How to Prepare Your Heirs to Receive, Protect and Grow Their Inheritance

When we think of vast family wealth, most of us know the name Cornelius Vanderbilt, the railroad and shipping scion of one of the richest families in America in the 19th century. When he died in 1877, he left a fortune of $100 million — more than the U.S. Treasury held at the time.

That massive fortune — which would be more than $200 billion in today’s dollars — has been gone for over 40 years. It did not survive past three generations, primarily due to mismanagement of successive generations of heirs.

This Forbes article looked at ways to prepare heirs for an inheritance, with an emphasis on protecting and growing that inheritance. Here are some tips:

Share Your Vision

Conduct a family roundtable where the heads of the family come together with everyone and share their hopes and dreams for the family, as well as how they plan to reach their goals for the future. The idea is to start an open multi-generational dialogue.

Tell Your Story

To help younger generations understand the importance of protecting and growing inherited wealth, it helps if they first understand the values and visions of their predecessors. Sharing family memories, experiences and life lessons from older generations is a  key component to ensuring the family story continues on. 

Record Your Story

Your lasting legacy should be much more than just money; it should also be about those valuable intangibles that make your family unique, told through your insights, values and experience. We do this through our legacy planning process, helping you capture and pass on your own story and your aspirations for your loved ones through a special recording we produce for each of our clients.

Gather Together

Annual family retreats or gatherings around holidays also help solidify family values and nurture common goals. Consider holding an annual retreat where multiple generations can gather to make plans for the future and renew family harmony.

The Four Tricky Cons of 2016

Electronic technology has brought about tremendous benefits for today’s society. We can access goods, services, and information, all at the touch of a button. The flip-side of that coin, however, is that this same technology has also spawned countless new opportunities for dishonesty and crime.
It is unlikely that any person who has a telephone, cell phone, or computer has not been the subject of an attempted criminal act, or at least of a scam that may precede an actual crime.
According to a survey by True Link Financial, approximately $12.76 billion is stolen from older Americans each year through identity theft and scams. To help protect yourself, be aware of the most common scams out there..

“I’m Calling from Microsoft Tech Support.”

If you receive a call from someone saying they are from Microsoft and a problem has been detected on your computer, don’t believe them. Microsoft does not make these types of calls. The people making the calls are trying to lead you to a website that will unleash malware designed to steal your usernames and passwords for online accounts where they can access your banking and credit card information.  If the caller gets you to go to a website, it may look very official, but remember, Microsoft will never contact you this way.

“I’m Calling from the Internal Revenue Service."

According to the AARP Fraud Watch Network, this is one of the most often-reported scams. The caller will state that you either owe back taxes that must be paid immediately or that you are due a refund that can be collected online. In either case, the goal is to get you to a website that will launch malware on your computer in an attempt to seek your financial information and bank account numbers or that will facilitate the theft of your identity. The caller will likely sound very authoritarian and may even be able to state the last four digits of your social security number. But even if the caller gives you a number to call to “verify” that the call is from the IRS, or gives you a “case code number,” don’t participate. Like Microsoft, the IRS will never initiate contact with you by phone. Instead, it will always send a communication through the U.S. Postal Service.

Calls from No One

A common precursor to scam calls is a call on your phone where no one speaks. You may hear clicks on the other end. But rather than assume it was a wrong number, assume it was an automated call to validate a working telephone number that can be called later by a scammer. It is best to have caller identification on your phone and you may not want to answer calls from numbers you don’t recognize.

Chip Cards

The new chip cards for debit and credit use are much safer than magnetic swipe cards in that they change the code each time they are used. While that provides more protection when a retailer suffers a data breach, scammers are catching up quickly and using new and different tactics. They will send emails pretending to be from your financial institution stating that financial information must be provided via a particular linked website. The link will cause malware to be released which searches your computer for account numbers, passwords, and other financially sensitive information.
The best rule to follow in thwarting scammers is to never navigate to a website or click on a link when directed to do so by an unsolicited caller. If you receive an e-mail or phone message asking you to call a number, don’t call that number. Instead, locate the appropriate number for the entity and call that number to determine whether the communication was legitimate.
Yes, technology makes things much easier for us, but it also makes us more vulnerable. It is best to proceed with caution in all things financial and put the brakes on when things don’t seem to add up.

Conscious Money Challenge: Know How You Are Invested

If you have money invested in the stock market, whether through a retirement account or a straight brokerage account, I challenge you today to find out exactly what your money is invested in and make a conscious choice about what you are supporting in the world.

