Category Archives: Estate Planning

Life After Foreclosure, Other Personal Finance Headlines

Interesting articles worth checking out: Homeowners qualifying for new mortgage after short sale. Auto purchasing and the various fine print costly add-ons. Estate planning: Naming a trustee for your trust, and living wills. Roth IRA escape hatch, for those that already converted, but now regret it.


Financial Diligence Is Required More Now Than Ever

Various news sources last week reported that inflation-adjusted median incomes haven’t increased since 1995. The recession is partly to blame, since many higher paying white-collar jobs are gone. Over the past 20 years many factories have moved overseas, so higher paying blue-collar jobs are rare.

As if those challenges aren’t enough, those with modest incomes have a tougher uphill battle than ever before. Gasoline has doubled in price since 2009. Grocery costs have gone up, and package sizes have come down. Many people living on the margin are driving older cars, needing more repairs.

Health insurance costs climb at rates faster than inflation, and with higher deductibles common with many plans, consumers have to pay more out of pocket. Many people don’t have health insurance even though Obamacare was passed (but it will not be fully implemented until 2014), and still business owners haven’t really figured out how to pay for benefits for low income and uninsured workers. So many modest and low income people continue go without regular health care, so they must pay everything out of pocket.

I know many people that are going back to college to get degrees in nursing or computers in order to find better jobs. Yet college costs have increased way beyond normal inflation, and many people graduate with burdensome loans. When financially strapped with debt, many exhaust their savings and are forced to use credit cards and check-cashing stores. Those with modest incomes and the poor are further hit with high interest rates, making it all the more difficult.

Is Obama or Romney coming to the rescue? Well I have been listening closely to both presidential candidates, and I hear they are concerned about all these challenges, yet I haven’t heard either articulate about their actual plans; their rhetoric remains abstract.

With all of these challenges, Financial Diligence is required more now than ever. Politicians and government in the end might help some, but it will take quite a long time. To make changes to present circumstances, it is up to me and you.

Financial Diligence

  • Making personal finances a priority
  • Committing time to do banking and budgeting
  • Investing time and money to take a class, e.g., Dave Ramsey’s Financial Peace University
  • Being smart and wise with decisions
  • Planning shopping trips and putting limits on grocery buying, eating out and entertainment expenses
  • Not borrowing for consumer goods
  • Saving for emergencies
  • Getting cost savings books from the library and implementing homemaking cost reduction measures
  • Obtaining advice from a financial coach about all areas, and especially before all major expenses
  • Being a great employee–learning extra skills or going back to school, and asking for more work when you have down time
  • Lastly, praying for wisdom to make good non-emotional decisions, and asking for all kinds of heaven-sent help for such things as financial miracles, raises, jobs, and good health for you as well as for your possessions that might break down and require budget-breaking expenses

Conclusion: The challenges are greater now than ever, yet it is not hopeless; it just requires greater concentrated Financial Diligence. You are smart, intelligent, and gifted; you can do it! You will repay debt, make more money, accumulate savings, and have more for good and fun things in the future. Don’t be discouraged–I have seen it happen to people over the past few years as they endure and improve through difficulty.

Dave Ramsey’s FPU Class, Week 6 Lesson: Insurance

The Dave Ramsey Financial Peace University multi-week class has an entire lesson on insurance, or risk management. On the surface this subject doesn’t seem all that spiritual, but protecting our family and the property God has given us, using as few dollars as possible is very good stewardship. To underline a few items from this lesson, and a few things that need a little more information…

