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 trusteeâs job is to manage assets according to the grantorâs 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 grantorâs 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 youâre 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 trustâs assets and income. Trust assets may be included in the trust creatorâs 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 creatorâs 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 arenât 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 youâre 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 thatâs 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. Thatâs true even if they donât withdraw income from the trust. The trust reports income to the IRS annually and itâs 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 doesnât 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 isnât 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, youâre choosing a non-grantor trust which means youâll 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. Itâs 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 donât have a financial advisor yet, finding one doesnât have to be complicated. SmartAssetâs 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 youâre ready, get started now.
While trusts can offer numerous benefits, creating one doesnât necessarily mean you donât also need a last will and testament. You can use a will to distribute assets that you donât want to include in a trust. Or you could create a pour-over will to transfer assets into a trust.
When creating an estate plan, one of the most basic documents you may wish to include is a will. If you have a more complicated estate, you might also need to have a trust in place. Both a will and a trust can specify how you want assets distributed among your beneficiaries. When making those decisions, itâs important to distinguish between per stirpes and per capita distributions. These are two terms youâre likely to come across when shaping your estate plan. Hereâs a closer look at what per stirpes vs. per capita means.
Per Stirpes, Explained
If youâve never heard the term per stirpes before, itâs a Latin phrase that translates to âby branchâ or âby class.â When this term is applied to estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants.
A per stirpes designation allows the descendants of a beneficiary to keep inherited assets within that branch of their family, even if the original beneficiary passes away. Those assets would be equally divided between the survivors.
Hereâs an example of how per stirpes distributions work for estate planning. Say that you draft a will in which you designate your adult son and daughter as beneficiaries. You opt to leave your estate to them, per stirpes.
If you pass away before both of your children, then they could each claim a half share of your estate under the terms of your will. Now, assume that each of your children has two children of their own and your son passes away before you do. In that scenario, your daughter would still inherit a half share of the estate. But your sonâs children would split his half of your estate, inheriting a quarter share each.
Per stirpes distributions essentially create a trickle-down effect, in which assets can be passed on to future generations if a primary beneficiary passes away. A general rule of thumb is that the flow of assets down occurs through direct descendants, rather than spouses. So, if your son were married, his children would be eligible to inherit his share of your estate, not his wife.
Per Capita, Explained
Per capita is also a Latin term which means âby head.â When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries are still living at the time you pass away. If youâre writing a will or trust as part of your estate plan, that could include the specific beneficiaries you name as well as their descendants.
So again, say that you have a son and a daughter who each have two children. These are the only beneficiaries you plan to include in your will. Under a per capita distribution, instead of your son and daughter receiving a half share of your estate, they and your four grandchildren would each receive a one-sixth share of your assets. Those share portions would adjust accordingly if one of your children or grandchildren were to pass away before you.
Per Stirpes vs. Per Capita: Which Is Better?
Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend largely on how you want your assets to be distributed after youâre gone. It helps to consider the pros and cons of each option.
Per Stirpes Pros:
Allows you to keep asset distributions within the same branch of the family
Eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away
Can help to minimize the potential for infighting among beneficiaries since asset distribution takes a linear approach
Per Stirpes Cons:
Itâs possible an unwanted person could take control of your assets (i.e., the spouse of one of your children if he or she is managing assets on behalf of a minor child)
Per Capita Pros:
You can specify exactly who you want to name as beneficiaries and receive part of your estate
Assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away
You can use this designation to pass on assets outside of a will, such as a 401(k) or IRA
Per Capita Cons:
Per capita distributions could trigger generation-skipping tax for grandchildren or other descendants who inherit part of your estate
Deciding whether it makes more sense to go with per stirpes vs. per capita distributions can ultimately depend on your personal preferences. Per stirpes distribution is typically used in family settings when you want to ensure that individual branches of the family will benefit from your estate. On the other hand, per capita distribution gives you control over which individuals or group of individuals are included as beneficiaries.
