This statement was never truer than for estate planning. By some accounts, 70% of adult Americans have no will or trust in place for their loves ones. Furthermore, others who initially did prepare an estate plan have failed to update it in light of changing circumstances in their lives.
You can benefit from avoiding the 8 most common estate planning mistakes that I have seen people make.
1. FAILURE TO PRESERVE YOUR INHERITANCE FOR YOUR GRANDCHILDREN SHOULD YOUR SON/DAUGHTER DIE AND THEIR SURVIVING SPOUSE REMARRY
You need to take steps in drafting your estate plan to assure that your assets are distributed to your grandchildren should your son/daughter die and not left to your daughter-in-law/son-in-law who could eventually remarry and end up using your inheritance with the new wife/husband and his/her step kids – all of whom have no familial relationship to you.
2. FAILURE TO AVOID A GUARDIANSHIP PROCEEDING FOR YOUR CHILDREN
If you have children, have you considered who would raise them if for some reason you or their other parent couldn’t. While this is not an easy subject to contemplate, having a guardian arrangement spelled out as part of your estate plan will ensure they will be properly cared for by someone you trust and have chosen. A legal guardian is a person who is given the legal authority and responsibility to take care of your children’s needs, such as providing food, education, medical care, dental care and shelter. If you have minor children it is imperative to have a plan in place to protect them in the event you cannot.
3. FAILURE TO PUT YOUR REAL PROPERTY BACK IN AN EXISTING TRUST AFTER A REFINANCING
Did you know that most home refinancings require that your home be transferred out of a living trust back to your own name(s), at least until after the new lender has recorded its new mortgage or deed of trust on the property? The problem is that is most cases, no one ever thinks to transfer your real property back into the trust. This failure can result in an unforeseen probate of your home at the death of the second spouse.
4. FAILURE TO ENSURE THAT YOUR ASSETS ARE DISTRIBUTED THE WAY YOU WANT AND NOT PURSUANT TO THE GOVERNMENT’S DEFAULT PLAN FOR YOU
Everyone has an estate plan. It is either the one we have created or the default so-called Plan B of the state in which we live. In our experience, it is very unlikely that a state’s default plan is what clients would really want. State laws vary, but generally they have it set for the assets go outright to the closest family members. Whom a state considers to be “closest” can be complicated in non nuclear families. Non family members, like an unmarried partner, will not receive any of the assets. This failure to act could cause family member fights over their inheritance.
5. HAVING A WILL MEANS YOU HAVE A TICKET TO ATTEND THE DREADED PROBATE PROCESS, WHICH COSTS YOUR FAMILY TIME AND MONEY
Having only a will is a just ticket to participate in the dreaded probate process costing your family time and money. Additionally, for those who don’t have a will, their assets will probably have to go through the intestate (“no will”) proceeding. Either of these scenarios will require that your assets go through probate before they can be fully distributed to the heirs. Probate proceedings vary from state to state, but many view the time, cost, and loss of privacy and control that come with probate as unnecessary evils which can – and should be – avoided.
6. AN OLDER PERSON HOLDING TITLE TO THEIR REAL ESTATE IN JOINT TENANCY WITH A CHILD OR GRANDCHILD
Many older people add an adult child (or grandchild) to the title of their assets (especially their home) as a joint owner in order to avoid probate. However, this type of jointly titled property can create all kinds of problems, including:
When a joint owner is added, the original owner loses control
Jointly owned assets are exposed to the joint owner’s possible misuse of them
Part of these assets could be lost to the joint owner’s creditors
The assets could become part of a joint owner’s divorce proceedings
7. FAILURE TO PROTECT FAMILY MEMBERS WITH DRUG, ALCOHOL, OR GAMBLING ISSUES
Many parents with a trust fear that an inheritance left to a child may be lost because of poor money handling skills or a drug, alcohol or gambling addiction of their children. With a living trust, you can instruct the successor trustee to retain a person’s inheritance in trust and instruct the trustee to make payments, as needed, directly to third parties for rent, insurance, car payments, etc. to keep it out of their hands.
8. FAILURE TO HAVE POWERS OF ATTORNEY FOR UNMARRIED ADULT CHILDREN
Let’s say you have a college student or a young adult over 18 who is unmarried. They are no longer minors that you have the legal authority to make decisions for. The law now classifies them as adults with the legal right to privacy. If they have not prepared a Power of Attorney (“POA”), problems could arise if they are out of the country or incapacitated with matters such as:
Driver’s license or vehicle registration renewals
Registration/admission for college
Tax return filing
Banking transactions
Ongoing legal matters (e.g., pending lawsuit from that fender-bender a few months back or speaking with child’s landlord)
Jury duty summons
Passport renewal
I often urge clients to prod their adult children to draft POA on or around their 18th birthdays. So don’t forget a POA and make it one of the most important things on your to-do list.
Birthday reminders, family pictures, memes for that mid-afternoon comic relief, or maybe recommendations for local businesses. However you use Facebook, it’s undeniable that this social network has seeped its way into our lives, into multiple generations, and influences how we see the world.