If you aren’t sure how to do this, grab your last account statement (or go online) and find the 5 letter code that indicates where your money is invested. Then, type that into Google and review the breakdown of holdings. For example, AGTHX, the Growth Fund of America, sure sounds nice, doesn’t it?

But, if you look a little closer …

After typing AGTHX into Google you will see that if you are invested in what they call the Growth Fund of America, you are actually investing in Phillip Morris (the tobacco company that hid data on nicotine’s addictive properties), EOG Resources (fracking), and Amgen (a company accused of suppressing a true cure for cancer to promote it’s own bottom line — unverified).

The process often goes like this, a new employee is told, “We’ve set up a 401k for you, now you need to pick your investments.”

The employee looks at the options offered, and picks something that looks safe or that has a positive sounding name such as “Growth Fund of America.”

Most employees simply don’t know any better. So the first question for all of us is, “Do I want to stay blind or am I ready to wake up?”

And if you are ready to wake up, the next logical question is, “Am I really desiring to support big tobacco, fracking and big pharma? Or do I want to do something else with my money?”

We can take control by not investing blindly just because we want that “safe” 5% return for our retirement.

What will retirement be like anyway if we are living in a world without clean water (fracking), where we cannot get access to our own natural healing (big pharma), and where lying to addict people is considered acceptable (big tobacco)?

We vote with our dollars, but not just through what we buy, but also with HOW WE INVEST. Using robo-funds, or financial advisors who only care about their own commissions or getting your money under management, or simply ignoring it because it’s too complex, is not conscious investing.

Financial Myths About Getting a Divorce

If your marriage is on the rocks, one of your many worries is probably the impact divorce will have on your financial life. We can support you with a thorough analysis of your assets and understanding of the financial impact of a divorce, but first read these three widespread myths of the financial impact of divorce.

My Money Is My Money, and Your Money Is Your Money

Some people believe that if they keep the money they earn in separately titled bank accounts, it is “their money”, but this may or may not be true.

Whether your money is “your” money in the context of divorce depends on state law, how the money was earned, whether it was inherited and whether you live in a community property state or not.

To obtain accurate predictions, rely only on information provided by an attorney or certified financial divorce analyst licensed in your state of residence.

After the Divorce, Both Parties Will Enjoy the Same Standard of Living

When there are plenty of assets to go around, both parties are able to enjoy the same or similar standard of living they did before the divorce. However, many American families do not own adequate assets to allow this to happen. Therefore, although many states include the “standard of living” as a factor to be considered in spousal and child support, the economic realities are that it costs more to support two households than it does to support one.  As such, it is often the case where neither party enjoys the same standard of living after a divorce.

A Nonworking Spouse Will Get Alimony for Life

While it is usually true that nonworking spouses will receive some amount of alimony, the time period is often limited to that necessary to allow the person to get back on his or her feet. This type of alimony, usually known as spousal support, is defined by the laws of the state in which the divorce occurs.

Unless the marriage was very long and one of the spouses is not working, it is unlikely that permanent spousal support will be awarded. Usually, a judge will award temporary or transitional alimony to allow a nonworking spouse to obtain a job or an education with which he or she can become self-supporting. In short, spousal support cannot be relied upon forever.

Should I Pay Off My Mortgage Now or Save More Money?

Should I Pay Off My Mortgage Now or Save More Money?

To many people, living debt-free is a lifelong dream. It’s the picture of the easy life. Retired with no debt. 

You may be surprised to learn, however, that debt-free is not always the best decision - particularly if the choice is between paying off a mortgage or using the money more wisely to invest in a future using low interest rate funds. 

What?  I Shouldn’t Pay Off My House?

Most of us don’t have that much extra cash lying around.  We simply don’t have the luxury of being able to pay off our family home and maxing out our retirement contributions and investing in a side business. It’s pretty much an either-or proposition.

With that said, from a financial standpoint, it is usually most favorable to make additional contributions to a company 401(k) program, if your company is matching your contributions, or investing in growing a side business, rather than using extra money to pay off the mortgage.

Putting money into a 401(k) plan has many advantages:

  • Taxes on these contributions are deferred;

  • Employers often max 401(k) contributions, doubling your money;

  • Money can be liquidated for unexpected expenses; and

  • In most cases, if you are connected to how your 401(k) is invested, investing the extra money could result in a more significant return than the interest you are paying on your mortgage, leading to greater net wealth in retirement.

