Budgeting, Part 1 - Budgeting is a Friend, Not a Foe

Budgets do control spending behavior. However, budgets also allocate resources to the areas of highest impact or interest. When a budget is structured based on priorities and values, much of the controlling element is removed.

Using budgets at work is understood and expected. A company has a limited amount of money and so must allocate that money based on priorities—by budgeting. But often the discipline workers use at work does not carry over at home. The result is often overspending, debt, arguments between spouses/partners, loss of control, and unrealized dreams and goals.

The Key Takeaways

• Using a budget helps to allocate limited resources to the areas that matter the most.
• The same discipline used to follow budgets at work can be used for budgets at home.

Making a Budget Your Friend

Creating and staying on budget can empower you and help you feel in control of your earnings, your spending and your future. When you and your spouse/partner are in agreement about spending priorities and have shared goals, your relationship is likely to be more harmonious and less stressful.

What You Need to Know

You probably already have the skills needed to set and follow a budget. Use your common sense to create a budget that helps you. 

Actions to Consider

• Draw upon your work experience with budgets.
• Determine spending priorities with your spouse or partner.
• Include dreams or goals to save toward together.
• Include fun in your budget. Everyone needs some fun, even if your budget is tight. Having separate fun money for each spouse/partner (with no questions or accountability) provides a little freedom and independence for both of you.
• Look for ways to reign in impulse spending and unnecessary expenses to fund your spending priorities.
• Don’t spend more than you bring in. If you cannot cut your budget enough to live within your means, think of ways to earn extra money.
• Start saving. Even small amounts saved consistently will grow into larger amounts.
• Review your budget and finances periodically to see how you are doing. Seeing progress toward your goals will make  you proud of your accomplishment!
• Reward yourself for staying on or under budget. Think of inexpensive or free ways to celebrate.

Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for budgeting.

The Clock is Ticking on Maxing Out Your 2014 Retirement Plan Contributions

With the end of 2014 fast approaching, now is the time to take a look at your year-to-date retirement plan contributions to see where yours stand when compared with the 2014 contribution limits.

Summary of 2014 Retirement Plan Contributions Limits

Depending on how much you’ve already contributed, you may be able to contribute more to your retirement plan for 2014.

To help you determine whether you need to make some additional contributions, here is a summary of the 2014 retirement plan contributions limits. Please remember that some types of accounts require contributions before December 31, whereas other types of accounts allow contributions up to the April deadline for filing your tax return. Contact us now so we can offer you specific guidance about your account.

• The contribution limit for employees under age 50 who participate in a deferred contribution plan (401(k), 403(b), most 457 plans, or the federal government's Thrift Savings Plan) is $17,500. These plans generally require contributions to be made on or before December 31

• The contribution limit for employees age 50 and over who participate in a deferred contribution plan (401(k), 403(b), most 457 plans, or the federal government's Thrift Savings Plan) is $23,000. These plans generally require contributions to be made on or before December 31.

• The contribution limit for employees under age 50 who participate in a Savings Incentive Match Plan for Employees of Small Employers (known as a SIMPLE plan) is $12,000.  These plans generally require “employee” contributions to be made on or before December 31 and permit “employer” contributions to be made up to the filing deadline of your tax return on April 15.

• The contribution limit for employees age 50 and over who participate in a Savings Incentive Match Plan for Employees of Small Employers (known as a SIMPLE plan) is $14,500. These plans generally require “employee” contributions to be made before December 31 and permit “employer” contributions to be made up to the filing deadline of your tax return on April 15.

• The contribution limit for a Simplified Employee Pension Individual Retirement Account (i.e., SEP IRA) or Solo 401(k) is the lesser of (a) $52,000, or (b) 25% of the employee’s salary, and the compensation limit used in the savings calculation is $260,000. These plans generally permit contributions up to the filing deadline of your tax return on April 15.

• The contribution limit for individuals under age 50 to a traditional or Roth Individual Retirement Account (IRA) is $5,500.  These plans generally permit contributions up to the filing deadline of your tax return on April 15.

• The contribution limit for individuals age 50 and over to a traditional or Roth Individual Retirement Account (IRA) is $6,500.  These plans generally permit contributions up to the filing deadline of your tax return on April 15.

• While contributions to IRAs that apply to the 2014 tax year can be made up until April 15, 2015, the time is now to make contributions so that you can maximize your earnings inside the account.

• Before you make any contributions to a Roth IRA, make sure you’re not subject to the adjusted gross income (AGI) phase-out. If your income is greater than AGI phase-out amount for your filing status, then you’re not eligible to make contributions to a Roth IRA. The AGI phase-out amounts for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married taxpayers filing jointly; $114,000 to $129,000 for single taxpayers and head of household taxpayers; and for a married taxpayer filing a separate return, the phase-out is not subject to an annual cost-of-living adjustment and is therefore $0 to $10,000. We can help you determine which phase-out, if any, applies to your situation. 

Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for maximizing the tax benefits discussed here.

Learning from Your Mistakes Can Become Your Teaching Moment

Everyone makes financial mistakes. The key is to learn from them, try not to repeat them and then pass on this hard-earned wisdom to your loved ones as an element of your financial legacy.