Review Beneficiary Designations Periodically
If you have a will and/or a trust, you may have named your beneficiaries. But itâs possible that you may want to change those designations at some point. If you named your son and his wife in your will, for example, but theyâve since gotten divorced you may want to update the will with a codicil to exclude his ex-wife. Itâs also helpful to check the beneficiary designations on retirement accounts, investment accounts and life insurance policies after a major life change.
For example, if you get divorced then you may not want your spouse to be the beneficiary of your retirement accounts. Or if they pass away before you, you may want to update your beneficiary designations to your children or grandchildren.
The Bottom Line
Per stirpes and per capita distribution rules can help you decide what happens to your assets after you pass away. But they both work very differently. Understanding the implications of each one for your beneficiaries, including how they may be affected from a tax perspective, can help you decide which course to take.
Tips for Estate Planning
Consider talking to a financial advisor about how to get started with estate planning and what per stirpes vs. per capita distributions might mean for your heirs. If you donât have a financial advisor yet, finding one doesnât have to be complicated. SmartAssetâs financial advisor matching tool can help you connect, within minutes, with a professional advisor in your local area. If youâre ready, get started now.
While itâs always a good idea to consult with a financial advisor about estate planning, you can take a do-it-yourself approach to writing a will by doing it online. Hereâs what you need to know about digital DIY will writing.
A pay cut, whether big or small, can catch you off guardâand throw your finances into disarray. While a salary cut is different than a layoff, it can leave you feeling just as uncertain.
How do you deal with a pay cut and deal with this uncertainty?
There are strategies to help you navigate both the emotional and financial challenges of this situation. One key element? A budget. Whether you need to create a budget from scratch or adjust the budget you already have, doing so can help you get back on your feet and set yourself up for success.
Hereâs a rundown of budgeting tips to survive a pay cut to keep your finances intact:
Ask your employer for the parameters of the income reduction or salary cut
First, keep in mind that a pay cut typically isnât personal. According to Scott Bishop, an executive vice president of financial planning at a wealth management firm, businesses often cut salaries to preserve their cash reserves while they stabilize their cash flow or weather some larger economic impact, like the coronavirus pandemic.
Secondly, make sure you understand the full scope of the salary cut. Bishop suggests you ask your employer questions like:
What is the amount of pay being cut?
Why is pay being cut?
When will the reduction begin, and how long will it last?
Will any of the following be affected?
401(k) match
Healthcare or insurance costs
Employer-sponsored training or continuing education opportunities
Hours or job responsibilities
What are the long-term plans to improve the companyâs financial situation?
Once youâve painted the full scope of what and why, you can determine how to handle the pay cut.
âFor some people who are big savers, it might not be a big deal,â Bishop says. âBut for some people who live paycheck to paycheck, itâs going to be significant.â
Settle any anxieties that might come with a salary cut
If you are dealing with financial stress, try settling your mind and emotions so you can make decisions with a clear head.
âThe emotional and mental toll can be one of the hardest parts,â says Lindsay Dell Cook, president and founder of Budget Babble LLC, which provides personal finance and small business financial counseling. âIt gets even harder if there are others depending on your income who are also financially stressed.â
When sharing the news with family members who may also be impacted, Cook suggests the following:
Find the right time. Pick a time of day during which everyone will have the highest mental capacity for the conversation. âFor instance, I am a morning person, so if my husband told me at bedtime about a pay cut, I would have a much harder time processing that information,â Cook says.
Frame it as a brainstorming session. Bring ideas of what you can do to handle the pay cut, such as a list of expenses you can cut or a plan for how you can make extra income.
Empathize with the other person. âReduced income is not easy for anyone. Everyone responds to financial anxiety differently,â Cook says.
“If youâre unable to maintain your previous level of saving after a pay cut, try to save at a smaller scale for goals like retirement and your emergency fund.”
Create or adjust your budget to handle a pay cut
Once you understand the salary cut and have informed your family or roommates, itâs time to crunch the numbers. Thatâs the first step to figuring out how to save money after a pay cut.
