Are You Wasting Money? Part 3: Taxes, Insurance, Not Bidding and/or Negotiating

So far in this series on wasting money (part 1 and part 2), we have looked at how people may overpay for housing, interest, transportation, food, clothing and entertainment. In this last part, we will look at a few more areas in which we may pay more than necessary—taxes, insurance, not obtaining bids for services, and not negotiating for large purchases.

While you may already be astute in these areas, sharing good financial practices like these with your children and/or grandchildren can be part of your legacy, as you help them prepare to be prudent and responsible beneficiaries. And, for tax management and risk management (via insurance coverage), your legal and advisory team can produce integrated tools to assist you in keeping more of your money within the family than having it leak out unnecessarily.

The Key Takeaways

• Any time you pay more for something than you have to, money is wasted.
• Reviewing tax deductions and insurance coverage, comparison shopping, bidding out services and repairs, and negotiating—these take time, but they can help save significantly.
• Any time you save money, you are being financially responsible and will find more money for the expenses in life that are really important to you.

Where People Waste Money…And Actions to Consider

1. Taxes. Take every deduction to which you are entitled. Even if a professional prepares your tax returns, it is a good idea to become familiar with allowable deductions. For example, charitable deductions, even small ones, add up—if you volunteer, keep track of your mileage and financial contributions; fill out the form when you make clothing and household donations; and instead of dropping cash into the offering box at your place of worship, write a check or set up automatic payments.  Of course, if you have significant charitable interests, trust-based strategies offer you cost effectiveness and a disciplined structure.

2. Insurance. Review your policies every year. Property values change, and it’s important to not over- (or under-) insure. For example, an older car may not need collision insurance. Increasing deductibles will save on premiums. Bundling various policies (home, autos, personal liability, jewelry) under one insurer will probably earn you discounts and save time.

3. Not getting bids when hiring workers. Asking friends and neighbors for references is a good start, but it is also important to get at least three estimates. And remember, the lowest price is not always the best value.

4. Not periodically rebidding current products and services. Being loyal is commendable, but not if it causes you to pay more than necessary. If you are able to find a lower price, your current provider may match it to keep you as a customer.

5. Not negotiating for large purchases. We all know there is profit margin built into pricing, and there is usually a larger margin on expensive items. Some vendors actually expect to negotiate. Learning how to negotiate fairly and respectfully will frequently save you some money.

What You Need to Know: It’s easy to get caught up in the current culture of instant gratification and impulse spending. We could all benefit from slowing down a bit and becoming better consumers. Taking the time to evaluate purchases and comparison shop will not only help avoid overspending and wasting money, but it results in satisfaction from being responsible and efficient with money. 

More Actions to Consider

• Evaluate how you may be overspending in these areas. Commit to following through on some of these suggestions and note how much money you save.
• Think where you could use that extra money. Would you like to pay off some debt, or save for a family vacation, car, home, college, or charitable gift?
• Start to prioritize spending and set some money-saving goals. Creating a budget and monitoring spending on a regular basis will help avoid wasting money and start meeting goals you set. (For more on this, read the previous blogs on budgeting and setting spending priorities.) 

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Are You Wasting Money? Part 2: Food, Clothing and Entertainment

In Part One of this series on wasting money, we looked at housing, interest and transportation—areas in which you or your loved ones may be wasting larger amounts of money. In Part Two, we will look at how money can be wasted in everyday areas of life—specifically food, clothing and entertainment.  

In many ways, it is the routine purchases that occur without planning that subsequently accumulate to large amounts. An area of high importance when making beneficiary distributions is for the money to be used in meaningful ways such as home purchases, education, and investing and not simply to cover shortfalls in month-to-month expenditures. These simple lessons are helpful reminders for everyone.

