“I did not have any intention to foster,” says Sanders, an independent consultant in Raleigh, North Carolina. “It was not on my radar at all.” She had never been a parent, foster or otherwise.

But some friends had encouraged her to volunteer with a youth group. Some of the kids were from unstable family situations, and the activities provided them with a respite. “They needed me, and the people steering me to it thought I needed it too,” she says.

Lasting Legacy Winter 2023 VESTED Image one

Immediately, she felt a sense of purpose, helping teenagers and finding out about their circumstances. In particular, she hit it off with one boy, Mark, a teen who seemed to have adult-sized burdens on his shoulders. He was staying in a temporary foster home with his younger sister, Maddie, and was also trying his best to look out for his mother, who was struggling with issues of her own.

Sanders saw quickly that this young man deserved to have some lightness and joy and a chance to act his age. On a long drive to a camp in the mountains, “he just talked my ear off,” she says. “It was unusual that he had so much fun with me, and that was noticed. That’s how this whole thing started.”

Later, the group leaders asked Sanders if she would consider taking the siblings into her home, just for a couple of weeks, to help relieve pressure at their temporary living situation. More than that, if she was willing, these weeks could be a trial run to becoming their foster parent.

“It was a new endeavor to work with youth,” Sanders says. “I have been my own person for a long time. Now, helping teens become their own person is fascinating.”

Multiple Entry Points

People don’t often think of midlife and beyond as prime parenting years. But older folks, empty nesters, and retirees have a lot to offer to kids in need. Also, many baby boomers and generation xers feel a strong desire to give back. They may have more time, patience, and resources at their disposal than in the earlier stages of their lives. The idea of channeling some of that energy to help nurture children in distress can be appealing.

Sanders agreed to the trial period. She felt herself already falling for Mark and Maddie (not their real names)—and seriously considering turning her life upside down for them. She reasoned, “I’m in my late 50s, widowed,” she says. “I have no kids. I have means—not endless means—but it’s not going to hurt me. It’ll stretch me mightily, but these are good kids, and they don’t have any good options. They were going to be split up, and I couldn’t bear it. I didn’t want them stretched.” She soon realized she would take them.

Sanders attended many Saturdays of foster training conducted by county social workers, who also visited her home and checked personal references as part of their process. Since she already had a relationship with the kids through the youth group—what social workers call a kinship—the teens were able to live with her during her training period. “I’d mostly heard about people fostering who already had kids, raised and grown, but that ain’t the only way! There is no one path to all of this,” she says.

Where to Start

The U.S. child welfare system is notoriously complicated, and there is a perennial shortage of foster families. The need is great. In 2021, there were 391,000 U.S. children in foster care, according to the Department of Health and Human Services. At year-end, 54,200 children had been adopted out of the system, and another 114,000 children were awaiting adoption.

Lasting Legacy VESTED 2023 Winter Chart one

For parents and non-parents alike, fostering later in life has both challenges and rewards, especially considering that many kids enter the system after experiencing neglect or abuse in their youngest years.

The foster process varies by state and sometimes by county. Anyone who is exploring the idea of fostering can learn about the steps required in their community by reaching out to a local foster care agency.

A directory of state and local agencies is available on childwelfare.gov, the federal Child Welfare Information Gateway. There are also national agencies, such as AdoptUSKids, Casey Family Programs, and Kidsave.

The National Foster Parent Association has resources for online education and training. Generally, to become licensed, foster parents undergo 10 to 30 hours of training and complete interviews, a home inspection, medical exams, background checks, and financial assessments.

Sanders and the kids have been together ever since, including throughout the COVID-19 lockdown, when their world shrank to only three. It sometimes feels strange to her how deeply connected they became—and how quickly—in the house she had once planned to sell. Now there are dings on the walls, but she’s in no hurry to fix them. After all, she recently became legal guardian to the siblings, so “we will be here for a while.”

Sometimes, Sanders says she wonders what her late wife would think about her life now, her new family, and her role as a foster mom to two teens. It’s not a path that the two of them would have chosen together, she is certain. Her wife had a child already, one who is now a 32-year-old adult. “She’d been there, done that,” says Sanders. “This is my adventure, but I think she had a hand in it. I think she’s laughing.”

How would her wife have responded to the two teens? “I think she sent them,” Sanders says.

Q: What are digital assets, and what role do they play in estate planning?

A digital asset is any item or information that is stored electronically. Most commonly, this means your logins, passwords, PINs, and anything contained within an online account. What happens to these accounts when you die? The answer depends on the type of account and whether you have included its assets as part of your estate plan.

To add digital assets to your estate plan, start by making a list of all accounts. If you are already using a password management application, such as 1Password, LastPass, NordPass, or Keeper, a master list will be included as part of the service. Internet browsers can also show a list of saved logins and passwords. Check under settings and search for passwords.

Next, determine which accounts are valuable to you. Even if the asset has no financial value, its emotional significance might mean it’s worth saving. For instance, you may save your photo storage accounts and movie or music collections. In general, don’t bother creating plans for online shopping accounts, since these are likely to be deactivated on their own after a certain period of inactivity.

Most social media and email accounts have end-of-life provisions that can automatically transfer the account to a designated person after a specific number of days without access. But you must make sure you set these up.