If you donât have a budget, find a budgeting system that fits your needs. Learning how to effectively budget takes time and practice, so be patient with yourself if youâre new to this. Cook suggests reading up on how to create a budget.
One system to consider is the 50-20-30 budget rule, which has you break your spending into three simple categories. If you prefer the aid of technology when determining how to handle a pay cut, there are many budgeting and spending apps that can help you manage your money.
Whether youâre handling a pay cut by creating a new plan or modifying an existing budget, Bishop suggests taking the following steps:
Add up your income. Combine your new salary with your partnerâs pay, and factor in any additional income streams like from dividends or savings account interest. Tally up the total.
List your expenses. Be sure to include essential expenses (e.g., housing, food, clothing, transportation) and nonessential expenses (e.g., entertainment, takeout, hobbies).
Look through your bank statement online and your past receipts so all expenses are included.
Account for infrequent expenses such as gifts, car maintenance or home repairs.
Track the amount you save. Note any regular savings contributions you make, such as to an emergency fund or retirement account.
Get your partnerâs buy-in. What needs do they have, and what is nonnegotiable in the budget for each of you?
Cut expenses with budgeting tips to survive a pay cut
If youâve crunched the numbers and found that your expenses add up to more than your new income, youâll need to find ways to cut back. Here are some tips on trimming your spending to survive a salary cut:
Cut back on takeout meals and stick to a strict grocery list or food budget, Cook suggests.
Avoid large discretionary purchases like a car during the duration of your pay cut, Bishop says.
Negotiate with your utility companies or ask if theyâre providing forbearance options, Bankrate suggests. You can also ask your car insurance provider if it has additional savings for customers who are driving less, according to Bankrate.
If you think you might fall behind on rent or mortgage payments as youâre handling a pay cut, both Cook and Bishop agree that early, proactive communication is key. Be honest with your landlord or mortgage company. âDonât wait until youâre past due,â Bishop says.
The same applies for other financial obligations, such as your credit card bill. Youâll likely find those companies are willing to work with you through the rough patch.
Cook also suggests you look into municipal assistance programs as a budgeting tip to survive a pay cut. âMany cities have established rental assistance funds to help taxpayers meet their obligations during the pandemic,â she says.
Continue to save money after a pay cut
As you consider how to cut costs, take time to think about your long-term savings goals and how to save money after a pay cut. By cutting discretionary spending through your new budgetâwhat Bishop calls âcutting the fatââyou may have freed up income to maintain your good saving habits during this time. He says itâs important to do that before slowing down on savings.
If youâre unable to maintain your previous level of saving after a pay cut, Bishop suggests you try to save at a smaller scale for goals like retirement and your emergency fund.
As you work to save money after a pay cut, Cook recommends setting up automatic transfers to your savings account every payday based on the amount youâre able to put towards savings in your new budget.
âIf your savings account is at the same bank as your checking account, you can transfer those funds fairly easily,â she says. âSo the worst-case scenario is that you put too much money in savings and have to bring some back to checking. The hope, however, is that some or all of those funds transferred to savings remain there since that money is no longer in your checking account just waiting to be spent.â
Seek extra income sources after a salary cut
You should explore additional sources of income if you need more cash to cover essential expenses or if youâre looking for ways to save money after a pay cut.
Determine if youâre eligible for benefits based on the reason for your pay cut. Cook recommends applying for unemployment if you think you may qualify. For example, some workers who experienced pay cuts due to the coronavirus pandemic were eligible for unemployment benefits. The details vary by state, so visit your stateâs unemployment insurance program website to learn what benefits may apply to you.
If you or your partner have some extra time on your hands, you can consider bringing in income through a side hustle to help you handle your pay cut. Bishop suggests using free or low-cost online video tutorials to boost your existing skills to make your side hustle more effective.
Cook also recommends getting creative. âAre there things you could sell to make some extra cash?â she says.