The Key Takeaways

• Money is wasted when we pay more for convenience, excess, impulse buying and bad habits.
• While this may be okay if it happens occasionally, living a lifestyle that consistently wastes money can cause people to live beyond their means and incur debt, which causes more money to be wasted by paying interest on that debt.
• Recognizing areas in which money is wasted, and taking steps to change buying habits, helps keep people out of debt and give more money to spend on the things that really matter.

Where People Waste Money…And Actions to Consider

Groceries. We’ve all been guilty of buying more at the grocery store than we intended. Here are a few tips that will likely fit within a current routine:

1. Plan meals for a week, make a shopping list and stick with it. Make an exception only if something regularly used is on sale. 
2. Use coupons only for items regularly purchased (and don’t buy things you don’t normally use, just to use the coupon). 
3. Buy in bulk; split the purchases with a friend if storage space is lacking. 
4. Shop without young children whenever possible to save money, time and frustration.

Eating out. If the amount of money spent in this area is unknown, track it for a month or two and consider other ways that this money could be spent. Socializing with friends over meals is important, but this is one area that usually can be reined in. Meet over lunch or an early dinner. Watch the alcohol; bar drinks are expensive, add up quickly and make an affordable meal completely unaffordable. Consider entertaining at home; it is less expensive and more personal.

Clothing. Take a look at how much is spent on clothing, especially on items purchased and not worn. Avoid shopping as a hobby or because of boredom; retailers are great at making people think something is needed.

Entertainment. Evaluate cable or satellite TV subscriptions and drop the premium channels not being used. Monitor cell phone bills. Investigate bundling phone, internet and TV services under one carrier. When going to the movie theater, go to early showings, buy discounted tickets, shop for bargain-priced theaters, and bring snacks. Check out community theater productions.

What You Need to Know:
Cash expenditures are usually the most difficult to track. Consider the envelope system (cash set aside in envelopes marked for specific cash purchases); place the receipts inside the envelope so it is easy to remember how cash was spent. Or use a debit card for even the smallest purchases.

More Actions to Consider

• Review how money is currently spent. If not using a personal accounting program like Quicken to track spending, now would be a good time to start. Carefully evaluate areas where overspending occurs.
• Start comparison shopping. Make a list of items bought regularly, including size and the last price paid. Keep the list handy for other shopping trips and compare prices. Then make a new shopping list for items at the stores with the best prices.
• Keep a running grocery list. As an item gets in short supply, add it to the list. This will make grocery shopping more efficient and save time by not having to make frequent trips.

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 addressing this topic.

Are You Wasting Money? Part 1 - Housing, Interest and Transportation

Most of us are guilty of wasting money in one way or another. Often we are so busy that we pay too much for convenience, and we don’t comparison shop or look for bargains. Sometimes we waste money because we just stay in the same routines—shopping at the same stores, eating at the same places, using the same services. And sometimes, especially if we don’t keep good records of how we spend our money, we may not even realize how much money we are wasting.

In this three-part series, we look at ways that money is wasted. While it may not apply to you, there are others in your life such as children or grandchildren that will benefit from these lessons. For those with budgeting discipline, an element of your financial legacy is to teach and train others to live within their means. And, as these disciplines are learned by your beneficiaries, you gain greater comfort that valued purposes will be pursued with distributions.

The Key Takeaways

• Tracking and evaluating how money is spent helps illustrate areas of waste.
• Overspending can drive people into debt and prevent them from having money for things that really matter.
• Reducing wasteful spending helps people to live within their means and provide more money for things that are most important.

Major Spending Areas … And Actions to Consider

1. Housing. Living close to where one works definitely can save time and money on a commute, but moving to a neighborhood that is just a little farther out can save a bundle. If someone is retired or works from home, moving to a less expensive part of the country is an attractive option. 
2. Interest. Credit cards, student loans, car loans, home mortgage, home equity line of credit, other consumer loans—any time money is borrowed, interest payments accumulate. The most expensive of all is credit card debt. By renegotiating interest rates, not only are monthly payments reduced but considerable amounts of accumulated interest are also saved. Of course, great care needs to be taken when considering buying anything via debt.
3. Transportation. Car payments, insurance, gas, maintenance and repairs are necessary expenses, but there may be ways to economize. Some people can work from home one or two days a week. Since a new car depreciates the minute it is driven off the lot, buying a previously owned car can save thousands.