  • Evaluate your life insurance Amount: if you have minor children and a mortgage a good rule of thumb is 10 times income (an insurance expert or financial planner can help you calculate your amount). You can subtract from that number your group life amount and other insurance, savings and investments. If your spouse doesn’t work outside of the home, she probably needs it too.
  • Life Insurance Type: Most personal finance experts, and financial planners recommend term insurance since it is pretty inexpensive, and buy as long a term as you can afford usually, such as 10 – 25 year level term. The length of the term will depend upon your age, affordability and overall financial plan.
  • Permanent Life Insurance: Dave and other financial experts recommend against using permanent (also known as whole life, universal and variable life) as an investment vehicle. This is because the fees are high, the net overall rate of return is modest, and the need for permanent insurance declines as we get older, as well as your savings and investments build up. Sometimes life doesn’t always go according to a neat plan with careers, business or family (e.g., death, divorce, starting families when we are older, and step families). Also, the ‘buy term and invest the rest’ depends upon exhibiting great personal finance habits throughout life. Considering these last two points…
  • Replacing permanent insurance with term: If someone evaluates their financial plan, and decides to replace their existing permanent insurance with term, they should be careful.  First of all the new policy has a period of waiting for incontestability and suicide. Secondly, being able to switch to low cost term is dependent on one’s health- so before you switch, make sure that you are insurable and at a good rate, and the new policy is in force until you drop the old one. Lastly, especially if the permanent policy has been in force for a long time, it is good to consider its overall net cost (examine’s its dividends {that could pay the premium} and cash value annual increases. Obtain an inforce ledger first of the existing policy to examine, and get second or third opinions before dropping- you have incurred a lot of upfront cost in the permanent, so don’t be hasty to drop it too quickly.
  • Competitive casualty insurance: If you haven’t shopped your auto and homeowners insurance in a while, call some independent and captive agents for quotes for various deductibles, you may be able to save a goodly amount.  Be sure to have your policy’s declaration page or description of coverage handy to refer to.
  • Umbrella coverage: Talk to your agent about ‘personal catastrophe’ or ‘umbrella’ insurance to protect you from excess liability. A few million dollars of coverage costs less than $200 usually.
  • Replacement cost: Ask your agent about your homeowner’s ‘replacement cost’ coverage for dwelling and contents.
  • Riders: Look into riders for increased limits on certain kinds of property, collectibles, and jewellery, as well to be covered if a sump pump fails or sewage backs up.
  • Long term care insurance (LTCi): If you are in your 50’s it is okay to consider this coverage now before age 60. Dave recommends this age, since that is usually the best time statistically considering normal life plans, accomplishing the baby-steps, and premiums. Rates go up with age, and sometimes our health changes more as we age, so if your financial plan permits LTCi, before age 60, that is okay.
  • Disability Insurance: Review your short-term and long-term disability coverage at work, even if you have it, it may be a good idea to consider supplemental since group DI is usually taxable.
  • Estate Planning: Dave recommends good estate planning. Be sure to contact an attorney about having a will, power of attorney written for you. If you believe in end-of-life planning, ask about living wills and health care power of attorney. Trust planning makes good sense for asset protection, and to take care of minor children, not including privacy and tax and probate cost minimization.

Conclusion, we can have insurance to protect us financially from almost everything that can happen to us, however the most effective protection is prayer:

  • Matthew 6:9-13 “This, then, is how you should pray: “‘Our Father in heaven, hallowed be your name, your kingdom come, your will be done, on earth as it is in heaven. Give us today our daily bread. And forgive us our debts, as we also have forgiven our debtors. And lead us not into temptation,but deliver us from the evil one.
  • Ephesians 6:11-13 “Put on the full armor of God, that you may be able to stand firm against the schemes of the devil. For our struggle is not against flesh and blood, but against the rulers, against the powers, against the world forces of this darkness, against the spiritual forces of wickedness in the heavenly places. Therefore, take up the full armor of God, that you may be able to resist in the evil day, and having done everything, to stand firm.”
  • Psalm 27:1-3 “The LORD is my light and my salvation; Whom shall I fear? The LORD is the defense of my life; Whom shall I dread? When evildoers came upon me to devour my flesh, My adversaries and my enemies, they stumbled and fell. Though a host encamp against me, My heart will not fear; Though war arise against me, In spite of this I shall be confident.”

Estate Planning for Blended Families

A marriage counselor friend of mine recently said that only 25% of households in some areas are made up of single people and traditional nuclear families of once married couples with their own children. The other 75% of households make up the rest of unmarried couples or remarried couples following separation, divorce or death, with children from more than that relationship coming from prior marriages or other relationships.

Estate planning for these step or blended families becomes vital to make sure that ownership of assets and designation of beneficiaries, as well as wills and trusts are arranged so that assets flow in the direction the person wants them to. In the absence of proper planning, assets will flow to the wrong people, and conflicts will ensue, including costly legal battles. In the wake will be harmed relationships and perhaps money not available to care for people who may have needed it.

I have seen this happen many times, especially to elderly people who remarried later in life. For example, let’s say Bill and Dorothy Welloff have been married 50 years, have accumulated several hundred thousand dollars in retirement savings and other investments, and own a very nice home. They could easily have a net worth of $1,000,000. For the purpose of this example, let’s say they are in their upper 70’s and Bill dies. The normal I-love-you will and estate planning leaves everything to Dorothy Welloff, as it probably should. And when Dorothy dies, whatever is left is distributed to Bill and Dorothy’s children, Joanne and Kevin Welloff.

Let’s say Dorothy remarries Bob Broke and Bob has no money but has 2 children from his prior marriage, Linda and Chris Broke. Without thinking or planning too much they change their wills and beneficiaries, and don’t use trusts, and they set everything up to take care of each other should either of them die. What ends up happening most of time, it seems, is that Dorothy Welloff dies first, and all assets flow to Bob Broke; and even though Dorothy’s wishes were to have the assets left to Joanne and Kevin Welloff after Bob Broke dies, they all end up in the hands of Linda and Chris Broke. This tragedy seems to happen more often than it should, and it could be avoided by proper ownership of the home, and proper directions for the flow of assets through a trust to provide some assets for Joanne and Kevin Welloff right away, income to maintain Bob Broke in a decent lifestyle, and the remaining assets at Bob’s death for Joanne and Kevin Welloff.