If you are unable to find additional sources of income, but you have an emergency fund, consider whether you should dip into that. “Your savings are there for a reason, and sometimes you need to use it,” Cook says. “That is okay.”
Stick to your updated budget to navigate how to handle a pay cut
Making your budget part of your daily routine is a budgeting tip to survive a pay cut, and it will help you save money after a pay cut.
âBuild rewards into your budget, such as ordering out every other week if you successfully saved money after your pay cut.â
âIf youâre checking it daily, there are no surprises,â Cook says. You can do this by logging into your bank account and making sure your spending and expenses align with your digital or written budget document.
âIf you see that your spending is high, your mind will typically start thinking through [future] transactions more thoroughly to vet if those expenses are really necessary,â Cook says.
Donât forget the fun side of accountability: rewards for meeting your goals. Build rewards into your budget, Bishop says, such as ordering out every other week if you successfully saved money after your pay cut.
Lastly, donât try to go it alone. Enlist others in your budgeting journey, Cook suggests. Make up a monthly challenge to cut spending from a specific category in your new budget and ask your partner or a friend to do it with you. For example, see if you and the other participants can go a full month without buying clothes or ordering takeout. Compare notes at the end of the month and see how much youâve saved.
Another idea? Try connecting with a budget-minded community on social media to get inspired.
Take these steps after the salary cut is over
Once youâve handled the pay cut and your regular pay is restored, donât give up on your newfound budgeting discipline. Instead, focus on building up emergency savings before you go back to your normal spending.
Bishop recommends starting with enough savings to cover three to six months of expenses. âIf you spend $3,000 a month, that means you need to have $9,000 to $18,000 saved.â
This might also be the time to revisit your budget and build a more extensive financial plan with a CPA or financial advisor to account for all of your future goals. Bishop says that these can include a target retirement date and lifestyle; your estate planning, such as a will, trust and power of attorney; saving for a childâs college; and purchasing a home.
Bishop says reminding yourself why youâre budgeting and focusing on your financial goals can be similar to motivating yourself to stay physically fit. Goal-based motivation can keep you accountable.
Remember: You can survive a salary cut
Handling a pay cut is never easy, but you can get through this time. While youâre in the thick of it, focus on budgeting tips to survive a pay cut and staying positive. Seek help from others and follow up with your employer to make sure you are aware of any changing details regarding the pay cut.
Most of all, try to keep a long-term outlook. âRemember that it will not always be this way,â Cook says.
If youâre considering whether or not to tap into your savings to handle a pay cut, read on to determine when to use your emergency fund.
The post How to Handle a Pay Cut: Budgeting in Uncertain Times appeared first on Discover Bank – Banking Topics Blog.
New insurance agents can get a grounding in the basic skills, such as underwriting, needed to succeed in the field by becoming a Life Underwriter Training Council Fellow (LUTCF). After completing the required training, agents will have greater expertise in prospecting, selling, practice management as well as insight into practice specialties including life and health insurance, employee benefits and annuities. Having a LUTCF also can aid new agents in acquiring a job with an agency and in marketing themselves to prospective clients.
The LUTCF is overseen by the National Association of Insurance and Financial Advisors (NAIFA). The training and testing are provided by education company Kaplan through its College for Financial Planning division.
LUTCF Certification Requirements
The core of the certification requirements for the LUTCF is a set of three courses. Each course consists of eight weeks of instruction followed by a week for review and testing.
The first course is an introduction to life insurance and managing a life insurance practice. It covers business planning, ethics, life insurance product basics, risk management, prospecting, selling skills and financial planning.
The second course goes deeper into life insurance as well as annuities, mutual funds and insurance for health, disability, long-term care, group coverage and property and casualty. Risk management, retirement and estate planning are among the subjects covered in the third course.
The third course deals with risk management applications. It covers retirement and estate planning as well as special situations.
The courses are available as self-paced prerecorded lectures. They are also taught live and via interactive online classes. After completing each of the three courses, students must pass a two-hour test. To pass, they must correctly answer 70% of the 50 questions on each test.