The Key Takeaways

• We can learn not only from our own mistakes but also from those of others. 
• Sharing the wisdom gained from these errors can help others avoid them—and the pain and regret that usually accompany them.

One part of advancing ourselves is learning from our own mistakes; another part is learning from the mistakes of others. The latter is decidedly less painful to us than the former! As Eleanor Roosevelt said, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.”

Even the savviest investors make mistakes or have regrets. Learning from others’ mistakes can help us to gain wisdom without the pain of having to go through the experience ourselves.

In many ways the key to long-term investing is learning our lessons well. For your loved ones, identify the top mistakes you’ve made in your financial life and explain why the lessons you’ve learned are important to pass along.

What You Need to Know

Imparting the wisdom you have gained over the years is part of your financial and family legacy. Being candid about your mistakes and regrets also can provide your loved ones a glimpse of the person you once were and have become because of these experiences. 

Actions to Consider

• Think about the things you've learned over the years related to money. Create a list of your lessons, principles and practices. Don’t worry about the wording or order at this point.
• Next, consider the items on the list based on the impact they had on you. Impact is not just financial loss but also anxiety, strife and confusion. One way to judge impact is to read the item and see what thoughts flood your mind or how much your stomach churns; you can be certain that these impact you measurably.
• Now, group your list by greatest impact to least impact.
• Set a schedule, say, each month or quarter, to write out your lessons and how you've applied them, and share this with your loved ones.

Feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for preserving your legacy.

Taking Care of a Valuable Resource (You)

The combination of your talents, experience and skills represents an asset. Like any asset, it should be managed and protected. This includes keeping yourself healthy, having sufficient insurance protection, planning for both the near term and the future, investing in yourself, and having contingency plans if a sudden turn occurs. 

The Key Takeaways

• You—your talents, experience and skills—are your most valuable asset.
• Properly managing and protecting this asset can make you more valuable and prepare you for future changes and opportunities.

Caring f or Yourself as an Asset

Too often, we let ourselves slip to the bottom of the priority list. But when you start to think of yourself as your most valuable asset and begin to nourish and protect this asset, you will perform at your best and increase your value. For example:

• Keep yourself healthy. You can’t perform at your best if you don’t take care of yourself. Start with the simple things you already know you should do: eat the right foods, drink water, exercise regularly, get enough restful sleep, etc. See your doctor and take care of small issues before they become big problems.
• Have sufficient insurance to manage risk. Coverage usually includes health insurance; long-term care insurance; life insurance; property and casualty insurance; liability insurance; and professional insurance.
• Invest in yourself to stay valuable, both for the short term and long term. Work on ways to be consistently productive in your work. Learn new skills or take training that will help in your current job/career or that will prepare you for a future one. Consider additional education or an advanced degree to help expand your abilities and potential.
• Have contingency plans. Plan for the unexpected. Start paying off debts and building an emergency fund. Keep your resumé updated. Expand your professional contacts in your current industry or one you would like to pursue by attending networking functions and using social media like LinkedIn.

What You Need to Know

When you take care of yourself, protect yourself and invest in yourself, you will perform better, become more valuable, and will be more prepared if your future takes an unexpected turn or a golden opportunity comes your way.

Other Actions to Consider

• Stress can affect you physically, mentally and emotionally. Having a comprehensive plan, and a team of professionals looking after its execution, brings far greater value in financial benefits, peace of mind, and confidence in the future than the upfront costs.  
• Don’t expect to make all the changes at one time. Take small but consistent steps. Set some goals and start working toward them.
• Everyone has different talents and abilities. Consider what you do well and work on being as good as you can be in those areas. At the same time, be conscious of things you could do better and work on some improvement in those areas.

For help and guidance on getting started on protecting yourself and the resources you have, contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Year End Estate Planning Tip #2 - Check Your Beneficiary Designations

With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season.  One area of planning that many people overlook is their beneficiary designations.

Have You Checked Your Beneficiary Designations Lately?

Do you own any life insurance policies?  If so, have you named both primary and secondary beneficiaries for your policies?

How about retirement accounts – are any of your assets held in an IRA, 401(k), 403(b) or annuity?  Or how about a payable on death (“POD”) or a transfer on death (“TOD”) account?  If so, have you named both primary and secondary beneficiaries for these assets?  

What about your vehicle – do you have it registered with a TOD beneficiary?  And your real estate – is it held under a TOD deed or beneficiary deed?  

If you have gotten married or divorced, had any children or grandchildren, or any of the beneficiaries you have named have died or become incapacitated or seriously ill since you made beneficiary designations, it is time to review them all with your estate planning attorney. 

Beneficiary Designations May Overrule Your Will or Trust

Speaking of estate planning attorneys, has yours been given and reviewed all of your beneficiary designations? 

It is critically important for your estate planning attorney to review your beneficiary designations as your life changes because your beneficiary designations may overrule or conflict with the plan you have established in your will or trust (unless your state law provides otherwise, but you should certainly not rely on this).  Also, naming your trust as a primary or secondary beneficiary can be tricky and should only be done in consultation with your estate planning attorney.   

What Should You Do?

