The Basics

Gone are the days of paper stock certificates to evidence ownership of stock.  Now, if your stock is not held in a brokerage account, it will be held in a statement account with a transfer agent such as Computershare. 

If your shares are held in a brokerage account, you will have the availability to have the brokerage institution track the basis, stock splits, exchanges, non-dividend distributions, dividends, etc. for you.  However, if you have your shares in a statement account with a company such as Computershare, you may not have the same information available to you.  Therefore, you will need to track this information yourself. 

Why is it important to keep track of this information?  At some point, you may wish to sell some or all of the shares and, in doing so, you will need to report the sale on your income tax return.  You will need to report the basis – your acquisition cost.  Since you purchased the shares, the company may have had stock splits (receiving additional share(s) for each share you own), a spinoff (your shares are taken into consideration when the company gives shareholders stock in a newly acquired company), an exchange (when the company may have merged into a new company and your existing shares are exchanged for shares in the new company) or if you have a dividend reinvestment plan in place (rather than receiving dividends in the form of cash, your dividend is used to purchase additional shares).  All of these actions factor into your basis.  Without this information, you will not be able to properly report the basis of your shares sold.

For the past several years, brokerage firms have been required to track the basis of the shares owned.  But, with companies that simply hold your shares, the information is not as readily available.  You are required to keep track yourself.  How you do this is up to you.  If you like pencil and paper, a ledger sheet can be used.  If you like spreadsheets, you can set one up yourself.  Or, there are portfolio tracker apps available on the internet.  Whatever method suits your style, use it.  It will save much angst should you decide to sell the securities and need to determine the basis. 

“People”?  Yes you have “people”, we all have “people”.  So, who are your “people”?  They include, but are not limited to, the beneficiaries under your will and/or trust, beneficiaries of life insurance and retirement-type accounts, parties named to serve as executor or trustee, agents under your power of attorney and living will.  Yes, I can hear you saying “Sure I know them”.  And, I believe you that you do. 

However, I am referring to knowing them in a different manner – one that you know the correct name, the correct spelling, where the individual lives or if a corporate fiduciary, where they do business.  In some instances, you may need to know their Social Security Number. 

And why is this important?  Here are a few real life examples encountered in handling estates:

• You always have referred to a friend as “Jack” during your friendship.  But “Jack” is a nickname, not his given name and he has no identification referencing “Jack”.   When Jack has to show identification as either an agent or a beneficiary, he has nothing; but he does have identification for his real name as “John”. 
• This even goes one step further with “Sue”.  “Sue” might be a shortened form of “Susan”, but Susan doesn’t have any identification for Sue; only Susan.
• Even better yet, you refer to someone as “Buddy” when the real name is Robert John. Since he was named after his father, there had to be some distinction.  In all reality, “Buddy” doesn’t exist.
• Always have the correct spelling of names because an incorrect spelling can cause problems.  For instance “Debra” may really be spelled as “Deborah”.  Or one better, how many spellings are there for “Catherine”? “Catharine”, “Katherine”, Katharine”, “Kathryn”, “Cathryn”. You get my drift.
• Be specific.  “Mary, my neighbor” really doesn’t provide sufficient information.  What happens if your neighbors change and by chance another Mary moves in next to you?  Would you want her to be a beneficiary?
• Another example is a female name that does not reflect her married name.  Susan Smith is now Susan Jones.  All of her identification is in the name of Susan Jones but when she tries to act on your behalf, she has problem because of the name differences.  Sometimes presenting a copy of her marriage license will suffice; other times, it is not that easy.

It is likely that if you are revisiting your estate planning documents, you have an attorney who is attentive to detail and will require full names and complete identification of the parties.  However, the attorney cannot be held responsible for “Jack” really being “John” or “Buddy” really being Robert John.  Can they?  They don’t know Jack or Buddy.

Maybe you never realized you have “people”, but you do.  When naming them in legal documents, just make sure that you have properly named your “people”. 

With all of us sheltering in place, we are probably doing some long overdue cleaning and going through things that we have accumulated.  Among the accumulation, we probably have seen financial records we forgot we had.  So, what do you keep?  What do you shred?  (And please, don’t just rip into a couple of pieces and put in your paper recycling.  Don’t take the chance for your information to be stolen.)

TAX RETURNS – It is recommended that you keep these for seven (7) years.  A suggestion is to put the information for a specific year into a large envelope and mark the year on the outside.  This will make it easier to annually discard information more than seven (7) years old and keep your stash to a minimum.  Of course, if you have this information stored electronically, you are one step ahead of this method. 

INFORMATION ON INHERITED ASSETS OR ASSETS RECEIVED AS GIFTS – If these assets have a basis that will be needed in the future should you sell the asset and need to report the sale on your income tax returns, keep the basis information as long as you own the asset.  Then, once you report the sale on your income tax return, put the basis information with your tax information for that year. 

REAL ESTATE INFORMATION – It is recommended that you keep the settlement statement from your original purchase as well as records to substantiate any capital improvements.  This information will be needed at such time as you would sell the property. 