For cryptocurrency, there are various digital asset inheritance services, such as Inheriti by Safe Haven and Covenant by Casa, that will guide your beneficiary through the transfer process.

Financial institutions do not recommend letting anyone else access your account using your credentials, whether you are dead or alive. Usually, your spouse or executor will simply need to contact the company and let them know you are deceased to begin the closure process. All financial accounts, including credit and debit cards, should be shut down soon after death to prevent fraud.

One digital asset worth preserving: Your frequent flyer accounts. Most airlines will transfer miles to a spouse or child.

As part of your estate planning, you will want to designate a specific person and provide them with authority to manage your digital assets. However, this does not mean you should include your passcodes or other access information in your will. When you die, your will becomes a public document, which means anyone can read it.

One solution is to reference an outside document in your will that contains all the necessary information to settle your digital estate. This way, you can continue to revise and update the outside document without having to either change your will or put your digital assets at risk.

By including digital assets as part of your estate plan, you make things easier for your loved ones, who would otherwise be responsible for tracking down and managing these accounts.

Yes, it means getting organized now, but doing so will protect you both in the short term and long after you are gone.

Q: Last year was challenging for my fixed income investments, but I hear 2023 might be a good time to buy bonds, specifically municipal bonds. Is that true?

From an investment perspective, 2022 was a wild ride. Just as quickly as interest rates rose, bond prices fell. You probably saw the headlines that said fixed income isn’t working anymore. Now, the same media outlets are saying it’s a good time to invest in bonds. At first, those comments may seem at odds, but the truth is that they’re intertwined because 2022 market conditions created an attractive environment for future returns on bonds.

As with most areas of investing, deciding if tax-exempt municipal bonds are a good fit for your portfolio will depend on your unique circumstances. However, for those who are considering buying bonds, it may be helpful to understand what makes an attractive municipal bond environment. In 2023, tax-exempt bonds, such as municipal bonds, may offer a compelling opportunity for four reasons:

  1. Attractive yields. The yield on any bond is the expected return on investment over its remaining life. Today, both tax-equivalent yields and overall yields on core municipal bonds are near decade highs.
  2. Improved financial conditions. Historically, credit defaults on investment-grade municipal bonds are exceptionally low. In the past few years, many municipalities have further strengthened their financial positions, accumulating cash reserves through federal stimulus programs and robust tax collections.
  3. Increased demand. With a divided Congress, significant changes to individual tax rates are unlikely. The combination of stable tax rates and improved credit fundamentals is likely to increase investor demand for tax-exempt municipal bonds.
  4. Limited supply. Typically, the supply of new municipal bonds is driven by entities that are refinancing existing debt. With the recent surge in bond yields, refinancing is significantly more expensive, thereby limiting the overall supply of bonds. Also, with increased cash reserves, municipalities may choose to delay additional capital raises in hopes of lower future rates. While there will always be exceptions to every rule, in this case, most investors are likely to be rewarded for locking in decade- high yields for the foreseeable future, even if the journey remains a little bumpy.

Q: I am the primary financial decision maker in my household. How do I encourage my spouse to be more engaged in our finances?

When it comes to financial matters, having two informed and active partners is almost always better than one. You’ll make stronger decisions, and you can ensure that neither of you ends up lost or overwhelmed with financial business when the other partner is disabled, is incapacitated, or dies.

It is common for spouses to have different financial personalities—for instance, different perspectives on spending, philanthropy, or risk. You don’t need to be completely aligned to have a unified financial life. What’s more important is that both people participate in reaching decisions. Here are a few steps you might consider to get your partner more engaged.

First, let them know why you want their involvement and perspective. Think of your financial life as a road trip. You will only need one driver at a time, but it’s helpful when the person in the passenger’s seat knows where you are headed and can be excited about it. If your partner can also help you navigate the turns, that’s even better.

If you don’t have a will, this can be a great first step to take together. Developing a will and an estate plan often involves dozens of decisions that will jump-start conversations about financial goals and desires. For instance, do you both have contact information for your tax, legal, and financial advisors? Does your spouse know the access code for your phone and where the keys to your safe are located?

It’s common for the less-engaged spouse to feel embarrassed, frustrated, or overwhelmed at first. Be patient as your partner learns the ropes.

You may also want to consider a similar process with your adult children and parents. By handing over financial knowledge before it is truly necessary, you can minimize emotional decision-making and avoid traditional pitfalls in the generational transfer of wealth.

It may be helpful to create a visual map of your financial life—including assets, accounts, and advisors—to illustrate how your money moves around and who else is involved in the process. Connecting family members with professional advisors is a critical piece of the puzzle, even if only by email.

And remember: Working as a financial team is like dancing together. For your partner to take a step forward, you’ll need to take at least a small step back.

SECURE 2.0: Investment and Fiduciary Issues

The widely reported SECURE 2.0 law includes more than 90 provisions, most of which pertain to retirement plan design and operation. As a point of reference, the first SECURE Act included only 31 provisions. A few provisions of the new law relate directly to fiduciary and investment issues.

A few other aspects of SECURE 2.0 touch on topics that have been covered in earlier Fiduciary Updates.

401(k) and 403(b) Fee Cases Continue

The flow of cases alleging fiduciary breaches through the overpayment of fees and the retention of underperforming investments in 401(k) and 403(b) plans continues but without significant new developments. Here are a few updates.