What You Need to Know: 

Eliminating wasteful spending is especially important for people who need to watch their expenses—retirees who may be on a fixed budget, those who have been laid off or are working part time, young families, and college graduates who are trying to start a career while repaying student loans. But even if plenty of money is at hand for living expenses, being a careful consumer helps money go further and adds important lessons to be passed to loved ones as a component of a financial legacy.

Other Actions to Consider

• Evaluate housing, interest and transportation expenses.
• Determine how much to spend in these high-cost areas and how much can be cut.
• Check out different neighborhoods and transportation options and see how much money can be saved.
• Call lenders and their competitors to see if better interest rates can be negotiated.
• Pay off debt as soon as possible. 

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 addressing this topic.

Passion Investing as a Spark to Your Life

Bill Gates, Warren Buffet and over 50% of the Fortune 400’s The Richest People in America list have decided to give away their wealth for charitable pursuits. Of course, not many of us have that kind of money or are inclined to give away all we own. However, giving to charitable organizations is something that anyone can do, and we can all derive a similar satisfaction by investing in causes that light our passion.

The Key Takeaways

• Investing in a cause that we feel passionate about can give our lives new purpose.
• Even if we have limited finances, we can still find ways to contribute by giving of our time and/or talents.
• Our giving can influence subsequent generations and others around us by setting an example and communicating our values.

Finding Your Passion and Renewing Your Life

Americans like helping people and giving back to our communities. You may have already found your passion and are doing what you can to help. But if you are still searching for a way to make a difference, give some thought to what inspires you or what you care about deeply. It could be the arts, reading, the elderly, our military, disadvantaged children, teen mothers, or a clean planet. There are many organizations that need volunteers and financial help to do their good works. And, of course, most churches and religious organizations offer numerous ways to volunteer in your community and around the world.

What You Need to Know: 

One traditional way to benefit a charity is to leave a donation through a will or trust. This is good, of course, but if you contribute while you are living, there is the additional benefit of seeing the results of your contributions. You can also network with others who share your passion, which often results in greater contributions.

Actions to Consider

• If you have children at home, include them in your volunteer work. If you make a donation, deliver the check in person and take your children with you.
• If you are retired or nearing retirement, you have the benefit of extra time to donate to your favorite causes. Some people choose to work part time in retirement so they will have extra money for living expenses and for donations.
• Include all cash donations in your spending plan so they are part of your monthly expenses. Otherwise, you risk being an emotional or impulsive giver, which can have a negative impact on your finances.
• If you aren’t sure how to contribute, ask the organization you want to help. They are sure to have a number of suggestions with different time and money commitments.
• Whenever possible, work with local organizations that benefit your community. Get to know the people running the organization so you will know if they can be trusted with your contributions. This will also allow you to see the progress firsthand.
• If you have more substantial means, a charitable trust is an excellent way to give, and such a trust gives you many financial and non-financial benefits.

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 addressing this topic.

It’s Not Just About Death and Taxes: The Essential Legal Documents You Need for Incapacity Planning

Comprehensive estate planning is about more than your legacy after death, avoiding probate, and saving on taxes. It must also be about having a plan in place to manage your affairs if you become mentally incapacitated during your life.  

What Happens Without an Incapacity Plan?

Without a comprehensive incapacity plan in place, a judge can appoint a guardian or conservator to take control of your assets and health care decisions.  This guardian or conservator will make all personal and medical decisions on your behalf as part of a court-supervised guardianship or conservatorship.  Until you regain capacity or die, you and your loved ones will be faced with an expensive and time-consuming guardianship or conservatorship proceeding. 