INFORMATION ON SECURITIES – You should keep information regarding the purchase of the securities for basis purposes.  Also, keep pertinent information on stock splits or return of principal.  Dividend information is very important if you have a DRIP – dividend reinvestment plan – as the additional dividends will have various basis amounts. 

MILITARY PAPERS – Discharge papers, benefits, military insurance, etc., should be kept for purposes of Social Security, veteran’s benefits both during life as well as for death benefits.  Military honors can be a part of funeral services, however, it is necessary that the discharge papers be available for presentation. 

RETIREMENT PLANS – If you have made nondeductible contributions to a retirement-type plan, records should be kept for the contributions to support tax liability when funds are withdrawn.

LEGAL JUDGMENT/LOAN SATISFACTIONS – Keep these indefinitely as proof of the payment.  If the document has been filed with the Courts, however, this may not be necessary as the proof of payment is of public record. 

INSURANCE POLICIES – Keep these records as long as the policy is in effect.  If the policy is no longer effective, keep the status report from the insurance company stating the policy has been cancelled.  This is true for all types of insurance.  Remember that life insurance policies may be paid up and while no premiums are being paid, there is a value for the policy. 

Hopefully this will help you reduce the information you are hanging onto.  Remember to SHRED, SHRED, SHRED when discarding sensitive information.  The best rule – if in doubt, keep it.

You are getting organized and one of the areas you think about is protecting your important documents and where you should keep them.  Let’s take a look at some possibilities. 

If you have completed your estate planning, the attorney with whom you worked may offer to keep your documents safeguarded for you.  They may have either a fireproof vault or bank safe deposit boxes where they can hold the documents for you.  This is not a bad idea because you know where your original documents are, know that they can be retrieved if needed and are better safeguarded if subjected to a fire or water damage.  However, not all attorneys have the facilities to offer such a service.  Be certain to ask your attorney if they can hold your original documents if they don’t offer. 

In the event you have your original estate planning documents as well as other important papers, where should you place them for safekeeping? 

Many individuals think that a bank safe deposit box is the best location.  However, while they may be safe, they may not be easily accessible.  Perhaps there would be a need for the documents at such time as the bank is closed.  Or the documents are needed and you are unable to visit the bank to retrieve them yourself.  Being that the bank will allow only authorized individuals to enter a safe deposit box, this may create problems.  Authority will be needed.  Further, while most banks will allow the intended executor to enter the safe deposit box of a deceased person to retrieve the Last Will and Testament and a cemetery deed, some banks will not allow this without a Court Order. 

An alternative is a fireproof safe.  I am not talking about one of those little “fireproof” boxes that many people have, thinking that their documents will be safe. Those little boxes are fireproof only to a certain temperature.  If investing in a fireproof safe, make certain that your selection protects to the highest temperature possible. 

Regardless of where you place your important papers, it is always a good idea to have copies of documents or at least the important pages in an alternative location.  Most of the time, attorneys will retain a copy of the signed documents electronically but it is not likely they would have any information regarding insurance policies, annuity contracts, etc.  You could always place these documents in a sealed envelope and give them to a third party for holding.

Electronic records are wonderful as they don’t take up space, but are they accessible?  You should have a “cheat sheet” of where to locate and access your electronic records.  This can be placed in a sealed envelope and marked with an indications such as “to be opened in the event of my death or disability” and placed in an easily found location in your home.    

Remember the saying that “an ounce of prevention is worth a pound of cure”. 

We are into the new year and have possibly made resolutions to improve certain aspects of our lives in one way or another.  One of the most common areas is with regard to finances.  So, if you are one of those resolution makers, let’s look at some things to consider:

First of all, take a look at your 2019 financial resolutions – were you able to accomplish those resolutions or did they get cast by the wayside?  Examine your progress, or lack thereof, and evaluate your savings and spending habits, set some realistic goals and consider any life changes which may have occurred or will be occurring. 

Remember to take advantage of contributions to whatever type of retirement plan you may have.  Check with your employer for employer-sponsored plans or your financial advisor for IRA contributions.  Remember that if you are of a more seasoned in age, you may be able to make catch up contributions. 

If you have a Flexible Spending Account through your employer and participate in the same, make sure you know how to take advantage of the Account with co-pays, medications, etc.  If you forget to use this benefit on the spot, familiarize yourself with ways to file claims for reimbursement. 

Take time to review your estate planning documents.  Many people think that this is something they don’t wish to think about because it deals with death, but think again.  Estate planning includes powers of attorney and health care directives which are effective during lifetime and have no effect post-death.  Also, you may have a living trust or may be able to benefit from a living trust.  Make certain the parties you have designated as executors or agents are still desired or able to handle these duties.  If you have special situations in your family – a special needs individual, a family member in an unsteady marriage, a family member which substance abuse issues or financial issues, you may wish to make certain that your estate plan reflects your intentions and protects the potential individual who may benefit from your estate. 

Laws change as does life and as a general rule, you should review your estate planning documents at least every five years.  While older documents may set forth your intentions, there may be instances where a new document or two may better serve you if revised. 