$750,000 Cybersecurity Loss Case Progresses with One Defendant Out

We have previously reported on a participant’s lawsuit attempting to recover more than $750,000 taken from her 401(k) account through cyber-fraud. The suit was filed against the recordkeeper, the plan fiduciaries, and the asset custodian/trustee, alleging various fiduciary breaches in making or allowing the fraudulent distribution. All three defendants filed motions to dismiss.

The asset custodian/trustee was released from the case, but the recordkeeper and plan fiduciaries were not. The court concluded that the asset custodian/trustee was not a fiduciary because it did not exercise any discretion or independent control over the plan or its assets. Its role was exclusively to follow the directions of others. This directed trustee role is different from the role discretionary common law trustees play in retirement plans, such as deciding which investments to offer in a 401(k) plan.

The judge noted that plan fiduciaries could be liable for the loss if they failed to reasonably select or monitor the recordkeeper. However, he observed that, “ERISA’s duty of care requires prudence not prescience. [Fiduciaries] must adopt reasonable procedures, but not absolutely air-tight procedures, to protect against the possibility of what happened here, which was a heinous crime.” 

With respect to the recordkeeper, Alight, the court found that it may be considered a functional fiduciary but cautioned that it might not be. Under ERISA, a person or institution is a fiduciary if they exercise discretion or control over plan assets, regardless of whether they have been appointed as a fiduciary. The judge took the unusual step of recommending that the participant file a negligence suit against Alight. He went on to point out that the statute of limitations would run out in March 2023, concluding with, “the clock is ticking.” Disberry v. Employee Relations Committee of The Colgate-Palmolive Company (S.D. NY 2022).

Surprise! Ex-husband Inherits 401(k) Account Balance

A plan participant was divorced in 2002, and it was agreed that her ex-husband would have no claim to her 401(k) account. At that time, the ex-husband was the sole beneficiary. In 2008, the participant changed her 401(k) plan beneficiary from her ex-husband to her three siblings, with each to receive 33 1/3 percent. Unfortunately, the beneficiary designation form required that the allocation be in whole percentages. As a result, the beneficiary change was rejected.

In 2019, when the participant died, her $600,000 401(k) benefit was paid to her ex-husband. The participant’s estate sued the plan sponsor for breach of fiduciary duty in failing to correct the beneficiary designation form. At trial, it was revealed that, soon after the erroneous beneficiary designation form was submitted, the plan sponsor telephoned the participant and left a message notifying her of the error. The participant also received 11 annual account statements showing her ex-husband as the sole beneficiary. Award of the 401(k) account to the ex-husband was upheld at trial and on appeal. Gelschus v. Hogen (8th Cir. 2022).

Surprise! $24,000 Payment Resolves $2 Million Claim

An insurance company determined that it had overpaid a healthcare provider in Texas by more than $2 million through the payment of participant claims. The insurance company demanded repayment and months of discussions and correspondence ensued, but no agreement was reached. The provider eventually sent a letter and refund check for $24,000 to the insurance company.

The check included a notation saying it was in “full and final payment” of the repayment claim. Copies of the letter and check were sent to seven different addresses and individuals at the insurance company who had been involved in the negotiations. The physical check was sent to the insurance company’s lockbox where payments were received.

Five days after the letters were received by individuals at the insurance company, the check was deposited by the lockbox provider, and copies of the check and letter were scanned into the insurer’s tracking system. The next day, upon seeing the letter and check in the tracking system, an insurance company representative emailed the healthcare provider’s general counsel to reject the settlement offer.

The healthcare provider contended that acceptance of the check was full satisfaction of the insurer’s claim for reimbursement. Disappointed with that outcome, the insurance company sued. Applying Texas law, the trial court and court of appeals concluded that acceptance of the $24,000 check resolved the matter. United Healthcare of Texas, Inc. v. Low-T Physicians Service (Tex. App.—Fort Worth 1-5-23).

Accidental Death Coverage: What Is an Accident?

In addition to traditional life insurance, many employers’ benefit programs include additional coverage if a death is the result of an accident. Two recent cases illustrate differing outcomes.

In Goldfarb v. Reliance Standard Insurance Co. (S.D. Fla. 2023), a covered employee was an avid mountain climber. He decided to go mountain climbing in Pakistan in the winter. After making reasonable preparations, he embarked—but did not return. Aerial surveillance identified a body and what appeared to be his equipment in the area where he was climbing. The employee was then declared dead.

A claim for accidental death benefits was denied, with the insurance carrier taking the position that winter mountain climbing in Pakistan was so dangerous that death was not considered an accident. However, the policy did not have a mountain climbing exclusion. The trial court found that the deceased did not expect his mountain climbing expedition to cause serious injury or death. The accidental death benefit was ordered to be paid.

In another accidental death case, McChristion v. Sun Life Assurance Co. of Canada (W.D. Tex. 2022), a motorcyclist lost control and wound up under the trailer of an 18-wheel truck. He was dragged for some distance and did not survive. The crashed motorcycle’s speedometer was found locked at 105 miles per hour. Where the accident happened, the speed limit was 45 miles per hour.

The employer-provided accidental death insurance claim was denied. In this case, the denial was upheld because the behavior of the deceased was so intentionally reckless that it was excluded. The claim was also denied because it resulted from criminal behavior in the violation of motor vehicle laws, but the judge did not reach this issue.