If you have a blended family, your situation is more complex. Take time now to make good plans. If your parents have remarried and the example above may apply to them, try to talk to them. This can be a very delicate situation. Perhaps show them this to break the ice. Mom or Dad: your children are not doing this because of greed, but because they want you to be aware of what may happen if proper planning doesn’t take place. As good stewards and managers of money you have worked a lifetime to earn and accumulate, you should make the time and spend a little money to make good plans with your attorney; then follow the wise and thoughtful interests and needs of Dorothy, Bill, and Bob so that assets are ultimately distributed fairly, according to what Dorothy and Bill would have originally wanted. However, you should be mindful of Bob’s needs as well.

Estate Planning Documents Most People Need

The following are the most common and basic estate planning documents. If you don’t have them, plan now to get them. If you do have them but it has been several years since they were updated, update them now. If you don’t have properly drawn-up documents, your family members will have great difficulty in planning the disposition of your property in an orderly, lower-cost manner in case you become incapacitated or die.

A Will provides for distribution of property you own at the time of your death in any manner you choose, subject to state limitations. A Guardian is someone you name in your will to care for your children in case something happens to both parents. Trusts are created to hold, own, control and allocate property now, or as most people do after they die. Trusts can be particularly helpful if distributing assets to several people and over a period of time, with conditions. They can also help your survivors avoid some parts and expenses of probate court. They can also provide creditor protection and privacy. A Living Will and Health Care Power of Attorney help if you become unable to make medical decisions for yourself. A Durable Power of Attorney grants legal authority to a trusted person to handle your finances and property if you become incapacitated and unable to handle your own affairs. This is just a brief list of the documents and concepts; talk about these and more with your attorney, including letters of instruction and the organization and storage of important papers.

What is Estate and Legacy Planning?

Legacy planning is the new phrase that is used synonymously with estate planning these days, and is the general process of arranging your financial affairs in a way that reflects your main priorities and values. People often think about wills and trusts, and this type of planning will always incorporate that, but the documents are not the tail that wags the dog. Legacy planning has evolved today into holistic approach to incorporate people’s overall financial planning goals and concerns:

  • Providing for many aspects of the financial, emotional, professional, and legal needs of surviving spouses and children
  • Maximizing and controlling their wealth for themselves for long life spans
  • Gifting to family members while they are alive, so that they can transfer wealth in a way that helps rather than hinders the individual
  • Transferring their business (possibly to a family member) in a cost-effective way, taking into account all possible tax concerns
  • Charitable concerns for which they have a passion
  • Transferring their important values and beliefs to the next generation
  • Providing enough assets for their minor children and surviving spouse if they die, but also arranging it in such a way that maintains privacy, protects assets from creditors, and provides ongoing professional management
  • Transferring wealth to spouses and adult children, that cares for the surviving spouse, and transfers remainder amounts to the intended children, which is especially important if there are blended families, or the spouse becomes remarried

When people have discussed their concerns about these items and many others with their attorney and trusted financial advisor, then it is the attorney’s job to draft up the wills and trusts that work  to address these concerns.

 The next issue that many people neglect is to change the beneficiary arrangements to work hand-in-hand with the legacy plan. A beneficiary is someone you designate in writing in an appropriate form (beneficiary form) directing the holder (bank, insurance company, investment firm) of an asset, where to send your money when you die. When doing estate planning be sure that your beneficiary arrangements are consistent with your overall plans. Check your beneficiary arrangements for life insurance, IRAs, annuities, and retirement plans. In addition, investment and savings accounts can have beneficiary arrangements too, called Transfer on Death arrangements. Be sure that you have them and they are up-to-date!

This type of planning is also very Biblical:

  •  A good man leaves an inheritance to his children’s children (Proverbs 13:22).
  • House and wealth are an inheritance from fathers (Proverbs 19:14)
  • Observe and seek after all the commandments of the Lord your God in order that you may possess the good land and bequeath it to your sons after you forever (1 Chronicles 28:8). 
  • “Teacher, tell my brother to divide the family inheritance with me.” But He said to him, “Man, who appointed Me a judge or arbiter over you?” And He said to them, “Beware, and be on your guard against every form of greed; for not even when one has an abundance does his life consist of his possessions” (Luke 12:13-15).
  • An inheritance gained hurriedly at the beginning, will not be blessed in the end (Proverbs 20:21).
  • Now I say, as long as the heir is a child, he does not differ at all from a slave although he is owner of everything, but he is under guardians until the date set by the father (Galatians 4:1-2).
  • Thus I hated all the fruit of my labor for which I had labored under the sun, for I must leave it to the man who will come after me. And who knows whether he will be a wise man or a fool? Yet he will have control over all the fruit of my labor for which I have labored by acting wisely under the sun. This too is vanity . . . When there is a man who has labored with wisdom, knowledge and skill, then he gives his legacy to one who had not labored with them. This too is vanity and a great evil (Ecclesiastes 2:18-21).