Also, it never hurts to review any life insurance policies you may have.  A review of the beneficiary designations on insurance and retirement-type assets can proactively avoid any potential problems that may exist with incorrect or out-of-date beneficiary designations.             

Let’s be positive and proactive in the new year.

In this final blog about Medicare, we will discuss some highlights regarding prescription drug coverage. 

• Check your plan for Part D as to covered prescription drugs and which are formulary and non-formulary.  Each plan has lists of drugs fitting into each category.  If your drugs are not on the approved list, you may have to process an exception, pay a higher cost or file an appeal. 

• Also consider whether you can visit a local pharmacy or if you are required to use mail order.  There are also preferred and non-preferred pharmacies to be considered. 

• Finally, know your options with regard to name brand vs. generic drugs.

If you have a very limited income, there is assistance which may be available to you to help with your health costs.  These programs include:

Medicare Savings Programs (MSPs) help pay the monthly Part B premium and may help with Medicare cost sharing, depending on the program (there are three types of MSPs). Contact your SHIP at www.shiptacenter.org to learn if you are eligible for an MSP.

Extra Help is a federal program that helps pay for some to most of the costs of Medicare Part D prescription drug coverage. Contact the Social Security Administration at 800-772-1213 or visit www.ssa.gov to learn if you are eligible for Extra Help and to start an application. 

State Pharmaceutical Assistance Programs (SPAPs) are offered in some states to help eligible individuals pay for prescriptions. Contact your SHIP at www.shiptacenter.org to learn if there is an SPAP in your state.

Do your homework before turning 65 to know your options with regard to Medicare.  Avoid costly mistakes.  Healthcare coverage can be overwhelming and very confusing.

Last week, we talked about enrollment periods and what happens if you fail to enroll at a specified time.  This week, we will discuss the different types of Medicare.   

There is confusion with original Medicare and Medicare Advantage plans.  When you are eligible for Medicare, you have a choice which is dependent upon your health care needs, insurance your doctors accept (yes, not all doctors accept Medicare), where you live, whether you travel often and your financial situation. 

Original Medicare is the traditional program offered directly through the federal government. It comprises Part A, which covers hospital costs, and Part B, which covers doctor visits and other outpatient services. The vast majority of doctors in the country take this insurance. To help pay for your out-of-pocket costs, you can buy a Medigap policy, which has its own separate monthly premium. Original Medicare does not include Part D (prescription drug coverage), so you must sign up for a stand-alone Part D plan if you do not have other drug coverage. Original Medicare does not have a limit on your annual out-of-pocket costs.

Medicare Advantage is a private insurance alternative to original Medicare. These plans provide Part A, Part B and usually Part D benefits. They may also offer certain benefits that original Medicare does not cover, such as dental or vision care, and they may also have different costs and rules than original Medicare. For example, a Medicare Advantage plan can require you to get a referral from a primary care physician before it will cover care from a specialist. And, Medicare Advantage plans generally have a network of providers in your geographic area and may not cover care if you see an out-of-network provider (except in emergencies). Medicare Advantage plans have an annual out-of-pocket limit, and you cannot buy a Medigap policy when you are enrolled in Medicare Advantage.

Medigap insurance is supplemental health insurance that works with original Medicare.  Without a Medigap policy, you will have to pay part or some of the out-of-pocket costs not covered by Medicare.  These include Part A hospital deductible or the 20 percent coinsurance in Part B.  There are many different Medigap plans, the premiums for which vary from company to company.

What happens if you don’t buy a Medigap policy during your open enrollment period?  If you suffer from any preexisting conditions, you cannot be denied coverage and you must be offered a plan at the best available rate.  Buying a plan outside of this window could result in your being refused a policy or being denied coverage for existing health problems.  (Some states have rules governing Medigap policies, so if you made this mistake, check with your State Health Insurance Assistance Program at www.shiptacenter.org for more information. 

Even though you have Medicare, you may be required to pay substantial out-of-pocket costs.  You have monthly Medicare premiums for each Medicare Part B and D coverages.  If you are receiving Social Security, these premiums will be deducted from your monthly benefits.  If you enroll in a Medicare Advantage (MA) plan or a Part D plan, you may also owe a monthly premium, depending on the plan you select.  You may have a deductible before Medicare begins payment.  Often times, Medigap policies will cover Medicare deductibles.  You may have a copayment for services.  NOTE:  If you have original Medicare, make certain your health care provider accepts Medicare and takes the assignment – meaning that the provider is willing to accept the amount on Medicare’s fee schedule.  If the provider is not participating in Medicare, they could charge up to 15 percent more than Medicare’s approved rate. 

What happens if you choose a Medicare Advantage plan that doesn’t include your health care providers?  We are all familiar with networks in medical insurances.  So, you need to be familiar with in-network providers and facilities or out-of-network providers.  You need to be diligent with checking with your providers if you decide to enroll in a Medicare Advantage plan as to what the cost of services will be for out-of-network services. 

CONTINUED NEXT WEEK.