DOL Finalizes ESG Regulation

In November 2022, the most recent volley of guidance from the U.S. Department of Labor on the use of environmental, social, and governance (ESG) factors, also known as socially responsible investment factors, in retirement plan investments became final. The bottom lines continue to be:

Over the years, through regulation changes and plan design mandates, the three predominant types of defined contribution retirement plans—403(b), 401(k), and 457(b)—have grown more similar. 

However, a number of key distinctions remain. 

Understanding the nuances between these plan types can be daunting. But for those plan sponsors with choice, like private tax-exempt 501(c)(3) charitable organizations, digging into the differences may help clarify which plan type, or combination of plan types, to offer. Below are the most significant distinctions among the three types of plans, in order of importance. 

Employer Eligibility 

One of the primary differences is the type of employer eligible to sponsor a particular type of plan. For example, state and local governments, public colleges, and universities may not offer a 401(k) plan unless their state maintained a 401(k) plan that was established before 1987. Likewise, private tax- exempt organizations that are not 501(c)(3) educational or charitable organizations, such as associations and clubs, may not maintain a 403(b) plan. And while public and private colleges and universities may maintain a 457(b) plan, the rules governing these plans vary widely depending on employer type. 

Nondiscrimination Testing

Nondiscrimination testing in 401(k) plans requires that highly compensated employees (HCEs), defined in 2023 as those earning more than $135,000 in 2022, stay within a specific contribution rate determined by the average contribution rate of non-highly compensated employees (NHCEs). 

This testing is one of the key reasons why many private tax-exempt 501(c)(3) charitable entities, such as hospitals and colleges and universities, continue to use 403(b) plans instead of 401(k) plans. For 403(b) plans, it is unnecessary to test salary-deferred employee contributions. As a result, these HCEs have no additional limitations imposed on their ability to save other than the overall IRS 402(g) restrictions. 

For example, in a typical private 501(c)(3) tax-exempt organization, unmatched elective deferrals for NHCEs average 2 percent (this average includes individuals not deferring anything). At this level, HCEs in a 401(k) plan are limited to approximately 5 percent of pay rather than the 2023 IRS limit of 100 percent of pay up to $22,500 per year (or $30,000 if age 50 or older). Thus, these higher- compensated plan participants face significantly restricted deferral limits, which are otherwise moot in a 403(b) plan. 

A 457(b) plan presents the opposite problem for private tax-exempt entities. A 457(b) plan, sponsored by a private college or university that is not a 414(e) religious organization, is of limited use, since these top-hat plans are required to discriminate in favor of HCEs. Thus, they do not serve as the primary retirement plan for these organizations but are instead used as a supplemental plan for select groups of management employees. 

An advantage of 457(b) plans is that employer contributions of any type can be discriminatory, whereas in 401(k) and 403(b) plans, employer contributions must be tested for nondiscrimination (with the exception of certain organization types exempt from testing). 

Nondiscrimination testing is not a consideration for certain types of organizations. For example, governmental plans, such as those sponsored by public universities, are not subject to nondiscrimination testing, and 457(b) plans can be offered to all employees at these organizations. 

ERISA Coverage

Another defining feature of 403(b) and 457(b) plans is that elective deferral-only plans of private 501(c)(3) charitable organizations are generally exempt from the Employee Retirement Income Security Act (ERISA). While this is uncommon among 403(b) plans, ERISA exemptions are not a possibility for 401(k) plans. Note, however, that public entities and churches are not subject to ERISA, regardless of plan type; churches may elect ERISA coverage, but it is rare. 

Private education employer 457(b) plans are technically subject to ERISA, but a single top-hat filing with the government essentially exempts the plan from ERISA requirements. 

For 403(b) plans to be exempt, plan sponsors must only permit elective deferrals (no employer contributions) and satisfy several other requirements that generally restrict employer involvement in the plan. This exemption means that for these plans, no summary plan descriptions are required, no annual Form 5500s or summary annual reports are required to be filed and distributed, and an annual audit is unnecessary—the audit alone can be a significant cost factor as well as an administrative burden. While the 403(b) exemption is not as attractive as it once was due to new regulatory requirements, the ERISA exemption remains an important option for 403(b) and 457(b) plans, one that is unavailable in the 401(k) world. 

Universal Availability

The universal availability requirement is unique to 403(b) plans. Universal availability requires that all employees, with limited exceptions, be permitted to make elective deferrals from the date of hire. This contrasts with 401(k) plans, for which eligibility to make elective deferrals can be restricted, subject to nondiscrimination testing requirements. It is important to note that the recently enacted Setting Every Community Up for Retirement Enhancement (SECURE) Act now requires the inclusion of certain part- time employees in these 401(k) plans. 

Public 457(b) plans have no eligibility requirements, meaning that plan sponsors can allow all or any employees of their choosing to participate. As previously noted, private tax-exempt 457(b) plans can only permit select management and HCEs to participate. Additionally, independent contractors are permitted to participate in 457(b) plans, but not in 401(k) or 403(b) plans. 