Whenever you experience a major life change (such as marriage or divorce, or a birth or death in the family) or a major financial change (such as receiving an inheritance or retiring) or are asked to make a beneficiary designation, your beneficiary designations should be reviewed by your estate planning attorney and, if necessary, updated or adjusted to insure that they conform with your estate planning goals.  

If you have gone through any family or monetary changes recently and you’re not sure if you need to update your beneficiary designations, then consult with your estate planning attorney to ensure that all of your bases are covered.

Year End Estate Planning Tip #1 - Check Your Estate Tax Planning

With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season.  One area that married couples should revisit is their estate tax planning. 

Do You Still Have “AB Trust” Planning in Your Estate Plan?

If you’re married and you haven’t had your estate plan reviewed since before January 2, 2013, by an experienced estate planning lawyer, then pull your documents out of the drawer, dust them off, and take a closer look at their trust provisions.  Do they contain terms such as “Marital Trust,” “QTIP Trust,” “Spousal Trust,” “A Trust,” “Family Trust,” “Credit Shelter Trust,” or “B Trust”?  

If so, then your revocable trust contains estate tax planning provisions that were required in most estate plans before January 2, 2013.  Now, you may not need this type of planning since the federal estate tax exemption has been fixed at $5 million per person adjusted for inflation (the exemption is $5.34 million in 2014 and expected to increase to $5.42 million in 2015).  

Aside from this, the federal estate tax exemption is also “portable” between married couples (including legally married same-sex couples), meaning that when one of a married couple dies, the survivor may be able to get the right to use their deceased spouse’s unused estate tax exemption and so, without any complicated estate tax planning, pass $10 million+ to the deceased spouse’s heirs and the survivor’s heirs federal estate-tax free.

Do You Still Need “AB Trust” Planning in Your Estate Plan?

With that said, do you still need to include “AB Trust” estate tax planning in your estate plan?  The answer to this question depends on several factors, including:

• Are the combined estates of you and your spouse under $5 million?  If the combined value of the estates of you and your spouse is under $5 million, then you will not need to worry about federal estate taxes (at least for now).  Nonetheless, there may be other reasons to keep your “AB Trust” planning in place as discussed below.
• Does your state still collect a state estate tax?  – If your state still collects a state estate tax and your state’s exemption is less than the federal exemption, then “AB Trust” planning (or perhaps “ABC Trust” planning) may be required to defer payment of both state estate taxes and federal estate taxes until after the death of the surviving spouse.  (Note that this will not be the case in Delaware and Hawaii since the exemptions in these states currently match the federal exemption.  The exemptions in Maryland and New York will also match the federal exemption in the future, but not until 2019.)
• Do you and your spouse have different final beneficiaries of your estates?  If you and your spouse have different final beneficiaries of your estates (for example, you want your estate to ultimately pass to your children while your spouse wants their estate to ultimately pass to their siblings or their children), then “AB Trust” planning may be necessary to insure that the final estate planning goals of each spouse are met.
• Do you and your spouse want to create a dynasty trust that will continue for many generations?  Even if the combined value of the estates of you and your spouse is under $10 million, if you want to take advantage of both spouses’ generation-skipping transfer tax (“GSTT”) exemptions to create a lasting legacy for future generations, then “AB Trust” planning may be appropriate because the GSTT exemption is not portable between married spouses.  In other words, if the combined values of the estates of you and your spouse is $10 million or less, then you may want to keep “AB Trust” planning in your estate plan so that you can fully use each spouse’s GSTT exemption for a dynasty trust for the benefit of your children, their children, and their children’s children.

In addition, there are many other factors and options to consider that an experienced estate planning attorney can explain.

What Should You Do?

If you’re married and your current estate plan includes “AB Trust” planning but you’re not sure if you should keep it in your plan, then make an appointment with an experienced estate planning attorney to discuss all of your options.

VA Benefits For Long-Term Care of Veterans and Their Surviving Spouses

Many wartime veterans and their surviving spouses are currently receiving long-term care or will need some type of long-term care in the near future. The Veterans Administration has funds that are available to help pay for this care, yet many families are not even aware that these benefits exist.

Pension with Aid and Attendance pays the highest amount and benefits a veteran or surviving spouse who requires assistance in activities of daily living (dressing, undressing, eating, toileting, etc.), is blind, or is a patient in a nursing home. Assisted care in an assisted living facility also qualifies.

Pension with Housebound Allowance is for those who need regular assistance but would not meet the more stringent requirements for Aid and Attendance, and wish to remain in their own home or the home of a family members.  Care can be provided by family members or outside caregiver agencies.

Basic Pension is for veterans and surviving spouses who are age 65 or older and are disable, and who have limited income and assets.

Qualifying for Benefits

A veteran does not need to have service-related injuries to qualify for these pension benefits, but must meet certain wartime service and discharge requirements. A surviving spouse must also meet marriage requirements to the qualified veteran. Certain requirements must be met for a disability claim if the claimant (the veteran or surviving spouse filing for benefits) is less than age 65. 

When determining eligibility, the VA looks at a claimant’s total net worth, life expectancy, income and medical expenses. A married veteran and spouse should have no more than $80,000 in “countable assets,” which includes retirement assets but does not include a home and vehicle. This amount is a guideline and not a rule.

