Estate Planning: Learn from a Young Mother's Tragedy (New York Times)

A Shocking Death, a Financial Lesson and Help for Others
By RON LIEBER

SEATTLE



In the days after Chanel Reynolds’s husband was hit while riding his bicycle near Lake Washington here and the best-case possibilities just kept getting worse, she was not yet consumed by grief. There were no dogged middle-of-the-night Web searches for faraway cures for his crushed upper spine or tearful bedside vigils with their 5-year-old son.



Instead, the buzz in her brain came from a growing list of financial tasks that grown-ups are supposed to have finished by the time they approach middle age. And she and her husband, José Hernando, had not finished them.



“I was finding it really hard for me to stay present and in the room and to be able to hear what the doctors were saying because I was so overwhelmed with not knowing how much money we had in our checking account, and the fact that we had our wills drafted but not signed,” she said. “I didn’t know whether I was going to be able to float a family by myself.”



In the many months of suffering after Mr. Hernando’s death in July 2009, she beat herself up while spending dozens of hours excavating their financial life and slowly reassembling it. But then, she resolved to keep anyone she knew from ever again being in the same situation.



The result is a Web site named for the scolding, profane exhortation that her inner voice shouted during those dark days in the intensive care unit. She might have called it Getyouracttogether.org, but she changed just one word.



The site offers some basic financial advice, gives away free templates for a master checklist and provides starter forms to draft a will, living will and power of attorney. There’s also a guide to starting a list of all of the accounts in your life that someone might need to access and shut down in your absence.



All of these forms and lists are already out there on the Web in various places, though rarely in one place. But there are two things that make Ms. Reynolds’s effort decidedly different.



First, the world of personal finance suffers from an odd sort of organizational failure. We tend to organize our thinking around products: retirement accounts, mortgages, long-term care insurance.



But in the real world, it’s a big life event that often governs our hunt for solutions. Sometimes, it’s a happy one, like getting married. But there are few ready-made tool kits like the one Ms. Reynolds has assembled for people considering the possibility of serious illness or death.



The other thing that compelled me to sprint here right after I stumbled across her site Tuesday night was that it is not neutered, stripped of the mess of feelings that govern much of what we do with our money. Sometimes, we just need to meet the person in personal finance.



Maybe, just maybe, hearing the story of someone who has been there, in the worst possible way, can finally push us all into action.



And we desperately need to act. According to a survey that the legal services site Rocket Lawyer conducted in 2011, 57 percent of adults in the United States do not have a will. Of those 45 to 64 years of age, a shocking 44 percent still have not gotten it down.



People who get a fatal diagnosis from a doctor at least have a bit of time to sort things out. But Ms. Reynolds and her husband had made only a few plans.



Mr. Hernando was 43 years old on the day in July 2009 when a van mowed him down while making a left turn into the path of his bicycle.



He was a self-taught engineer who played guitar in a band called Moonshine back when Seattle was the world capital of rock. At the time of his death, he rode for a cycling team and was a Flash developer working at the highly regarded firm Frog Design.



Given all that vitality, death was the farthest thing from Ms. Reynolds’s mind when she kissed him goodbye after failing to persuade him to take their son along for the ride. Which was why she was confused when she checked her phone from a party two hours later and found 14 missed calls, none of which were from numbers she recognized.



After his death, this much was clear: The family with the six-figure income and the four-bedroom house that they had bought in the Mount Baker neighborhood one year before had a will with no signature, little emergency savings and an unknown number of accounts with passwords that had been in Mr. Hernando’s head.



What saved Ms. Reynolds, now 42, from ruin was life insurance. They didn’t have a lot, but they had just enough (a couple of hundred thousand dollars in the end) to keep her from having to go right back to work as a freelance project manager and sell the house at a big loss right away. It helped pay for the education of their son, Gabriel, who is now 9, and for Mr. Hernando’s daughter from a previous relationship, Lyric, who is 16 and still close to Ms. Reynolds and her brother. Ms. Reynolds now carries a $1,000,000 term policy on her own life.