Contribution Limits

While elective deferral limits to all three plan types are $22,500 in 2023, there are some other important contribution limit distinctions. In 457(b) plans, the limit on combined elective deferral and employer contributions is the same as the elective deferral limit ($22,500). In both 401(k) and 403(b) plans, the combined elective deferral, and employer contribution limit is significantly larger—up to $66,000 in 2023, depending on compensation. 

While the combined 457(b) limits are lower, the 457(b) elective deferral limit is not offset by 401(k) or 403(b) deferrals. Thus, the maximum deferral limit of $22,500 may be contributed to a 457(b) plan, regardless of whether any deferrals or employer contributions have been made to a 403(b) or 401(k) plan. For organizations offering a combination of these plans, this presents an opportunity for a participant to contribute to both. 

Special elections allow additional elective deferrals based on certain factors. The age 50 catch-up election, which expands the $22,500 limit in 2023 to $30,000, is available in 403(b), 401(k), and public 457(b) plans but is unavailable for 457(b) plans of private tax-exempt organizations. Unique to 403(b) plans is the 15-year catch-up election, which allows a plan to permit employees who have 15 or more years of service and who satisfy additional requirements to defer up to an additional $3,000 beyond the 402(g) limit of $22,500 ($30,000 if age 50 or older) in 2023. However, this election can be complicated to calculate. The 457(b) election permits those in their final three years of employment prior to retirement to defer up to an additional $22,500 in 2023. 

Distributions

The 403(b) and 401(k) plans generally mirror each other in terms of distribution restrictions. For example, elective deferrals may not be withdrawn in either plan type until the attainment of age 59 1/2, termination of employment, hardship, death, or disability. 

However, 457(b) plans have different restrictions. Contributions may not be withdrawn until severance of employment, attainment of age 59 1/2 (70 1/2 for private tax-exempt organizations), or occurrence of an unforeseeable emergency (different rules than hardship withdrawals). For 457(b) plans at private tax-exempt organizations, there are additional restrictions as to the type of distributions that can be taken, and rollovers are not permitted. One advantage of 457(b) plans, however, is that the 10 percent excise tax for distributions prior to age 59 1/2 does not apply. 

Transfers and Exchanges

In 401(k) plans, the most common reason for plan-asset movement is employer-directed transfers due to the transition to a new recordkeeper. The situation is similar for 457(b) plans; however, some participants use plan-to-plan transfer provisions for cases in which a rollover is not permitted (i.e., private tax-exempt plans).

For 403(b) plans, there is more flexibility; however, even this has been somewhat restricted by the final 403(b) regulations that became effective a few years ago. Employers may transfer plan assets from one provider to another, but these transfers are more likely to be restricted at the provider contract level than in the case of a 401(k) plan. Plan participants may transfer plan assets in the form of an exchange to any approved provider in a 403(b) plan. Plan-to-plan transfers are also permitted, though employees often opt for a rollover instead.

Payroll Taxes

Contributions from employers with 401(k) and 403(b) plans are generally not subject to payroll taxes, such as FICA or Medicare. Since 457(b) plans are deferred compensation plans rather than retirement plans, employer contributions are treated as compensation that is subject to payroll taxes.

Provider Availability

A myriad of recordkeepers service 401(k) plans. Meanwhile, 403(b) and 457(b) plan assets are concentrated among a smaller selection of vendors. While this relative lack of competition can affect pricing and marketplace advancements for larger plans, 401(k), 403(b), and 457(b) product and service offerings are often comparable. While it is not uncommon for multiple recordkeepers to be offered within a 403(b) plan, it is less frequent in 457(b) plans and rare in 401(k) plans. 

Investments

Another important distinction for 403(b) plans is their limitation in terms of the investment types that can be offered. In these plans, investment types are limited to 403(b)(1) fixed and variable annuities and 403(b)(7) custodial accounts (known more commonly as mutual funds). Investments that are permitted in 401(k) and 457(b) plans, like individual securities, are prohibited in 403(b) plans. It should also be noted that some 457(b) plans are subject to investment-type restrictions by law. 

Providing a competitive retirement plan benefit is often an important component of an organization’s recruitment and retention efforts. Understanding the availability, benefits, and limitations of the different plan types can help plan sponsors craft and maintain the most impactful retirement plan offering.

In addition to the key distinctions listed above, Figure One provides a comprehensive comparison of the remaining similarities and differences between 403(b), 401(k), and 457(b) plans.  

Figure One: Digging Deeper into the Similarities and Differences of 403(b), 401(k), and 457(b) Plans

Becoming a parent is a life-changing adventure, one that can be fun, fulfilling, nerve-wracking, exciting, and overwhelming all at the same time. New babies often make us dream about the future, and we feel encouraged to make plans that will help ensure the best possible outcomes.

As you consider what your family’s future could look like, take time to evaluate your financial health. This financial checklist for new parents may be a helpful resource.  

Health Care

Tax Planning for the Year after Birth

Foundational Planning (101)

Next-Step Planning (201)

Education Savings

Consult with your financial advisor for additional resources and help with planning.

According to a survey by the Funeral and Memorial Information Council, while 69 percent of American adults want to arrange their own funerals, only 17 percent have put plans in place. Regardless of your age, health, or financial circumstances, CAPTRUST Financial Advisor Christeen Reeg says, “creating a sketch for your own funeral is a smart decision.”

Yet most people don’t.