What Happens to Your Finances During Incapacity?

If you are legally incapacitated, you are legally unable to make financial, investment, or tax decisions for yourself. Of course, bills still need to be paid, tax returns still need to be filed, and an investment strategy still needs to be managed. 

So, you must have these two essential legal documents for managing finances in place prior to becoming incapacitated:

1. Financial Power of Attorney.  This legal document gives your agent the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document.   

Financial Powers of Attorney come in two forms:  “Durable” and “Springing.”  A Durable Power of Attorney goes into effect as soon as it is signed, while a Springing Power of Attorney only goes into effect after you have been declared mentally incapacitated.

2. Revocable Living Trust.  This legal document has three parties to it:  The person who creates the trust (you might see this written as “Trustmaker” or “Grantor” or “Settlor” – they all mean the same thing); the person who manages the assets transferred into the trust (the “Trustee”); and the person who benefits from the assets transferred into the trust (the “Beneficiary”).  In the typical situation you will be the Trustmaker, the Trustee, and the Beneficiary of your own revocable living trust, but if you ever become incapacitated, then your designated Successor Trustee will step in to manage the trust assets for your benefit.

Health Care Decisions Must Be Made Too

If you become legally incapacitated, you won’t be able to make health care decisions for yourself. Because of patient privacy laws, your loved ones may even be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment you should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years).  

So, you should have these three essential legal documents for making health care decisions in place prior to becoming incapacitated:

1. Medical Power of Attorney.  This legal document, also called an Advance Directive or Medical or Health Care Proxy, gives your agent the authority to make health care decisions if you become incapacitated.

2. Living Will.  This legal document gives your agent the authority to make life sustaining or life ending decisions if you become incapacitated.

3. HIPAA Authorization.  Federal and state laws dictate who can receive medical information without the written consent of the patient.  This legal document gives your doctor authority to disclose medical information to an agent selected by you.

Is Your Incapacity Plan Up to Date?

Once you get all of these legal documents for your incapacity plan in place, you cannot simply stick them in a drawer and forget about them.  Instead, your incapacity plan must be reviewed and updated periodically and if certain life events occur - such as moving to a new state or going through a divorce. If you keep your incapacity plan up to date, it should work the way you expect it to if it’s ever needed.

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 addressing this topic.

Organize Information for Your Family

Think for a few moments about what would happen if you suddenly became incapacitated or died. Would your spouse or family know what to do? Would they know where to find important records, assets and insurance documents? Would they be able to access (or even know about) online accounts or files on your computer? Would they know whom to ask if they need help?  Putting the effort in now to establish a formal document inventory can alleviate unnecessary anxiety and turmoil in the future.

The Key Takeaways

• If you should suddenly become incapacitated or die, your family would need to know where to find the information they would need.
• Let your key relationships know where to find your document inventory.
• Do not assume your process will be readily understood by others; have a trial run to make sure they can find and understand your records.
• Keep your inventory current with an annual review.

What Information Would They Need?

There is a large volume of documents and information that your family would need during a calamitous event such as incapacitation (even temporary) or death. This basic list will help you start thinking of the critical information you would want your family to have.

• legal documents (will, living trust, health care documents);
• list of medications you are taking;
• list of your advisors (attorney, CPA, banker, insurance agent, financial advisor, physicians);
• insurance policies (health and life);
• year-end bank and investment account statements;
• storage facility location, access method, and inventory;
• list of other assets, including location, account numbers, date purchased and purchase price;
• safe deposit box location, list of contents and location of key;
• list of people to whom you owe money (mortgage, credit cards, etc.);
• list of people who owe you money;
• death or disability benefits from organizations;
• past tax returns.

Also, many of your records are probably on a computer or stored online. If you scan documents or receive financial statements electronically, someone else may not even know they exist. If you use a computer accounting program such as Quicken, QuickBooks or Mint, those records would be on your computer. Family photos may be stored digitally or online. Much of this information is password protected.