Income for VA Purposes (called IVAP) must be less than the benefit for which the claimant is applying. IVAP is calculated by subtracting “countable medical expenses” (recurring out-of-pocket medical expenses that can be expected to continue through the claimant’s lifetime) from the claimant’s gross income from all sources.

Note: It is possible to reduce assets and income to a level that will be acceptable to the VA. For example, excess liquid assets (such as cash or stocks) could be converted to an income stream through the use of an annuity or promissory note. However, because the claimant may need to qualify for Medicaid in the future, it is critical that any restructuring or gifting of assets be done in a way that will not jeopardize or delay Medicaid benefits. An attorney who has experience with Elder Law will be able to provide valuable assistance with this.

Applying for Benefits

It often takes the VA more than a year to make a decision, but once approved, benefits are paid retroactively to the month after the application is submitted. Having proper documentation (discharge papers, medical evidence, proof of medical expenses, death certificate, marriage certificate and a properly completed application) when the application is submitted can greatly reduce the processing time.

Because time is critical for these aging veterans and their surviving spouses, application should be made as soon as possible. For more information, visit http://www.va.gov.

Online and Do-It-Yourself (DIY) Estate Planning

With the number of online and do-it-yourself (DIY) legal providers continuing to grow, some of individuals may be wondering if they could do their estate planning themselves. The advertising is seductive: attorneys use similar forms, the cost is significantly less than hiring an attorney, and many of these websites and kits are created by attorneys. In addition, most people think their estates are not complicated, and many think they are just as smart as (or smarter than) professionals.

Most professionals know that DIY estate planning can be very dangerous. While completing the forms may seem easy and straightforward, a single mistake or omission can have far reaching complications that only come to light after the person has died. With that person not here to explain his or her intentions, the heirs could end up disappointed and confused, and could end up paying much more in legal help to try to sort things out after the fact than it would have cost in the first place.

Those contemplating the DIY route should consider the following:

• Legal Expertise: Experienced estate planning attorneys have the technical expertise to draft documents correctly. Yes, they may use pre-drafted forms to start from, but they know what to change and how to change it to make your plan work the way you want. They also understand the technical terms and legal requirements in your state. Laws vary greatly from state to state, and a DIY program or kit may not tell you everything you need to know to prevent your plan from being thrown out by the court.

• Counseling: Attorneys are called “counselors at law” for a reason. Most estate planning attorneys have counseled many families and they have seen the results of proper and improper planning. An experienced attorney can guide you with delicate decisions, including who should be the guardian of your minor children; how to provide for a child or elderly parent who has special needs without interrupting valuable government benefits; how to provide for your children fairly (which may not be equally); and how you can protect an inheritance from creditors and irresponsible spending.

• Explanation of Intentions: If there is any confusion as to what your intentions were after you are gone, the attorney who counseled you will be able to explain them. This unbiased interpretation from someone who does not stand to benefit from your plan can help to avoid costly litigation by your beneficiaries and even maintain the validity of your documents.

• Coordination of Assets: A will only controls assets that are titled in your name. You probably have other assets that are controlled by a contract, joint ownership and/or beneficiary designations; these include IRAs, 401(k)s, joint bank accounts, real estate and life insurance. A will does not control these assets. An experience estate planning attorney will know how to coordinate these so that your assets are distributed the way you want to those you want to have them.

• Tax Planning: The federal estate tax exemption has been a moving target in recent years. The current $5 million exemption is set to expire at the end of 2012 and, if Congress does nothing, it will reduce to $1 million in 2013. Also, many states have their own death or inheritance tax, often at much lower exemptions than the federal tax. Careful professional planning is a must in order to avoid paying too much federal and/or state tax.

• Same Sex and Other Relationships: Because laws are frequently changing and vary greatly from state to state, it is vital to have updated advice from a competent professional. Without proper planning, many rights may be limited for unmarried cohabitants. Providing for your pets may also be very important to you.

• Complexity and Cost: Most people think their estate planning will be simple. But the reality is, most of us discover we do need some personalized planning…and you may not know that without the guidance and counseling of an experienced attorney. It is far better to spend a little more now and make sure your plan is created correctly than to try to save a few dollars and have things turn out badly later. You won’t be around then to straighten things out. Don’t you think you owe it to those you love to do this the right way?

Here are some things all of us can do to help keep costs down:

• Become educated consumers. The more we learn and understand about estate planning, the less time an attorney will need to spend educating us as to the process.
• Prepare a list of assets and liabilities; gather relevant documents (deeds, titles, beneficiary designations, etc.); consider beneficiaries and any special needs they may have.
• Shop around a bit. Ask friends and acquaintances for referrals. If costs are a concern, let the attorney know up front that you are concerned about costs; he/she may be willing to work with you to keep them as low as possible.
• Consider what you think you want, but be open to the attorney’s suggestions.

How to Minimize Legal Fees After Death

Death is a costly business.  Aside from funeral expenses, legal fees can take a big chunk out of how much is left for your loved ones after you’re gone. 