So she did not go bankrupt. But the lack of a signed will ended up costing her thousands of dollars in unnecessary legal fees. And then there was the extended period of suspended animation, where she was trying to figure out where she stood with insurance and retirement accounts and phone bills but could not get the information that she needed without account numbers and passwords.



She describes that netherworld as a slow death by a thousand paper cuts. “Sometimes it was the one little, last thing that put me over the edge,” she said.



“I’m trying to figure out how best to take care of my son and when I can go back to work and how much I’ll lose on the house. And if I have to spend 30 minutes following up with some bank that won’t take a check from him, I just don’t have the extra 30 minutes to do this again.”



But she did it again and again, dozens of times, following the same “Hello, my name is Chanel and my husband just died and I need access to X account” script. Once she had enough emotional distance from it all, she created her Web site, where she tries to persuade others to take a couple of hours now to spare themselves countless hours of hardship later.



It’s true that her efforts are not unprecedented. Nolo helped pioneer a do-it-yourself legal movement, and its state-by-state materials are thorough. Several commercial sites can help store and sort your documents and accounts, including organizemyaffairs.com, estatedocsorganizer.com, legacylocker.com, aftersteps.com, thedocsafe.com and safeboxfinancial.com.



There are a few things about Ms. Reynolds’s site that seem unique to me, though. The first is her raw insistence on considering what it means if you’re having trouble finding the right people to serve as your estate’s executor or to inherit prized possessions.



“If you are at a loss for whom to name, get out there and tighten up your friends and family relationships,” she writes on the site. “Find some better friends. Be a better friend. This is everything. This means everything.”



It did for her, at least. “I felt really lucky when I went down my favorites list on my iPhone at the hospital, and everyone showed up,” she said. Hospital staff eventually had to gently inform Ms. Reynolds that her large group of supporters was getting in the way.



She also urges people to leave traces of themselves. This is particularly crucial for parents who fetishize every piece of preschool artwork and capture every meaningful moment but rarely come out from behind the camera themselves.



Forget about just preserving memories of your children for yourself. What about the things that they may need to remember you by?



I asked two lawyers for feedback on Ms. Reynolds’s efforts. Bill Cahill, a lawyer who writes wills for many people who live near me in Brooklyn, said that her legal templates were infinitely better than nothing.



He did lament Ms. Reynolds’s choice of a name for her Web effort. “It seems to me that the whole process deserves more dignity,” he wrote in an e-mail message.



While a private admonition to get it together may well be worthwhile, he added, “the coarseness of the communication is not appropriate for the public square.”



Ms. Reynolds considered this but decided that she needed to be honest. “Those were actually the words that came out of my mouth in the I.C.U.,” she said. “To try to come up with another word to describe something that is part of my own personal experience is too hard to do for me, and it doesn’t, for me, communicate the level of importance and intensity and emotion that comes along with the content.”



Diana S.C. Zeydel, a shareholder at Greenberg Traurig in Miami and chairwoman of the estate and gift tax committee for the American College of Trust and Estate Counsel, applauded Ms. Reynolds’s consciousness-raising efforts.



But she worried that some people who adopted Ms. Reynolds’s sample will (from a template derived from her own Washington State will, which she wrote with the help of a lawyer) as their own could end up worse off than if they had nothing, depending on their circumstances.



It is not surprising that a lawyer would urge you to consult a lawyer, and Ms. Reynolds is not at all opposed to anyone doing so. She also doesn’t accept the idea that anyone even remotely like her and her late husband cannot afford it. “If people can save to go on vacation, they can save to do this, too,” she said.



Ms. Reynolds’s Web site is only four days old as of this writing, and within 24 hours it had been shared over 100 times on Facebook.



She has already heard from a social worker in Santa Fe, N.M., who was near retirement and had not yet pulled her financial records together and a 22-year-old with no children who is now considering a living will.



So already, Ms. Reynolds feels that it’s been worthwhile to share her own experience, if only to help people feel the relief that she now feels because she has her act together.



“It takes way more energy to worry about something than it does to be relieved,” she said.



“It makes a lot more space for joy and gratitude and happiness. And the rest of your life.”

Avoid Tax Return Fraud- Don't E-File (WSJ)

E-Filing and the Explosion in Tax-Return Fraud

Identity-theft cases rocketed to 1.1 million in 2011 from 51,700 in 2008. The IRS has a backlog of 650,000.