What You Need to Know

Your document inventory requires a methodical listing of both hard copy and digital forms.  While the effort will be more challenging at the start, the maintenance of the inventory is much simpler.  Be mindful that your digital footprint will likely grow much faster in the future than it has in the past. 

Actions to Consider

• Give current copies of your health care documents to your physicians and designated agent(s). 
• Keep your original documents in one safe place, like a fireproof safe or safe deposit box. Make copies for the notebook described next.
• Buy one or two three-ring binders to organize your personal and financial information. You can enter it by hand or create spreadsheets on your computer, but having it all in one or two binders will make it easy for your family to find and use. (If you leave it on your computer, they may never find it.) Include locations, contact information, account numbers and amounts.
• Include a list of online accounts and how to access them (including passwords).
• Clean up your computer desktop and put important files in an easy-to-find desktop folder.
• Have a trial run. Ask your spouse or other family member (or your successor trustee or executor) to pretend that he or she needs to access needed information.
• At least once a year, review and update your notebook, computer desktop files and passwords for online accounts.

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 addressing this topic.

Five Things You Need to Know About the Recently Enacted ABLE Act

On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE
Act) into law.  The ABLE Act will allow certain individuals with disabilities to establish tax-free savings accounts that can be used to cover expenses not otherwise covered by government sponsored programs. These accounts can be a great alternative or supplement to special needs or supplemental needs trusts.

Here are five important things you need to know about the ABLE Act.

1. What is an ABLE account?  An ABLE account is similar to a 529 education savings account that helps families save for college.  It is a tax-free, state-based private savings account that can be used to pay for the care of people with disabilities.  Although income earned in the account will not be taxed, contributions to the account will not be tax deductible.

2. Who is eligible for an ABLE account?  Eligibility will be limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If an individual meets these criteria and is also receiving benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account.  If the individual is not a recipient of SSI and/or SSDI but still meets the age of onset disability requirement, they will still be eligible to open an ABLE account if the SSI criteria regarding significant functional limitations are met.  In addition, the disabled individual may be over the age of 26 and establish an account if the individual has documentation of their disability that shows the age of onset occurred before the age of 26.

3. What are the limits for contributions to an ABLE account?  Each individual state will determine the total limit that can be contributed to an ABLE account over time.  Although we’ll need to wait for regulations to know the exact amount that can be contributed, the Act states that any individual can make annual contributions to an ABLE account up to the gift tax exemption limit (which is $14,000 in 2015).  If the disabled individual is receiving SSI and Medicaid, the first $100,000 held in an ABLE account will be exempted from the SSI $2,000 individual resource limit.  If an ABLE account exceeds $100,000, the account beneficiary will be suspended from eligibility for SSI benefits but will continue to be eligible for Medicaid.  Upon the death of the account beneficiary, assets remaining in the ABLE account will be reimbursed to any state Medicaid plan that provided assistance from the day the ABLE account was established.

4. What types of expenses can be paid from an ABLE account?  An ABLE account may be used to pay for a “qualified disability expense,” which means any expense related to the beneficiary as a result of living with their disability.  These expenses may include medical and dental care, education, employment training, housing, assistive technology, personal support services, health care expenses, financial management, and administrative services.  

5. When will able accounts be available?  Although the ABLE Act was signed into law in December 2014, regulations will need to be established by the Department of Treasury before states can begin to set up procedures for managing ABLE accounts.  Once these regulations are issued (which is anticipated to occur later in 2015), each state will be responsible for establishing and operating their own ABLE program.

Since the money in an ABLE account can grow tax free and be accessed on a tax-free basis for qualifying expenses, these accounts could be a valuable resource for certain disabled individuals and their families. Although we’re waiting on regulations to be adopted, now is the time to begin thinking about whether an ABLE account is a good fit for your family’s circumstances. Please contact us today to learn more about ABLE accounts and disability planning.

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 addressing this topic.