But it doesn’t have to be this way.  Careful planning can minimize the legal fees your loved ones will pay after you die.  Here’s how:

1.         Make an estate plan – The cost of creating an estate plan will be far less than the legal fees your loved ones will have to pay if you don’t have one.  But be careful – don’t try to write your own will or revocable living trust.  Do-it-yourself or online plans often fail to include valuable cost, tax, and legal fee saving opportunities. You need the advice and assistance of an experienced estate planning attorney to create an estate plan that will work when it’s needed and minimize legal fees after your death.

2.         Maintain your estate plan – Once you’ve created your estate plan, don’t stick it in a drawer and forget about it.  Instead, fine tune your plan as your life and your finances change.  Otherwise, when your plan is needed, it will be stale and out of date and will cost your beneficiaries time and legal fees to fix it. In a worst case scenario, a stale plan could lead to expensive and emotionally draining litigation between your family members. Regular maintenance of your estate plan makes it easier to carry out when needed.

3.         Have a debt plan – Make a plan for paying off your debts and taxes after you die.  This should include setting aside funds that your loved ones will have easy access to (for example, set up a joint bank account or a payable on death account) so that they won’t have to use their own assets to pay your bills until your will can be probated or the successor trustee of your trust can be appointed.  If your estate is taxable, then make sure you have enough assets that can be easily liquidated to pay the estate tax bill.  Life insurance can be another option for providing easy access to cash and paying estate taxes, but it’s important that you align your life insurance plan with your estate plan to get the maximum benefit.

4.         Let your loved ones know where your estate plan and other important documents are located – If your loved ones don’t know where to find your health care directive, durable power of attorney, will, or revocable living trust, then their hands will be tied if you become incapacitated or die.  While you don’t need to tell your loved ones what your estate plan says, at the very least you should tell someone you trust where your estate plan and other important documents are being stored.  You should also make a list of the passwords for your computer and accounts you manage online and a contact list for all of your key advisors (such as your attorney, accountant, life insurance agent, financial advisor, banker, and religious advisor).

Following these practical tips will save your family valuable time and money during a difficult time. 

Philip Seymour Hoffman's Will: 3 Critical Mistakes

Oscar-winning actor Philip Seymour Hoffman died from a drug overdose in February 2014. Sadly, he left behind three young children - and a fortune estimated to be worth $35 million. 

He was only 46. 

After his death, Mr. Hoffman’s Last Will and Testament was filed for probate.  The Will is short – only 15 pages – and, it was signed on October 7, 2004, about a year and a half after the actor’s first child was born. 

The Will leaves his entire estate to Marianne “Mimi” O’Donnell, a costume designer and the mother of all three of Mr. Hoffman’s children.  The couple never married and had separated in 2013 (due to Mr. Hoffman’s recurring drug problems). 

Estate Planning Mistake #1 – Using a Will

Shortly after Mr. Hoffman’s Will was filed, The New York Post published it online and his final wishes instantly became public information.  We know his request to have his son (the only child living when the Will was signed) raised in Manhattan, Chicago, or San Francisco so that he "will be exposed to the culture, arts and architecture that such cities offer." 

There is another way – a private way.  A Revocable Living Trust (as used by Elizabeth Taylor and Paul Walker) would have kept Mr. Hoffman’s final wishes a private matter.

Estate Planning Mistake #2 – Failing to Update His Estate Plan

Mr. Hoffman signed his Will in October 2004.

• During the next nine years, he had two daughters, won an Oscar for best actor for his performance in Capote, and amassed the majority of his fortune. 
• Considering Mr. Hoffman's well-documented, long-term struggle with drug addiction as well as the significant changes in his life and net worth during those nine years, it is surprising that he failed to update his estate plan. 
• At the very least, your estate plan should be reviewed every few years to insure that it still does what you want it to do and takes into consideration changes in your finances, your family, and the law.  

 Estate Planning Mistake #3 – Ignoring a Trusted Advisor

In probate court documents filed in July, it was revealed that Mr. Hoffman’s accountant repeatedly advised him to protect his children with a trust fund.  But the actor ignored this good advice. 

With the terms of the old 2004 Will left unchanged, the estate will pass to Mr. Hoffman’s estranged girlfriend, outright and without any protections.

Nothing will go directly to his children. 

Had Mr. Hoffman listened to his accountant and worked with an estate planning attorney, he could have established a lasting legacy for his children, protecting them and their inheritances. 

With the counseling and advice of an experienced estate planning attorney, you can avoid mistakes like Mr. Hoffman’s.   

So, What is a Trust Anyway?

A more "legal-sounding" definition is below, but I find this analogy does a better job of putting the definition in plain English.

Think of a trust as a red wagon.  Without a trust, as you walk through life, you carry everything in your arms, figuratively speaking: your house, IRAs, life insurance, bank accounts, etc.  If you trip (i.e., become incapacitated or pass away), all you stuff ends up on the sidewalk and for everyone else to see.  Your family and loved ones are left to pick everything up and figure out what to do.  

Now imagine that your stuff was in a red wagon instead of your arms.  When you trip, your stuff stays in the wagon, and all that happens is you drop the handle.  Your stuff remains safe, and there are written instructions on what is supposed to happen to your stuff.  Perhaps best of all, not everyone can see what is in your wagon - only the people you want to see.