 

By JAY STARKMAN

Now that Americans finally know the tax rate they'll be paying, it's time to start thinking about the annual drudgery of filing their returns. It's also the season when identity thieves begin ripping off those returns and stealing billions in false or misdirected refunds. Tax fraud, amazingly, is now the third-largest theft of federal funds after Medicare/Medicaid and unemployment-insurance fraud.
Tax-identity theft exploded to more than 1.1 million cases in 2011 from 51,700 in 2008. The Treasury Inspector General for Tax Administration last summer reported discovering an additional 1.5 million potentially fraudulent 2011 tax refunds totaling in excess of $5.2 billion.

Why has identity theft rocketed through the Internal Revenue Service? Because American taxpayers, urged on by the IRS, have taken to filing their income-tax returns electronically and arranging for refunds to be directly deposited into bank accounts. E-filing is appealing because it provides an electronic postmark confirmation that the return was filed on time. When it is combined with direct deposit, a refund can arrive in as little as seven days. In 2012, 80% of individual returns were e-filed, fulfilling an initial goal Congress set in 1998. The result is an automated system in which the labor burden is transferred to the taxpayer.

E-filing contributes to tax complexity as the IRS demands ever more data for reporting of wage, interest and brokerage income with more tax forms. A discrepancy may result in a rejection code, a letter from the IRS Automated Underreporting Unit, or a computerized audit out of a centralized IRS office in Ogden, Utah. There's no cost to the IRS for requesting extra information when it's received electronically.
Targeting taxpayers for audit is a major factor behind the IRS's push for e-filing. E-filed returns are available for audit several months sooner than paper returns, allowing more time before the three-year statute of limitations expires. The IRS has even boasted that its e-file database is "a rich and fertile field" for selecting audits and has estimated that if its "screeners could be reallocated to performing audits, they could bring an additional $175 million annually."
Fraudulent tax returns can come in the form of tax-identity theft, refund fraud, or return-preparer fraud and are difficult to prosecute. With e-filing, evidence of fraud is difficult to find. There are no signed tax forms, envelopes or fingerprints, and e-filing promises quick refunds.
It's easy for criminals to e-file using a real name and Social Security number combined with a phony Form W-2 (wages) or fabricated Schedule C (business income). The refund can be posted to an anonymous "Green Dot" prepaid Visa or MasterCard  purchased at a drugstore. Such cards have a routing and account number suitable for direct deposit. The IRS may even correct a fraudulent return to refund the estimated taxes that the real taxpayer already remitted, as happened to one of my victimized clients.
Another form of fraud is when an unscrupulous return preparer modifies the bank-routing information on a return so the direct-deposit refund will wind up in his own bank account. He might increase the deductions so a return will show a larger refund due, with only the increase routed to his bank account. The victim will know nothing unless the IRS sends an audit notice.
Other preparers have abused the return information of former clients to file false refund returns in subsequent years. Criminals have established physical offices and websites displaying names of major tax-preparation franchises in order to gain genuine return documents and signatures from unsuspecting victims.
The IRS will replace a lost or stolen refund check. However, a stolen refund using an altered or erroneous routing number on a tax return will generally not be refunded until the bank returns the funds to the IRS. Otherwise, the taxpayer's sole recourse is a lawsuit against the return preparer.
Millions of Americans now pay the IRS via an Electronic Federal Tax Payment System debit. Unlike ordinary creditors paid electronically, the IRS is in the business of sending refunds but it doesn't compare names on bank records against its own files. So, with just the routing information from a personal check, a skilled criminal can use the electronic tax-payment system to transfer funds from a victim's bank account as an estimated-tax payment to another stolen name and Social Security number, then file a refund claim transferring the stolen funds to his own account. (This can be prevented by having your bank place an "ACH debit block" on your account.)
Fraud is a major problem for states, too. Using TurboTax, a 25-year-old woman e-filed a fraudulent 2011 Oregon return reporting wages of $3 million and claiming a $2.1 million refund—and the Oregon Department of Revenue sent her the refund. In October, a hacker stole 3.8 million unencrypted tax records from the South Carolina Department of Revenue. Georgia reports that 4% of its returns are fraudulent.
If you become a tax-identity theft victim, immediately seek a referral to the IRS Identity Protection Specialized Unit or the Taxpayer Advocate Service using Form 911. Keep in mind that it can take over a year to resolve. The IRS has a backlog of 650,000 cases.
The national taxpayer advocate has recommended that taxpayers be allowed to tell the IRS to accept their return only when filed on paper, thus preventing e-file tax-identity theft. So far the IRS has failed to allow this. Less effective methods are to request an "electronic filing PIN," available at www.irs.gov, and file Form 14039, "Identity Theft Affidavit," so that the IRS might apply additional return-screening procedures. Sadly, conventional credit-monitoring services are useless against income-tax identity theft.
In sum, e-filing helps the IRS with audit selection, costs the Treasury billions through fraud, and transfers many costs of tax administration to you.
Mr. Starkman, a practicing certified public accountant, is the author of "The Sex of a Hippopotamus: A Unique History of Taxes and Accounting" (Twinset, 2008).