Creating a side business has many advantages:

  • You can create a side income stream that provides you with the kind of security a job working for someone else never can;

  • You can write off business expenses for things you are already paying for already, such as using the home office deduction to deduct part of your home costs;

  • You can use your creativity, knowledge, experience, and other resources gained over a lifetime of learning to help others and get paid for it;

  • You can employ your children, teaching them financial principles and how to be personally sovereign from a young age;

  • You can learn, grow and evolve -- starting and running a business is one of the best ways to push the edges of your own comfort, bringing you closer and close to true internal liberation. 

And, remember this: Mortgage interest deductions help when tax time rolls around.

After all is said and done though, the mortgage versus 401(k) versus side business decision is a personal one that you must ultimately make for yourself.  Just keep in mind that if your priorities are financial, it is probably best to lean towards making additional contributions to your retirement account or starting a business, rather than paying down your mortgage.

What You Need to Know About Reverse Mortgages

Can I Benefit from a Reverse Mortgage?

It seems that we can’t turn on the television or radio without hearing an ad for a “reverse mortgage.” So what is a reverse mortgage exactly, and who can benefit from using one?

A reverse mortgage is a type of loan taken out against your home.  With a reverse mortgage (as with a traditional mortgage) you are borrowing against your home equity which is the difference between your home's market value and the amount you owe on your mortgage.  The difference in a reverse mortgage is that you do not have to pay it back while you are alive.  Instead, the loan is paid off after you pass away.

What Are Some of the Benefits of a Reverse Mortgage?

Reverse mortgages can be a fantastic tool, depending on your goals.  They can provide additional income and improve your cash flow, particularly if you have already paid off your home.  Here are some reasons to consider a reverse mortgage:

  • They can help you maintain your financial independence by providing additional income;

  • They can allow you to stay in your home until you die;

  • For most people, the risk of default is low; and

  • They are not taxed.

One of the best things about a reverse mortgage is that the amount paid back will not exceed your home’s value.

What Are Some of the Disadvantages of a Reverse Mortgage?

As with any financial tool, reverse mortgages are not for everyone or every situation.  Before you decide to take out a reverse mortgage on your home, you should consider the following potential disadvantages:

  • Interest costs are higher because you are making no payments;

  • The amount paid back after your death will cut into the estate left for your family or heirs; and

  • Because they are based on a formula, the amount you can borrow is lower than with traditional home equity loans.

Reverse mortgages can also be complicated and rather difficult to understand.

The bottom line is this: A reverse mortgage is one financial tool you can use to achieve your goals.  However, before you commit to a large loan, you should make sure you understand all aspects of the loan.  If you are not sure whether or not a reverse mortgage is right for you, talk with a trusted financial adviser or attorney.

How You Can Save Money You Might Be Losing Right Now

Got a Job? Here’s How You Can Save Money You Might Be Losing Right 

Did you know there are many steps that you can take to save money via your employment?  Some of these strategies work by allowing you to pay for things with pre-tax money, which could up to 40% (depending on your tax bracket) right back into your pocket.  Others provide benefits through your employer that are not taxable to you on your individual income tax return, again reducing your tax liability.

Saving through Pre-Tax Contributions

There are several ways you can save money at work by paying for things out of your gross income (that is your pre-tax income).  Perhaps the three most significant pre-tax expenses you can pay for through your employer are 401(k) contributions, medical flexible spending accounts (“FSA”), and dependent care reimbursement accounts.

You can make retirement contributions to either an employer-sponsored 401(k) plan or to a traditional individual retirement account, tax-free.  In addition to saving money in the short run by decreasing your taxable income, you’ll be building a nest egg for your later years. You will pay taxes when you take money out of the account, but we always suggest to defer taxes when you can.

In addition to contributions to a retirement account, the regulations of the Internal Revenue Service also allow for both medical flexible spending accounts and dependent care reimbursement accounts.  With these types of accounts, you contribute pre-tax money, effectively securing a discount on eligible medical or dependent care expenses. 

Saving through Nontaxable Benefits

Pre-tax expenses are not the only way your job can help you save money, however.  The Internal Revenue Service allows employers to provide their employees with many benefits that are not taxable to the employees.

Here are several benefits your employer can provide, which you do not need to report on your individual tax return:

  • Employer-paid health insurance premiums;

  • Employer-paid parking, to a maximum of $240 per month;

  • Health club access for a gym on your employer’s property;

  • Employer-paid educational classes, up to a maximum of $5,250; and

  • Employer-paid life insurance coverage, up to a maximum of $50,000 in benefits.