A Revocable Living Trust is created while you are alive. Your property and assets are transferred into and owned by the Trust, over which you retain full ownership and control.  When properly drafted and executed, your Trust allows your assets to be efficiently distributed upon your death according to your instructions, while avoiding the costly and time-consuming probate process and the mandatory attorney fees associated with probate.

A Trust also contains your instructions for your own care and the care of your loved ones should you become disabled.  And, it keeps your instructions and your financial affairs private, unlike a will.  However, it can only accomplish these objectives if you properly draft, execute, and fund your Trust.

Below are 10 advantages of creating a Revocable Living Trust:

1. Provides one planning document with complete, comprehensive instructions for your care and the care of your loved ones.
2. Provides continuity in the handling of your affairs by efficiently transferring your property to your loved ones.
3. Avoids probate on your disability or death with respect to its assets if your trust is funded properly.
4. Easily moves with you from state to state.
5. Creates protective trusts for your loved ones that are free from the supervision of the probate court.
6. Can be easily changed, should you desire to do so.
7. Enables you to rely on your Trustees, should you wish to travel or otherwise delegate the day-to-day management of your financial affairs.
8. Is difficult for disgruntled heirs to attack.
9. Ensures your family’s privacy following your disability or death.
10. Achieves your death tax objectives.

If  you would like more information on how a Family Legacy Plan uses a trust, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

10 Worst States for Retirement

USA Today listed what it considers to the 10 worst States for retirement.  There are a few common traits for this list o' shame: high crime rates, high property taxes, and low life expectancy.

10. Alabama - low life expectancy, and the violent crime rate is in the top 10% for the country

9. Michigan - One word: Detroit.  Plus, the winters are brutal.

8. New York (tie) - Actually, the Empire State has a lower crime rate, but the weather and taxes make it unfriendly to the retired.

8. Maryland (tie) - high crime and high taxes.

8. Georgia (tie) - The Peach State has a good climate, but in every other category, it's subpar.

5. Nevada - Violent crime rate is 2nd in the country, and despite the glitz and glamour of Vegas, the economy has been struggling for years.

4. Illinois - high property taxes

3. Tennessee - high crime and low life expectancy

2. Louisiana - the only thing keeping Louisiana from the No. 1 spot is its weather.

1.  Alaska - weather alone could put Alaska in the top spot, but its economy is not strong and the cost of living is high

I don't know if I agree with Alabama and Georgia being on the list.  I'd be hard pressed to find a good reason to suffer through northern winters when I retire.

3 Things You Should Probably Include in Your Estate Plan

A good estate plan covers as many of your assets as possible.  Here are three things that may be missing, but should be considered:

1. Pets - I'm not suggesting you go the route of Leona and give all your assets to your beloved pet, but perhaps designating who will take care of the pet and then some funds to help will ensure that your cat/dog/etc. does not end up at the local adoption shelter.

2. Guns - Depending on the type of firearm you own, there may be federal and state laws restricting the transfer of the weapons.  Additionally, designating who is to receive the guns will help prevent the assets from being sold off to pay your debts after you pass away.  A more recent development in estate planning has been the concept of a "gun trust" - this is where the trust owns the guns, and the trustee has the right to use and maintain them.

3.  Unique collections - Like firearms, if you don't specify where these items go, they could be liquidated (read: sold) to pay off debts.  Perhaps there is someone who shares your passion and would appreciate your collection?  I recommend naming a specific recipient who can be trusted to take care of the collection.

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can take care of most of this list, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Your IRA Isn't as Protected as You Think It Is

Two of the greatest benefits of a traditional or Roth IRA are the tax advantages and protections against creditors.  The U.S. Supreme Court has ruled that once an IRA is transferred to a beneficiary, e.g., your children, the IRA loses the protections against creditors.

Click here to read the unanimous opinion.  The Supreme Court decided that once an IRA is inherited, it loses the characteristics of a "retirement fund" and, as a result, your beneficiaries creditors can go after it.

Fortunately, there is a way to add creditor protection to the IRA - the Standalone Retirement Trust.  Here are some of the benefits of a Standalone Retirement Trust:

• Protects the inherited IRA from each beneficiary's creditors as well as predators and lawsuits;
• Insures that the inherited IRA remains in your bloodlines and out of the hands of a daughter-in-law or son-in-law, or, more importantly, a former daughter-in-law or son-in-law;
• Allows for experienced investment management and oversight of the IRA assets by a professional trustee;
• Prevents the beneficiary from gambling away the inherited IRA or blowing it all on exotic vacations, expensive jewelry, designer shoes and fast cars;
• Enables proper planning for a special needs beneficiary;
• Permits you to name minor beneficiaries, such as grandchildren, as immediate beneficiaries of the inherited IRA without the need for a court-supervised guardianship; and
• Facilitates generation-skipping transfer tax planning to insure that estate taxes are minimized or even eliminated at each generation of your family.

If you think a Standalone Retirement Trust may be right for you, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

7 Questions to Ask Your Parents about Estate Planning

Asking your parents about their estate plan can be a touchy subject for many reasons.  It's difficult to bring up the subject without sounding like you're already coming up with ways to spend their money.  Regardless of where someone is in their life, it's important to have a plan to make sure assets are used in the way intended.

Here are 7 questions that will lead to a productive discussion about estate planning.