This inaction is likely because planning for death—or even talking about it with family and loved ones—is uncomfortable for most people. Brit Guerin, co-founder of Current Wellness and a licensed mental health counselor, says talking about death brings up emotions people don’t want to feel. “Talking about a loved one dying often feels taboo, in part because we don’t know what to say. It can bring up intense grief and sadness that are difficult to put words to.” Planning a funeral means accepting death.

But planning also makes death easier for your loved ones to navigate. And, it ensures your life will be celebrated according to your own thoughtful decisions, not the emotional and often rushed decisions of your grieving family.

Plan the Funeral You Want

“It’s important to know in advance what your loved one’s desires are,” says Guerin’s colleague and professional grief counselor, Monica Money. “Many times, family members want to do something different, even if the one who is dying has expressed their plans. That is why it is so important to have your wants and desires put in writing and kept in a safe place.” 

When making arrangements, plans can be as general or specific as you like. Things like burial plots, service music, reception locations, and pallbearers can be finalized ahead of time. If you are fond of certain jewelry or clothing items, you can even choose what you will wear in advance.

Financial Advisor Christeen Reeg has personal experience with meticulous funeral planning. “When my husband became terminally ill, we were more comfortable talking about plans,” she says. “We selected a burial plot for both of us, and he planned things like service music, scripture, and even what the pallbearers would wear.”

One easy way to get started is to work with your local funeral home to decide what you want. Having a plan ensures your wishes are honored after you are gone.

A few practical questions to consider when you start planning are:

Keep the Peace

Having a clear plan to follow eliminates a few of the many difficult decisions your loved ones will have to make after you pass. Instead of having to sort through the details of where your service will be, how you will be buried, and what the ceremony will look like, they can simply follow the plan you have left them.

When Reeg’s husband died, she and her extended family viewed his pre-arranged funeral plans as a gift. “We had been married a long time, but we both had children from different families,” says Reeg. “At the time of his passing, we all met together. Not everyone was thinking the same. But I was able, as the surviving spouse, to pull out the document and say, ‘Well, this is what we agreed to and is already paid for. This is what your dad wanted.’ And so we didn’t have any fighting.”

It’s a natural human tendency to avoid the inevitable, and funeral planning can be an emotional process. But planning now reduces emotional flare-ups later. “It’s emotion that drives us, and it drives people to argue and fight,” says Reeg. “The greatest reason that I tell my clients to engage in funeral planning and put their plans in writing is that it’s going to reduce emotional conflict.”

Talking with your loved ones about these plans might feel awkward at first, but you will grow more comfortable discussing the topic over time. And they’ll most likely thank you when the time comes to put your plans in action.

While you don’t necessarily need to share funeral specifics with your family up front, it’s a good idea to disclose the fact that you’ve made plans, who you have left them with, and how to access them when you pass away. “Albeit challenging, openly sharing end-of-life plans can help normalize death and make it feel less scary,” says Guerin. “Grief is never easy, but knowing your loved one’s wishes can be very meaningful and special.”

Planning also helps prevent family members from overspending out of guilt or grief. “For example,” says Reeg, “what if all you want is a basic casket, but when your loved ones are emotional and grieving, they feel guilty and buy the $20,000 one?”

Marta Warren worked in the funeral insurance industry for decades. She says planning is a gift to yourself as well, and it’s never too early to start. “If you believe that you’re going to die at some point in your life,” she says, smiling, “then that’s the time to prearrange. I planned my funeral at a very early age, and I can modify it whenever I want to.”

Leave Plans with an Advocate

For safekeeping, Reeg says, in addition to your children or beneficiaries, it’s best to share your plans with your banker or financial advisor. “They are some of the first people your family will call when you pass,” she says. “I’ve been working with some of my clients for so long. I’ve been there for weddings and other milestones. And I’m there when someone in the family passes.”

Grief Counselor Megan Money says it’s also a good idea to have an appointed family liaison who will execute your plans. “Designate someone in the family who will follow through with your desires,” she says. The person you choose should be someone who will advocate for your plans and be able to separate their own emotions from the process as much as possible.

Warren equates funeral planning with estate planning. “It’s kind of like your will or your trust,” she says. Just as you manage your assets and plan for their distribution after you die, this is another step in the planning process. “When you’re doing your estate planning, it’s one of the things that your financial advisor should bring up.”

Peace of mind is the greatest benefit. “In my case, there was no fighting because all the decisions had been made,” says Reeg. “Making these arrangements in advance is such a gift that you can give your children. It’s so much more than a financial decision.”

If you give away money or property during your life, those transfers may be subject to federal gift and estate tax and perhaps state gift tax laws. The money and property you own when you die—also known as your estate—may also be subject to federal gift and estate tax and some form of state death tax. Additionally, these property transfers may be subject to generation-skipping transfer taxes.

To make the best financial decisions, it’s important to understand each of these taxes, which are governed by a handful of tax laws, including these four: the Economic Growth and Tax Relief Reconciliation Act of 2001 (the 2001 Tax Act); the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Act); the American Taxpayer Relief Act of 2012 (the 2012 Tax Act); and the Tax Cuts and Jobs Act. Recent Acts contain several changes that make estate planning easier.

