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.