You might be surprised at the number of savings opportunities you can leverage from your employer.  In addition to providing a paycheck, your employer can improve your financial condition in many other ways.  And over the course of a career, the savings can really add up. It may be time to talk with your employer about providing some of these benefits.

Create Family Financial Traditions!

To some degree or another, we are all a function of the social environments in which we were raised. Of course, that encompasses both positives and negatives. When it comes to money, the first exposure we have to its management is in our families. That makes good money management practices a real gift that parents can pass on to their children."

Don’t Buy Your Kid a Car 

The greatest motivator there is for a teenager is freedom and their path to that freedom is a car. When you buy your kid a car, rather than supporting him or her to learn to earn money to buy the car him/herself, you are overlooking one of the greatest opportunities you have to support your child to learn to be self-sufficient.
If you have an extra car available for your child, at least require your child to pay for the gas and insurance, which will support him or her to begin to be prepared for the requirement of life in the future, when you aren’t there to provide for all the needs they have.

Kids Playing the Stock Market?

Introducing children to the stock market is not a far-fetched idea. There is plenty of information available that can be understood by kids. First off, children are very aware of products -- toys and games like the CashFlow Board Game, for example. They can be introduced to the fact that the companies that make these toys are owned by people like their parents, who hold shares of stock. From there, they can be shown the daily stock prices and how they change. As they grow older, your children can begin making small stock purchases and become comfortable with investing.

Family Vacation Saving

Family vacations are usually looked back on fondly and may even be considered family traditions. Saving during the year, by children as well as parents, for an annual vacation can also be part of that tradition and help teach good money management techniques. Whether it be from jobs kids have like grass cutting or babysitting, or just from allowance savings, it will serve children well later in life to have learned the value of setting money aside for a deferred pleasure.

Charitable Giving

If you give to charity regularly, you may want to consider setting up a private foundation that can be used to consolidate your giving plus be used to educate your children about investing (all of the assets of the charitable foundation need to be invested) and giving.

Read the story of Bob and Wendy Graham, of the Namaste Foundation, and how they used charitable giving via a private foundation to educate the kids and create cohesion and connection in their blended family. If you’d love a free copy of this short book, please give us a call and we’ll send you an ebook as a our gift.

Estate Planning

Involve your children in your estate planning as soon as they are old enough to understand. They will feel secure knowing you’ve planned well for what would happen to them, if and when something happens to you. Have them meet the lawyer they will work with, tell them about how they will receive their inheritance and when. And, begin to talk now about how you can increase the overall family wealth you have and how you want to be cared for by them at the end of your life.

If you feel uncertain about how to approach these issues, contact us. Or read the books Die Wise,Being Mortal and Family Wealth: Keeping It in the Family, all books that inform our personal process as your family lawyers.

Early Entrepreneurship

Supporting your children to think like entrepreneurs can be one of the greatest gifts you give them. As the world shifts, we are moving into a new economy in which reliance on traditional jobs no longer provide the security they once did. Technology will replace many of the jobs people relied on in the past and the only real security going forward is resourcefulness, creativity and community, all of which is learned via the path of entrepreneurship.

Consider reading the book The Last Safe Investment by Bryan Franklin and Michael Ellsberg for some more ideas around this topic.

Tax Refund Spending: Where To Put It For Max Return

Did you get a holiday bonus from your employer? Or maybe you have a tax refund coming.  If so, do you have any of it left, have you already got it spent in your mind, or are you thoughtfully considering how you can best utilize this surprise resource?  Annual bonus payments and tax refunds are nice windfalls, which can be used to create more stability in your life. While it is fun to treat such income as “mad money” to be spent on frivolous endeavors, it may be more effective to use it to create more for your long run.

The Best Uses

Paying down a home mortgage is one of the best uses of extra cash. The less principal on which interest is calculated, the more money you will keep for yourself in the long run. Another benefit to making a principal payment is that if it brings the remaining principal to less than 80% of the appraised value of your home, then private mortgage insurance can be dropped, saving you even more money.

Contributing to a retirement account is another excellent use of extra money, if your employer matches your contribution.

If not, consider the possibility of investing your bonus or tax refund into starting your own side business. Here’s a great article about the Side Hustle and how it could help you.

Other Good Uses

Home improvement needs are common for most home owners. Keeping up the condition and value of your home are important long term goals. Letting things go too long typically increases the ultimate cost of repairs. Dealing with them early can pay dividends.