A version of this article appeared January 14, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: E-Filing and the Explosion in Tax-Return Fraud.

Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved

 

How to Create a Paycheck in Retirement (moneywatch)

By

Steve Vernon /

MoneyWatch/ October 22, 2012, 6:45 AM

3 ways to turn your IRA and 401(k) into a lifetime retirement paycheck

     

(MoneyWatch) I recently offered an overall financial strategy to help you avoid going broke in your retirement years: Don't spend your retirement savings!
Instead, you should think of your savings as "retirement income generators," or RIGs, that deliver a monthly paycheck that lasts for the rest of your life. The goal then becomes to spend no more than the amount of your monthly paycheck.
There are essentially only three ways to generate a monthly paycheck from your retirement savings:

• Invest your savings and spend just the investment earnings, which typically consist of interest and dividends. Don't touch the principal.
• Invest your savings, and draw down the principal cautiously so you don't outlive your assets. (In this post and future posts, I'll call this method "systematic withdrawals.")
• Buy an "immediate annuity" from an insurance company and live off the monthly benefit the insurance company pays you.

These methods are all designed to generate a lifetime retirement income, no matter how long you live. Achieving this goal will help you relax and enjoy your retirement. These methods might also provide protection against inflation, another important goal for many people.

Although these represent the three basic approaches to ensuring steady retirement income, each method has many variations. Here are just a few examples:

• If you decide to invest your money and only spend your investment earnings, you can invest in a variety of mutual funds, bank accounts, individual stocks and bonds, real estate investment trusts, or rental real estate.
• If you decide to use the systematic withdrawal method, you can invest your savings on your own and decide how much to draw down, or you can use a managed payout fund that does the investing and withdrawing for you.
• If you decide to purchase an immediate annuity, you have options. For example, you can buy an annuity that's fixed in dollar amounts, one that's adjusted for inflation, or a variable annuity that's adjusted according to an underlying portfolio of stocks and bonds. You can also buy an annuity that starts at a later age, or you can purchase a hybrid annuity that includes some of the features of systematic withdrawals.

These RIGS each have their advantages and disadvantages; there's not one magic bullet that works best for everybody. Most important, each type of RIG generates a different amount of retirement income:

• RIG #1, interest and dividends, typically pays an annual income ranging from 2 percent to 3.5 percent of your savings, depending on the specific investments you select and the allocation between stocks, bonds, cash and real estate investments.
• RIG #2, systematic withdrawals, typically pays an annual income from 3.5 percent to 5 percent of your savings, depending on your investments and how worried you are about exhausting your savings before you die.
• RIG #3, immediate annuities, can range from 4 percent to 6.5 percent of your savings, depending on the type of annuity you buy and your age, sex and whether you continue income to a beneficiary after your death.

You don't need to use just one type of RIG to generate the income you need. In fact, it might be best to use a combination of a few different types. In addition, there can be good reasons to change your RIGs as you get older. And some financial institutions have been introducing hybrid products and solutions that combine features of two or more of these basic RIGs.
 

© 2012 CBS Interactive Inc.. All Rights Reserved.