The training costs $950 per course for a total of $2,850. The only prerequisite for the LUTCF is to belong to NAIFA, which has a sliding membership fee scale. People in their first year in financial services pay $10 to belong to NAIFA. The fee increases annually until it reaches $56 a year after a member has five years of experience in the field.
After receiving the designation, LUTCF designees can renew it by paying a $50 renewal fee every two years. As part of the renewal process, they also have to demonstrate that they have completed three hours of ethics continuing education every two years. In addition, LUTCF holders must agree to follow standards of professional conduct and be subject to a disciplinary process.
LUTCF Holder Jobs
LUTCF seekers are usually insurance agents at the start of their careers. They may be interested in obtaining the designation as a way to convince potential employers of their commitment and knowledge about the life insurance industry. Having the LUTCF initials on a business card is also seen as an aid in marketing to prospects. The LUTCF is an optional certification and does not confer any specific powers or privileges on holders.
The designation has been around since 1984 and approximately 70,000 people have earned an LUTCF during that time.
Comparable Certifications
There are only a few entry-level certificates available to life insurance agents. In addition to the LUTCF, new agents can choose from:
Financial Services Certified Professional (FSCP) is offered by the American College of Financial Services, which originally co-sponsored the LUTCF with NAIFA. In 2013 the organizations ended their association and the American College of Financial Service began offering the FSCP. It requires passing seven courses on financial services and ethics topics at a combined cost of $3,230.
Registered Financial Associate (RFA) is a designation from the International Association of Registered Financial Consultants. It is offered to agents and other financial professionals who have already received a life insurance license, Series 65 securities license, bachelor degree in a related field or any of a number of professional designations, including a LUTCF. RFAs also have to pay a $250 fee. The only requirement other than that is to pass an examination on the organizationâs code of ethics for financial professionals.
Bottom Line
The Life Underwriter Training Council Fellow (LUTCF) certification is one of the first designations sought by beginning life insurance agents. To get one, students have to learn about life and other forms of insurance, mutual funds, annuities, employee benefits and financial advising, in addition to managing a life insurance business, prospecting and selling.
Tips on Insurance
A consumer considering purchasing life insurance can increase the chances of making a good decision by having a relationship with a trusted and experienced financial advisor. Finding the right financial advisor that fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in five minutes. If youâre ready to be matched with local advisors that will help you achieve your financial goals, get started now.
Entry-level designations for financial services professionals like the LUTCF indicate that an advisor is interested in learning about the field and following best practices. More advanced certifications such as Chartered Life Underwriter and Certified Financial Planner are likely to indicate that a professional is a more experienced and well-informed source for financial advice.
Life in the military offers some distinct experiences compared to civilian life, and that includes your budget and finances. The pre-deployment process can feel overwhelming, especially when youâre organizing your money and bills.Â
Itâs important you provide your family with everything they need to keep you and any dependents comfortable and stable. This means gathering paperwork, making phone calls to service providers, creating new budgets, and organizing your estate. The more you prepare ahead of time, the less you have to worry about the state of your investments and finances when you return home.Â
To help make the process easier, weâve gathered everything you need to know for deployment finances. Read on or jump to a specific category below:
Pre-Deployment Needs
Review Your Estate
Reassign Financial Responsibilities
Update Your Services
Build a Budget
Prepare a Deployment Binder
Deployment Needs
Protect Yourself From Fraud
Adjust Your Savings
Financial Assistance
Post-Deployment Needs
Update Your Budget
Pay Off Debt
Review Legal Documents
Before Your Deployment
Thereâs a lot of paperwork and emotions involved in preparing for deployment. Make sure you take plenty of time for yourself and your loved ones, then schedule time to organize your finances for some peace of mind.Â
investments, and dependents. Itâs an important conversation to have with your partner and establishes:
Power of attorney
Living will
Last will and testament
Long-term care
Life insurance
Survivor benefits
Funeral arrangements
Anyone with property, wealth, or dependents should have some estate planning basics secured. These documents will protect your wishes and your family in the event you suffer serious injury. There are several military resources to help you prepare your estate:
Defense Finance And Accounting Servicesâ Survivor Benefit Plan and Reserve Component Survivor Benefit Plan
Department Of Defenseâs Military Funeral Honors Pre-arrangementÂ
Service Memberâs Group Life Insurance
Veterans Affairs Survivorâs Benefits
The Importance Of Estate Planning In The Military
Survivor Benefits Calculator
Servicemembers Civil Relief Act (SCRA) allows you to cancel a housing or auto lease, cancel your phone service, and avoid foreclosure on a home you own without penalties. Additionally, you can reduce your debt interest rates while youâre deployed, giving you a leg up on debt repayment or savings goals. Learn more about the SCRA benefits below:
Terminating Your Lease For Deployment
SCRA Interest Rate Limits
SCRA Benefits And Legal Guidance
Build a Deployment Budget
Your pay may change during and after deployment, which means itâs time to update your budget. Use a deployment calculator to estimate how your pay will change to get a foundation for your budget.Â
Typically, we recommend you put 50 percent of your pay towards needs, like rent and groceries. If you donât have anyone relying on your income, then you should consider splitting this chunk of change between your savings accounts and debt.Â
Make sure you continue to deposit at least 20 percent of your pay into savings, too. Send some of this towards an emergency fund, while the rest can go towards your larger savings goals, like buying a house and retirement.Â
Use these resources to help calculate your goals and budgets, as well as planning for your taxes:
My Army Benefits Deployment Calculator
My Army Benefits Retirement Calculator
Mint Budget Calculator
IRS Deployed Veteran Tax Extension
IRS Military Tax Resources
Combat Zone Tax Exclusions
Prepare a Deployment Binder
Itâs best to organize and arrange all of your documents, information, and needs into a deployment binder for your family. This will hold copies of your estate planning documents, budget information, and additional contacts and documents.Â
Make copies of your personal documents, like birth certificates, contracts, bank information, and more. You also want to list important contacts like family doctors, your petâs veterinarian, household contacts, and your power of attorney.Â
Once you have your book ready, give it to your most trusted friend or family member. Again, this point of contact will have a lot of information about you that needs to stay secure. Finish it off with any instructions or to-dos for while youâre gone, and your finances should be secure for your leave.Â
While Youâre Deployed
Though most of your needs are taken care of before you deploy, there are a few things to settle while youâre away from home.Â
Romance and identity scams are especially popular and can cost you thousands.Â
Social Media Scams To Watch For
Romance Scam Red Flags
Military Scam Warning Signs
Adjust Your SavingsÂ
Since you wonât be responsible for as many bills, and you may have reduced debt interest rates, deployment is the perfect time to build your savings.
While youâre deployed, you may be eligible for the Department of Defenseâs Savings Deposit Program (SDP), which offers up to 10 percent interest. This is available to service members deployed to designated combat zones and those receiving hostile fire pay.
Military and federal government employees are also eligible for the Thrift Savings Plan. This is a supplementary retirement savings to your Civil Service Retirement System plan.
Savings Deposit Program
Thrift Savings Plan Calculator
Civil Service Retirement System
Military Saves Resources
Additional Resources for Financial Assistance
Deployment can be a financially and emotionally difficult time for families of service members. Make sure you and your family have easy access to financial aid in case they find themselves in need.Â
Each individual branch of the military offers its own family and financial resources. You can find additional care through local support systems and national organizations, like Military OneSource and the American Legion.Â
Family Readiness System
Navy-marine Corps Relief Society
Air Force Aid Society
Army Emergency Relief
Coast Guard Mutual Assistance
Military Onesourceâs Financial Live Chat
Find Your Military And Family Support Center
Emergency Loans Through Military Heroes Fund Foundation Programs
The American Legion Family Support Network
After You Return Home
Coming home after deployment may be a rush of emotions. Relief, exhaustion, excitement, and lots of celebration are sure to come with it. Thereâs a lot to consider with reintegration after deployment, and that includes taking another look at your finances.Â
Update Your Budget
Just like before deployment, you should update your budget to account for your new spending needs and pay. Itâs time to reinstate your car insurance, find housing, and plan your monthly grocery budget.Â
After a boost in savings while deployed, you may want to treat yourself to something nice â which is totally okay! The key is to decide what you want for yourself or your family, figure if itâs reasonable while maintaining other savings goals, like your rainy day fund, and limit other frivolous purchases. Now is not the time to go on a spending spree â itâs best to invest this money into education savings, retirement, and other long-term plans.