1.  Do you have an estate plan?

The majority of Americans have not developed a formal estate plan, or if they do have a plan, it's from a website and likely won't work in the way intended at the right time.  If they have done a formal estate plan, then it should be updated at an absolute minimum every 5 years.  Ideally, the plan should be reviewed with an attorney once a year to account for changes in life.

2.  Am I (or one of my brothers/sisters) a fiduciary in the plan?

If you're named as the executor of a will, successor trustee or a similar position in an estate plan, you'll have a legal obligation to follow your parents wishes and act in the best interests of the beneficiaries.  This can easily run contrary to what you think is best for you or your family.  It can also lead to nasty family fight over assets.  

Here are two alternatives to alleviate the risk of a family feud:

a. Name a professional fiduciary instead of a family member

b. Meet with everyone who stands to receive something under the plan, explain the plan, and then memorialize the meeting, ideally with an attorney.

3. Are the inheritances properly protected?

If you receive something outright - proceeds from a retirement account, property, etc., it can be attacked by a creditor.  In other words, if you end up in a bankruptcy, you could end up losing your inheritance.  If your minor children stand to receive something outright under the plan, then they'll receive it when they're 18.  This could be a problem if that "something" is a large sum of money.

Ideally, any inheritance should come in the form of a trust to protect from creditors and the potential misjudgments of youth.

4.  Are your healthcare documents up to date and HIPAA compliant?

Laws surrounding healthcare are like tax laws - they change often, and the changes can be quite substantial.  If your parents documents are not up to date, their end of life wishes may not be followed.

5.  Do you have a trust?  Has it been properly funded?

A revocable living trust and other trust options are great for an estate plan, but to make them work, they have to be properly funded.  It's also extremely important to make sure that certain things are owned by the trust while others name the trust as beneficiary.  This has significant tax implications.

6.  Do you know what your estate plan tax liability is?

To trigger federal estate taxes in 2014, the estate has to have a value of at least $5.34 million.  In 2015, the taxes start at $5.43 million.  As the law stands right now, the increases in estate taxes at the federal level are tied to inflation.  Of course, this is all subject to change depending on the will of Congress...

The value of the estate is a complicated formula, so it's important to review this regularly and make sure the estate plan takes advantage of tall tax strategies out there.  

7.  Have you considered long term care needs?

The cost of an assisted living facility can quickly eat through retirement savings, and without proper planning, people can find themselves ineligible for Medicare and Medicaid due to "look-back" provisions for qualification purposes.  In addition to planning for these contingencies, people in or near retirement should consider long-term care insurance.  

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can take care of most of this list, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Debt is The Only Thing My Kids Will Inherit

Wrong.  

There are some situations where your kids can "inherit" debt, but there are specific requirements, and most people do not find themselves in those situations.  In fact, in those situations they're not inheriting it at all, but instead fulfilling their obligations as a guarantor on the debt.  I know - two sides of the same coin.

The good news is that there are ways to make sure that assets like retirement accounts, life insurance and other investments go to the benefit of your children and loved ones instead of paying off debt when you are relieved of your mortal coil.

First, let's make sure we understand exactly what happens to debt when one dies.  Well, it depends on what kind of debt it is.  Federally guaranteed student loans are forgiven upon the death of the borrower.  Without a well designed estate plan, most everything else is going to go through probate.  This is oversimplified, but you'll get the idea - probate is a lawsuit filed by you after you die, using your own money, for the benefit of your creditors.  

Of course there are exceptions like life insurance benefits and retirement accounts, but to make sure those funds aren't used to pay other debts, you need a plan.

A will is a good place to start, but it's important to remember that a will must go through probate in order to work.  So we're right back at the same problem.  Additionally, the probate process is completely public.  Anyone can go to a courthouse and find out what someone left to their heirs.  

For some the privacy issue may not be that big of a concern, but think about this: "anyone" includes creditors.  Debt collectors can be a tad bit aggressive, and some of them will have absolutely no problem calling up your loved ones after your gone and telling them that their share of your 401(k) has to be handed over to satisfy credit card debt.  It can and does happen.

If you have questions on what does and does not go through probate, or you would like more information on how a Family Legacy Plan can help protect your estate from creditors, contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Tips for the Family CFO

Stress and concerns over the family budget are perhaps the most common instigator for marriage fights.  Often, the lack of money itself is not the problem, rather an underlying issue.  These tips may not solve the root cause, but they should help ease the stress of the never-ending struggle to make ends meet.

It's Not a One Person Job.  I'm having trouble coming up with a part of marriage and raising a family that is a one-person job.  Sure, one person may actually do the work like mowing the lawn, folding laundry or cooking dinner; but, the other partner is watching the kids or taking care of something else that has to be done.  When it comes to finances, both partners should be familiar enough with the ins and outs that if something happens to one, the other can function so that the electricity stays on and there aren't any overdraft fees.

Your Financial Planner Should be a Fiduciary.  A fiduciary is someone who is required to act in your best interest.  There are plenty of investing coaches and mutual fund managers who are more interested in the commission from selling you a particular stock or fund.  A registered investment adviser is a different breed, and he / she is obligated to tell you what is best for you, not for his / her commission.  One of the best ways to ensure your financial adviser's interests are aligned with yours is to pay based on your portfolio's performance.  If you do well, so does the financial adviser and, more importantly, vice versa.