Another good use of bonus funds is to invest in an estate plan if you don’t have one already. Over 50% of Americans between ages 55 and 64 don’t have a will.  And 69% of parents have never named legal guardians for their kids. Of the 31% who have, most have made one of 6 common mistakes that means their kids are at risk. Are you part of this group?

Dying without a will, let alone a comprehensive estate plan and Kids Protection Plan® for your kids,  creates complications for your heirs and can leave your family in Court and/or conflict. While you may not relish the idea of investing your bonus or tax refund in an estate plan, the cost to you now would be much less than the cost to your loved one’s later.

If you would love to use your tax refund or holiday bonus to do the right thing by your family, contact us and ask for the tax refund/holiday bonus special that includes a Family Wealth Planning Session + analysis of the best use of the funds for your current situation, as our gift to you, if you are one of the next 5 to call and request it.

Watch Out for Predatory Tax Liens on Your Family Home

As our parents and other loved ones age, they may need a little more attention from us. Parents, grandparents, aunts and uncles, or even neighbors who are aging may want to be seen as strong and independent. Often, however, their abilities to take care of household and financial affairs begin to erode as they get older.

 What’s at Risk?

One such example  which can have catastrophic consequences is the failure to pay property taxes. A lot of retired people struggle to make ends meet and may not be able to pay their taxes as they come due. This puts their home at risk because unfortunately, governments have processes in place to collect back taxes by placing liens against the property.

Worst Case Scenario

Different locales have different approaches to filing liens against property, but one place where it has become predatory is Washington, D.C. There, the city made a policy change in 2001 that has had devastating effects on homeowners. Prior to that time, the city would sell a lien at auction to individuals who could then charge interest on the amount due until it was paid. If it was not paid, the city could move to foreclose on the property.

 The change in 2001 allowed the purchasers of the liens to go directly to court to foreclose on the property they purchased. This attracted predatory lenders from other states that became very aggressive in pursuing the foreclosures. In many cases, people who owned their homes free and clear lost them over unpaid taxes of less than $500. Once the investors buy the liens, they can begin charging interest and legal costs, which often causes the homeowner to be less likely to be able to pay off the lien.

It is true that homeowners have ample time and notice to pay the taxes, even after the liens are sold, but Washington’s story is replete with cases of owners with dementia and other serious illnesses. Because of these types of conditions, many owners were not aware of or did not understand exactly what was happening. And without family or friends looking out for them, the predators can have a field day.

 Thankfully, Washington is in the minority of governments that allow this predatory approach to tax collection, but your loved ones could still be at risk. Those of us with elderly family members and friends need to pay attention to ensure they stay on top of financial matters. Respect their pride, but make sure they get the help they need so they are not taken advantage of. If you have an elderly loved one you want to ensure has the support and protection he or she needs, contact us. We can help.

Planning for Charitable Giving

January 1 wipes the slate clean for your tax deductible charitable contributions. That might be a good time to reassess your approach to donating to charities. Most of us respond to some of the appeals which come through various avenues such as unsolicited phone calls, campaigns at work, or church related charities. Whatever the source of the appeal may be, however, most people are inconsistent givers and fret when finding a way to say no.

 A Better Way

 A solution to the dilemma when to give and when not to, is having  a plan in advance. Knowing ahead of time how much you are willing to contribute to charities and those specific charities to which you will give makes it easier  to deal with those groups not on your “list”. Hard-charging solicitors are more likely to back off when informed that you have a charitable giving plan to which you strictly adhere.

 To begin creating your own personal charitable giving plan, first look at your past giving patterns and amounts. Did you take an itemized deduction? If yes, you can start with that amount and decide whether it is too high or too low. Many people do not keep track of all they have given, and some may even overstate the amount. Whatever  the case, decide on an amount you want to give and then make a list of the organizations to which you will donate.

Once you identify the recipients, you can decide how and when you want to make your contributions. If cash flow is an issue, you might set up a schedule for contributions. Consultation with the charity may provide some knowledge of what  works best for that organization.

 An Even More Coordinated Approach

 If you want to provide a one-time outlay that gets your charitable funds set aside, a donor-advised fund can be established through a financial services firm. This way, a contribution to the fund can be made and then disbursed at later dates. The tax deduction is based on the contribution to the fund rather than to individual organizations. This also allows other family members to contribute if they would like to simplify their charitable gift-giving, too.

 A plan for charitable giving that specifies an amount and the recipients, in advance, takes away the angst of considering numerous solicitations that come randomly throughout the year. Knowing you have an action plan in place makes it that much easier to either ignore solicitations or provide a standard response.