In addition to your savings goals, make sure youâre prepared to take care of yours and your familyâs health. Prioritize your mental health after deployment and speak with a counselor, join support groups, and prepare for reintegration. Your family and children may also have a hard time adjusting, so consider their needs and seek out resources as well.Â
FTC | NFCCÂ
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Taking care of aging parents is something you may need to plan for, especially if you think one or both of them might need long-term care. One thing you may not know is that some states have filial responsibility laws that require adult children to help financially with the cost of nursing home care. Whether these laws affect you or not depends largely on where you live and what financial resources your parents have to cover long-term care. But itâs important to understand how these laws work to avoid any financial surprises as your parents age.
Filial Responsibility Laws, Definition
Filial responsibility laws are legal rules that hold adult children financially responsible for their parentsâ medical care when parents are unable to pay. More than half of U.S. states have some type of filial support or responsibility law, including:
Alaska
Arkansas
California
Connecticut
Delaware
Georgia
Indiana
Iowa
Kentucky
Louisiana
Massachusetts
Mississippi
Montana
Nevada
New Jersey
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Dakota
Tennessee
Utah
Vermont
Virginia
West Virginia
Puerto Rico also has laws regarding filial responsibility. Broadly speaking, these laws require adult children to help pay for things like medical care and basic needs when a parent is impoverished. But the way the laws are applied can vary from state to state. For example, some states may include mental health treatment as a situation requiring children to pay while others donât. States can also place time limitations on how long adult children are required to pay.
When Do Filial Responsibility Laws Apply?
If you live in a state that has filial responsibility guidelines on the books, itâs important to understand when those laws can be applied.
Generally, you may have an obligation to pay for your parentsâ medical care if all of the following apply:
One or both parents are receiving some type of state government-sponsored financial support to help pay for food, housing, utilities or other expenses
One or both parents has nursing home bills they canât pay
One or both parents qualifies for indigent status, which means their Social Security benefits donât cover their expenses
One or both parents are ineligible for Medicaid help to pay for long-term care
Itâs established that you have the ability to pay outstanding nursing home bills
If you live in a state with filial responsibility laws, itâs possible that the nursing home providing care to one or both of your parents could come after you personally to collect on any outstanding bills owed. This means the nursing home would have to sue you in small claims court.
If the lawsuit is successful, the nursing home would then be able to take additional collection actions against you. That might include garnishing your wages or levying your bank account, depending on what your state allows.
Whether youâre actually subject to any of those actions or a lawsuit depends on whether the nursing home or care provider believes that you have the ability to pay. If youâre sued by a nursing home, you may be able to avoid further collection actions if you can show that because of your income, liabilities or other circumstances, youâre not able to pay any medical bills owed by your parents.
Filial Responsibility Laws and Medicaid
While Medicare does not pay for long-term care expenses, Medicaid can. Medicaid eligibility guidelines vary from state to state but generally, aging seniors need to be income- and asset-eligible to qualify. If your aging parents are able to get Medicaid to help pay for long-term care, then filial responsibility laws donât apply. Instead, Medicaid can paid for long-term care costs.
There is, however, a potential wrinkle to be aware of. Medicaid estate recovery laws allow nursing homes and long-term care providers to seek reimbursement for long-term care costs from the deceased personâs estate. Specifically, if your parents transferred assets to a trust then your stateâs Medicaid program may be able to recover funds from the trust.