Manage Credit Cards.  Credit card companies make their money off people not paying the balances off.  Credit cards can be a useful tool, and the rewards can be utilized in very creative ways.  However, if you're carrying large credit card debt and paying interest on it, you're on the losing end of that equation.  It's like Vegas - play long enough, and the house always wins.  I recommend paying off the bill each month and tracking credit card spending as if it were cash.  This isn't easy, especially with 3 credit card offers showing up in the mail every day.

Make a Plan.  At a minimum, there should be a budget.  Quicken has an outstanding program for tracking and managing personal finances, and it is compatible with most banks' online features.  You can download your transactions and then review and categorize them to get a very detailed picture on where your money goes each month.  Next, get an estate plan so that all those dollars you saved by following your budget aren't wasted paying unnecessary fees and taxes.

Have a System for Important Documents.  Keep it old school with a filing cabinet and hanging folders, or scan all your important documents and save them as PDF's on your computer.  If you opt for the PDF route, make sure you have a regular backup service like Carbonite so that when your computer crashes, you don't lose every important document along with the hard drive.

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can help with the CFO duties, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Can My Family Benefit from Family Legacy Planning?

Yes.

A few questions for you to consider:

1. Do you own a house and/or land?
2. Do you have minor children?
3. Do you have a life insurance policy?
4. Do you have any type of retirement or investment account? For example, 401(k), IRA, 529 plan.

If the answer is yes to any one of these questions, then you and your loved ones can benefit from a family legacy plan.  If you have minor children and a house, then you absolutely need a Family Legacy Plan to help ensure your assets are preserved for your children and loved ones in the most efficient way possible. 

A Family Legacy Plan gives you the piece of mind of knowing who will take care of your children if something were to happen to you, that there are plenty of resources to care for your children, and the plan allows you to determine who supervises your estate's assets for the benefit of your children and loved ones.

A Family Legacy Plan provides you the opportunity to not only plan for our children, but it gives you the ability to designate assets for the benefit of future generations.  With a detailed Family Legacy Plan, you could start building wealth for grandchildren and beyond, and this wealth can be protected from creditors, divorce, and even your loved ones not-so-wise decisions. 

If you are interested in learning what else a Family Legacy Plan can do for you, then contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com. 

6 Check-Ups to Get Your Finances In Order

I don't like looking at my finances primarily because I am instantly reminded of how far I am from my goals.  With 3 kids (which includes twins), my plan for college tuition right now consists primarily of Powerball tickets.  I'm kidding.

Regardless of the size of your 401(k), IRA or college savings, plan, it's important to give your portfolio a regular check-up to make sure the plan reflects your current life and goals.  Here are 6 steps that will get you headed in the right direction.

1. Check the balances and allocations in your various investment accounts.  Call your financial adviser and tell him you'd like to review the allocations in your investment accounts. Depending on where you are in your life, the state of the market and several other factors, your investments could use some readjustment.  For example, if a stock has split, it may now occupy a larger than ideal portion of your investment.  If you play your cards right, you might even be able to get your adviser to pick up the bill for lunch!
2. Review insurance coverage.  Make sure your life and disability insurance coverage reflect reality.  If you've received a raise, had another child, bought a new house, then you need to make sure your insurance reflects these changes.
3. Review and update beneficiaries.  This is an important one, especially if you have minor children.  If you don't have a revocable living trust and something were to happen to you while your children were still under 18, then the children would receive the life insurance proceeds and retirement accounts outright.  You may have the most responsible kids on the planet, but an 18-year old with hundreds of thousands of dollars (or more) is simply not a good idea.
4. Assess and review your estate plan.  "But I don't have an estate plan!"  Yes, you do.  The state has one for you, and it's time-consuming, a burden for your family, and usually expensive.  If you have a will or, even better, a Family Legacy Plan, then it's a good idea to review it to make sure the plan still reflects your current wishes and goals.
5. Guardians for minor children.  If you have a plan in place, make sure it is still consistent with your wishes.  If you don't have a plan, make one.
6. Review your advanced health care directive.  Make sure you have a healthcare power of attorney and living will.

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can take care of most of this list, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

What is Family Legacy Planning?

It is a comprehensive approach to ensuring that your loved ones are taken care of, that your assets are protected, and it is a way to create wealth and a legacy that can last generations.

Creating a Family Legacy Plan is much more than just answering a few questions on a form.  It involves careful and detailed assessment of what you have, what is best for your children and loved ones, and how you want your legacy to last well after you pass on.  This cannot be accomplished with a website and a simple will.  It takes counseling, planning, and periodic review to make sure your plan design remains consistent with changes in your life, the law and taxes.

A Family Legacy Plan provides peace of mind.  Sure, a will is part of it, but a Family Legacy Plan includes a Comprehensive Child Guardianship Plan, detailed instructions on how you want your children raised, how you want your assets used, and it works if you become incapacitated - something a simple will cannot do.  A Family Legacy Plan can start working if you are alive, but unable to make decisions for yourself.

If you are interested in learning what else a Family Legacy Plan can do for you, then contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.