The Federal Gift and Estate Tax: Background Information

Under pre-2001 tax law, no federal gift and estate tax was imposed on the first $675,000 of combined transfers. The term combined transfers refers to all transfers made both during life and at death. At that point, the tax rate tables were unified so that the same tax rates applied to gifts made and property owned by people who died.

Like current income tax rates, gift and estate tax rates at this time were graduated. Under this unified system, the recipient of a lifetime gift received a carryover basis in the property received, while the recipient of a bequest—a gift made at death—received a step-up in basis: an adjustment in the cost basis of the inherited asset to its fair market value on the date of the gift-giver’s death.

The 2001 Tax Act, the 2010 Tax Act, the 2012 Tax Act, and the Tax Cuts and Jobs Act substantially changed this tax regime.

The 2001 Tax Act increased the applicable exclusion amount for gift tax purposes to $1 million through 2010. The applicable exclusion amount for estate tax purposes gradually increased over the years until it reached $3.5 million in 2009. The 2010 Tax Act repealed the estate tax for 2010 and taxpayers received a carryover income tax basis in the property transferred at death, or taxpayers could elect to pay the estate tax and get the step-up in basis.

The 2010 Tax Act also re-unified the gift and estate tax and increased the applicable exclusion amount to $5,120,000 in 2012. The top gift and estate tax rate was 35 percent in 2012. The 2012 Tax Act increased the applicable exclusion amount to $5,490,000 in 2017 and the top gift and estate tax rate to 40 percent in 2013 and later. The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax exclusion amount and increased the gift and estate tax exemption to $11,180,000 in 2018.

The Current Federal Gift and Estate Tax

In 2023, the gift and estate tax exemption—also known as the unified credit—is $12,920,000, up from $12,060,000 in 2022. After 2025, the gift and estate tax exemption rate and gift and estate tax exclusion amounts are both scheduled to revert to pre-2018 levels, cutting the amount in half to roughly $6 million.

However, many transfers can still be made gift-tax free, including:

Federal Generation-Skipping Transfer Tax

The federal generation-skipping transfer tax imposes tax on transfers of property you make during life or at death to someone who is two or more generations behind you, such as a grandchild. It is important to note that the GST tax is imposed in addition to, not instead of, federal gift and estate tax.

You will need to be aware of the GST tax if you make cumulative generation-skipping transfers in excess of the GST tax exemption of $12,920,000 in 2023. A flat tax equal to the highest estate tax bracket in effect in the year you make the transfer (40 percent in 2021 and 2022) is imposed on every transfer you make after your exemption has been exhausted.

State Transfer Taxes

Currently, some states impose a gift tax, and others impose a generation-skipping transfer tax. Some states also impose a separate death tax, which could be in the form of estate tax, inheritance tax, or credit estate tax (also known as a sponge tax or pickup tax). Contact an attorney or your state’s department of revenue to find out more information.

Source: Broadridge Investor Communication Solutions, Inc.

If someone shouts at you to “stay out of the kitchen,” it either means they’re cooking a nice meal for you or—more than likely in 2023—you’ve joined the throngs of Americans having a smashing time on the pickleball court.

Pickleball, the whimsically named paddle game, is fast becoming everyone’s favorite addiction, er, pastime. In fact, it’s the fastest-growing sport in the country, with the total number of picklers reaching more than 5 million at the end of 2022—an increase of 40 percent since 2019, according to the Sports and Fitness Industry Association (SFIA).

Lately, pickleball has gotten lots of buzz from famous folks who love the game, including George Clooney, Leonardo DiCaprio, Bill Gates, and Kim Kardashian, and the pandemic-driven need to find outdoor activities didn’t hurt its popularity either.

Football legend Tom Brady is such a fan that, in 2022, he joined a bevy of superstar athlete-investors buying stakes in professional pickleball teams. High-profile names like LeBron James, Kevin Durant, and Maverick Carter are among those funding the expansion of Major League Pickleball (MLP). The budding MLP launched in 2021 with eight teams and has plans to grow to 24, with six professional tournaments scheduled for 2023.

A Mixing Pot

One of pickleball’s defining charms is its ability to bring people of different abilities and ages together for a fast-paced good time. It was this high fun factor that impressed David Damare, a mortgage lender and a former tennis player from Raleigh, North Carolina.

Damare says he has gotten into a habit of playing pickleball two or three times a week when he’s not traveling. He says the sport is silly yet serious, easy yet competitive, and highly accessible for all levels of players from professional athletes to octogenarians.

It’s a winning mix of attributes that draws the crowds. A park in Damare’s area recently converted two tennis courts to eight pickleball courts. Since then, he says, the courts are packed at all hours. “It’s all types of people, from couples in their early 20s and late teens all the way up to literally 80-year-olds that are playing,” he says. “That’s why you have to get there at 7:30 in the morning—because the retirees come at 8:00.”

“It’s a very equalizing type of game. Older and younger people can easily play together, and it can be competitive because you’re not trying to hit the ball as fast [as tennis],” Damare says. “It’s less about power and more about eye-hand coordination, which makes it more open to all ages.”

Once they tried it, Damare and many of his tennis buddies couldn’t stop playing, quickly accumulating a pickleball text group of 30 to 40 guys. “It’s not as hard on your body as tennis, but you do get a pretty good workout,” he says. “The ball is zinging back and forth, so your hand-eye coordination and keeping your head in the game are really imperative.” The community of picklers is welcoming to newcomers, and the mental focus the game requires seems to get people hooked.

