SmartAsset’s financial advisor matching tool can offer personalized recommendations for professional advisors in your local area, in just minutes. If you’re ready, get started now.
  • Trusts can be a useful estate planning tool for couples, including those who are getting married for a second time. A marital trust, for example, goes into effect when the first spouse dies. This can be helpful for passing assets on to a surviving spouse while minimizing estate taxes. You may want to create this type of trust, along with a second living trust set up specifically for your children, to manage assets more efficiently while also protecting them from creditors.

©iStock.com/Image Source, ©iStock.com/DNY59, ©iStock.com/cunfek

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

Categories

Source: smartasset.com

Simple Trusts vs. Complex Trusts

Simple Trusts vs. Complex Trusts – SmartAsset

Tap on the profile icon to edit
your financial details.

A trust can be a useful estate planning tool, in addition to a will. You can use a trust to remove assets from probate, potentially minimize estate and gift taxes and ensure that assets are managed on behalf of beneficiaries according to your wishes. There are different types of trusts you can establish and some are more specialized than others. Knowing how these broad categories of trusts compare can help with choosing the right option. When it comes to estate planning, including whether to create a trust, a financial advisor can help you make the most informed decision possible.

What Is a Trust?

A trust is a type of legal entity that can be created in accordance with your state laws to manage your assets. The person who creates a trust is called a grantor and they have the right to transfer assets into the trust. They can also choose one or more trustees to oversee the trust and manage the assets within it.

The trustee’s job is to manage assets according to the grantor’s specifications on behalf of one or more trust beneficiaries. For example, you might set up a trust to hold assets that you want to be distributed among your three children when you pass away. Or you might choose your favorite charitable organization to be a beneficiary of your trust.

There are many different kinds of trusts and they can be categorized in different ways. For instance, a revocable trust can be changed during the grantor’s lifetime. If you have this type of trust and you want to add assets to it or change the beneficiaries, you can do so while you’re still living. An irrevocable trust, on the other hand, involves a permanent transfer of assets.

Trusts can also be categorized as grantor or non-grantor. In a grantor trust, the trust creator retains certain powers over the trust, including rights to the trust’s assets and income. Trust assets may be included in the trust creator’s estate when they pass away. With a non-grantor trust the trust creator has no interest or control over trust assets. Trust assets are generally excluded from the trust creator’s estate at their death.

Benefits of Trusts in Estate Planning

Trusts can be used inside an estate plan to perform a number of functions. For example, you might create a trust to:

  • Pass on specific assets to your chosen beneficiaries
  • Ensure that certain assets aren’t subject to the probate process
  • Manage estate and gift tax liability
  • Protect assets from creditors
  • Ensure that a special needs beneficiary is cared for when you’re gone
  • Receive the proceeds of a life insurance policy when you pass away

Some of these scenarios may call for a simple trust, while others may require a more specialized trust. One thing that’s important to keep in mind is how each one is treated for tax purposes when creating a simple vs. complex trust.

Simple Trust, Explained

A simple trust is a type of non-grantor trust. To be classified as a simple trust, it must meet certain criteria set by the IRS. Specifically, a simple trust:

  • Must distribute income earned on trust assets to beneficiaries annually
  • Make no principal distributions
  • Make no distributions to charity

With this type of trust, the trust income is considered taxable to the beneficiaries. That’s true even if they don’t withdraw income from the trust. The trust reports income to the IRS annually and it’s allowed to take a deduction for any amounts distributed to beneficiaries. The trust itself is required to pay capital gains tax on earnings.

Complex Trust, Explained

A complex trust also has certain criteria it must meet. In order for a trust to be complex, it must do one of the following each year:

  • Refrain from distributing all of its income to trust beneficiaries
  • Distribute some or all of the principal assets in the trust to beneficiaries
  • Make distributions to charitable organizations

Any trust that doesn’t meet the guidelines to qualify as a simple trust is considered to be a complex trust. Complex trusts can take deductions when computing taxable income for the year. This deduction is equal to the amount of any income the trust is required to distribute for the year.

There are also some other rules to keep in mind with complex trusts. First, no principal can be distributed unless all income has been distributed for the year first. Ordinary income takes first place in the distribution line ahead of dividends and dividends have to be distributed ahead of capital gains. Once those conditions are met, then the principal can be distributed. And all distributions have to be equitable for all trust beneficiaries who are receiving them.

Simple vs. Complex Trust: Which Is Better?

When it comes to simple and complex trusts, one isn’t necessarily better than the other. The type of trust that ultimately works best for you can hinge on what you need the trust to do for you.

A simple trust offers the advantage of being fairly straightforward when it comes to how assets and income can be distributed and how those distributions are taxed. A complex trust, on the other hand, could offer more flexibility in terms of estate planning if you have a sizable estate or numerous beneficiaries.

When comparing trust options, consider whether you want to retain control or an interest in the assets that are transferred to it. If you choose a simple or complex trust, you’re choosing a non-grantor trust which means you’ll no longer have an interest in the trust assets. Talking to an estate planning attorney or trust professional can help you decide which type of trust may work best for your financial situation.

The Bottom Line

The main difference between a simple vs. complex trust lies in how income and assets are distributed and how those distributions are taxed. Whether it makes sense to establish a simple vs. complex trust can depend on the size of your estate, the nature of the assets you want to include and your wishes for managing those assets. It’s important to understand the tax rules before creating either type of trust as well as how a trust fits into your larger estate plan.

Tips for Estate Planning

  • Consider talking to a financial advisor about whether it makes sense to use a trust to plan ahead for the distribution of assets or to manage estate and gift taxes. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with a financial advisor in your local area. It takes just a few minutes to get your personalized recommendations online. If you’re ready, get started now.
  • While trusts can offer numerous benefits, creating one doesn’t necessarily mean you don’t also need a last will and testament. You can use a will to distribute assets that you don’t want to include in a trust. Or you could create a pour-over will to transfer assets into a trust.

Photo credit: ©iStock.com/skynesher, ©iStock.com/Lisa5201, ©iStock.com/scyther5

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Read next article

Categories

Source: smartasset.com