You wouldnât have to worry about being sued personally in that case. But if your parents used a trust as part of their estate plan, any Medicaid recovery efforts could shrink the pool of assets you stand to inherit.
Talk to Your Parents About Estate Planning and Long-Term Care
If you live in a state with filial responsibility laws (or even if you donât), itâs important to have an ongoing conversation with your parents about estate planning, end-of-life care and where that fits into your financial plans.
You can start with the basics and discuss what kind of care your parents expect to need and who they want to provide it. For example, they may want or expect you to care for them in your home or be allowed to stay in their own home with the help of a nursing aide. If thatâs the case, itâs important to discuss whether thatâs feasible financially.
If you believe that a nursing home stay is likely then you may want to talk to them about purchasing long-term care insurance or a hybrid life insurance policy that includes long-term care coverage. A hybrid policy can help pay for long-term care if needed and leave a death benefit for you (and your siblings if you have them) if your parents donât require nursing home care.
Speaking of siblings, you may also want to discuss shared responsibility for caregiving, financial or otherwise, if you have brothers and sisters. This can help prevent resentment from arising later if one of you is taking on more of the financial or emotional burdens associated with caring for aging parents.
If your parents took out a reverse mortgage to provide income in retirement, itâs also important to discuss the implications of moving to a nursing home. Reverse mortgages generally must be repaid in full if long-term care means moving out of the home. In that instance, you may have to sell the home to repay a reverse mortgage.
The Bottom Line
Filial responsibility laws could hold you responsible for your parentsâ medical bills if theyâre unable to pay whatâs owed. If you live in a state that has these laws, itâs important to know when you may be subject to them. Helping your parents to plan ahead financially for long-term needs can help reduce the possibility of you being on the hook for nursing care costs unexpectedly.
Tips for Estate Planning
Consider talking to a financial advisor about what filial responsibility laws could mean for you if you live in a state that enforces them. If you donât have a financial advisor yet, finding one doesnât have to be a complicated process. SmartAssetâs financial advisor matching tool can help you connect, in just minutes, with professional advisors in your local area. If youâre ready, get started now.
When discussing financial planning with your parents, there are other things you may want to cover in addition to long-term care. For example, you might ask whether theyâve drafted a will yet or if they think they may need a trust for Medicaid planning. Helping them to draft an advance healthcare directive and a power of attorney can ensure that you or another family member has the authority to make medical and financial decisions on your parentsâ behalf if theyâre unable to do so.
When creating an estate plan, one of the most basic documents you may wish to include is a will. If you have a more complicated estate, you might also need to have a trust in place. Both a will and a trust can specify how you want assets distributed among your beneficiaries. When making those decisions, itâs important to distinguish between per stirpes and per capita distributions. These are two terms youâre likely to come across when shaping your estate plan. Hereâs a closer look at what per stirpes vs. per capita means.
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Taking care of aging parents is something you may need to plan for, especially if you think one or both of them might need long-term care. One thing you may not know is that some states have filial responsibility laws that require adult children to help financially with the cost of nursing home care. Whether these laws affect you or not depends largely on where you live and what financial resources your parents have to cover long-term care. But itâs important to understand how these laws work to avoid any financial surprises as your parents age.
While Medicare does not pay for long-term care expenses, Medicaid can. Medicaid eligibility guidelines vary from state to state but generally, aging seniors need to be income- and asset-eligible to qualify. If your aging parents are able to get Medicaid to help pay for long-term care, then filial responsibility laws donât apply. Instead, Medicaid can paid for long-term care costs.
Filial responsibility laws could hold you responsible for your parentsâ medical bills if theyâre unable to pay whatâs owed. If you live in a state that has these laws, itâs important to know when you may be subject to them. Helping your parents to plan ahead financially for long-term needs can help reduce the possibility of you being on the hook for nursing care costs unexpectedly.