Pickleball image one

Not So Serious

Pickleball hails from the Pacific Northwest. It was invented in 1965 by three friends—Congressman Joel Pritchard, Barney McCallum, and Bill Bell—on Bainbridge Island in Washington State. To entertain their kids, they patched together the first games with an assortment of paddleball, ping-pong, and badminton equipment and played on a badminton court with a hard plastic Wiffle ball.

With their families, they made up silly rules and terminology as they went along and took the name from one of their families’ pet dogs, Pickles.

Although pickleball is mostly a social game that doesn’t take itself too seriously, it can also be intense and competitive. Another thing that makes it highly accessible is that pickleball doesn’t require high levels of strength or athleticism since the 44-by-20-foot courts are much smaller than standard tennis courts. Also, the ball is surprisingly lightweight and is only served underhand, which requires less force.

Pickleball’s kitchen rule sets it apart from other racquet sports. Players get a fault if they step into the 7-foot rectangle next to the net, a zone called the kitchen or the non-volley zone, when volleying, which means hitting the ball without letting it bounce.

When serving, the ball is required to bounce once on the return and then bounce once again when it is hit back to the other side. After that, players can choose either to volley or hit the ball after a bounce. When volleying, they must stay out of the kitchen. Since players can’t play close to the net and keep smashing the ball from there, pickleball becomes more about placing the ball skillfully into intentional zones, rather than hitting it forcefully.

That makes pickleball the rare sport that can put a grandma in her 60s on a level playing field with elite athletes. And that’s not a metaphor—it’s a real-life event.

Last summer, Meg Burkardt, an attorney from Lawrenceville, Pennsylvania, joined a pickup game in the park with three young men she did not know. She could tell they were pickleball beginners and lent one of them her racquet.

After partnering with “the guy in the green shirt” and beating the pants off the other two, she learned that they were T.J. Watt, Minkah Fitzpatrick, and Alex Highsmith of the Pittsburgh Steelers defense. It was the crowd of spectators that had gathered that eventually tipped her off. The funny encounter went viral on social media after Burkardt’s daughter posted that “my mom whooped some Steelers in pickleball today lol.”

“These guys are so fast and so athletic and have really quick hands,” Burkardt told triblive.com. “Each game, they were getting exponentially better.”

Pickleball image two

Give It a Try

You don’t need much to get started in pickleball, just some paddles, some indoor or outdoor Wiffle balls, and a pickleball court. Any loose-fitting, comfortable clothing will do. Online vendors such as pickleballcentral.com, totalpickleball.com, and Amazon sell many inexpensive wooden or composite racquets that are suitable for beginners.

There are pickleball venues in every state. They’re often located in schools, parks, YMCAs, and community recreation centers. You can easily locate a court in your area by entering your zip code in the appropriate form on USA Pickleball’s places2play.org or by searching the Places2Play mobile app. Its database lists over 38,000 indoor and outdoor courts at nearly 10,000 locations.

The official rules are available online through USA Pickleball, but the best way to learn is just to visit a local court and give it a try. You can connect with potential practice partners by searching “pickleball groups near me” or joining Facebook pickleball groups. Soon enough, you’ll be the one yelling about the kitchen.

Pickleball Patter

A sampling of pickleball terms that may sound silly, but picklers take seriously.

On December 29, 2022, as a part of the government’s year-end spending bill, President Biden signed into law the SECURE 2.0 Act of 2022 (SECURE 2.0). SECURE 2.0 builds on the reforms included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, the most comprehensive changes to the U.S. private retirement system in over a decade.

On its way to the President’s desk, SECURE 2.0 carried support from both major political parties and both houses of Congress. This Act makes it easier for employers to sponsor retirement plans for their employees and easier for employees to save more for retirement.

Key provisions of SECURE 2.0 that affect retirement plans include the following:

Specific to 403(b) qualified retirement plans, SECURE 2.0 includes:

Specific to new qualified retirement plans, SECURE 2.0 includes:

Specific to defined benefit retirement plans, SECURE 2.0 includes:

Plan amendments made pursuant to SECURE 2.0 must be made on or before the last day of the first plan year beginning on January 1, 2025 (or 2027 for governmental plans). Plan amendments made pursuant to the SECURE Act of 2019 and the Coronavirus Aid, Relief, and Economic Security Act (CARES) are also updated to match these dates.

Should you have immediate questions, or for more information, please contact your CAPTRUST financial advisor at 1.800.216.0645.

On December 29, 2022, as a part of the government’s year-end spending bill, President Biden signed into law the SECURE 2.0 Act of 2022 (SECURE 2.0). You may have heard about this Act in the news. SECURE 2.0 builds on the reforms included in The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

With support from both major political parties and both houses of Congress, SECURE 2.0 makes it easier for employers to sponsor retirement plans for their employees and easier for investors to save more for retirement.

Of note, there are several changes related to required minimum distributions (RMDs), some of which can impact distribution requirements as soon as next year:

Additional key provisions of SECURE 2.0 that may impact individual retirement savers include the following:

Some of these changes will begin to impact retirement plan participants in 2023.

Should you have immediate questions, or for more information, please contact your CAPTRUST financial advisor at 800.216.0645.