So when the news comes out that over 50 million users’ private information has been accessed and used to influence the elections, many of us are left thinking … so what now? Who’s viewing my information and how is it being used and protected? And the million-dollar question: Should I get off Facebook?
First, let’s wrap our heads around recent events.
WHAT EXACTLY HAPPENED?
Cambridge Analytica accessed the data of millions of Facebook users. The data included details about users’ personal information, their networks of friends, and their “likes.” From this data, they created profiles of people and then zeroed in on them with digital ads to sway their voting behavior.
WHAT IS CAMBRIDGE ANALYTICA?
Cambridge Analytica is a political data firm that collects data, analyzes it, and then combines that with strategic communication to influence elections. The company has been funded in large part by Robert Mercer, a major Republican donor, and Stephen K. Bannon, former advisor to President Trump. The firm was hired by President Trump’s 2016 election campaign.
WAS THIS A DATA BREACH?
Well, no … and yes. When you create an account on Facebook, you consent to researchers accessing your data for academic purposes. What isn’t accepted is for this data to be given or sold to advertising networks or services such as data brokers. And that’s exactly what happened when Dr. Kogan, a Russian-American psychology professor at Cambridge University, gave 50 million profiles to Cambridge Analytica. In doing so, Dr. Kogan violated Facebook rules.
When Facebook found this out, they deleted Dr. Kogan’s app that allowed him to harvest this data. They received certification that the data was destroyed, but it turns out this was not the case. Investigations are now underway with the FTC, Congress, the British Parliament, and the attorney general of Massachusetts.
SO …SHOULD I DELETE FACEBOOK?
First, ask yourself what you use Facebook for. If it’s just the occasional birthday reminder and funny meme, then maybe you wouldn’t miss it that much. But keep these points in mind.
Cons of deleting
Deleting your profiledoesn’t stop them from tracking you, nor does it stop them from using the data they have already collected.
Facebook isn’t the only companythat collects your data. Other companies will find ways to collect it and sell it, so in the long run, deleting your account probably won’t do that much for your data security.
Essentially, data security is more an issue of corporate surveillance. How are companies tracking and profiling everyone? Mobile devices are essentially tracking devices, and most of us would have a hard time leading our daily lives without them.
Small businesses rely on Facebook to reach their communities, and Facebook advertising has proven very effective to get new clients and keep businesses prospering. Even if you’re not a small business owner, most of us want to support them over their giant corporate counterpart.
It’s the Internet. Nothing will ever go away completely. A truth we must face in these modern times.
You’ll be out of touch. Whether with your community, family pictures and birthday reminders, you’ll have to make more of an effort to stay connected through other means.
Loss of community. Beyond sharing cute memes and cat videos, professionals and small business owners find each other and help each other on Facebook. I personally belong to a few advisor groups where we advise each other on practice management and financial planning topics.
Then again, life did exist before Facebook, and deleting your account could have its advantages.
Pros of deleting
Those people who really want to keep in touch may find other ways to do so. Deleting Facebook doesn’t mean you have to say goodbye to all your friends, though your circle may grow smaller without it.
According to an experiment, people who gave up Facebook for a week ended up happier, less lonely, and less depressed. We don’t have to constantly compare ourselves to others.
You might waste less time browsing and become more productive.
It’ll give you the temporary satisfaction and illusion of controlling your data, however temporary and illusory that may be.
I WANT TO DELETE FACEBOOK, BUT HOW?
If you’ve made up your mind, but aren’t sure how to go about it, follow these steps. It’s more than deleting just your Facebook account.
Delete all Facebook apps from devices (Facebook, WhatsApp, Instagram, Messenger)
Deauthorize all apps and websites from your Facebook account
Go into Ads and stop all tracking there
Get rid of Facebook’s ability to track you
Follow the prompts on the Digital Advertising Alliance’s opt-out page
Delete cookies in browsers for every device
Never use Facebook again
BUT WAIT! IS THERE A HAPPY MIDDLE GROUND?
You can minimize its effect by doing the following:
Don’t use Facebook to sign on to other apps and websites.
Only become friends with people you know.
Don’t use the location tagger.
Be careful of what you like and post.
Articles, talk shows, podcasts, and blogs like this one will abound telling you why you should or shouldn’t delete Facebook. Think about your reasons. Is it just to make a statement to big tech companies, keeping in mind that we live in a surveillance state? Are you okay with that? Only you can make this decision, but hopefully your decision will now be an informed one.
Retirement. Just one word can elicit everything from excitement for those bucket-list vacations to the stress of planning for those golden years now while you’re working and able. Perhaps you’re more worried now about your child’s education, or paying for that dream condo in Los Angeles, but the truth is that nowadays more people are living longer, and fewer people are saving for retirement.
Did you know . . .?
The average retirement age is 63.
The average length of retirement is 18 years.
The average savings of a 50-year-old is $42,797.
Out of 100 people who start working at the age of 25, by the age of 65, 63% are dependent on Social Security, family and friends, or charity.
How can a retirement plan benefit me and my business?
If you’re a small business owner, you’re likely not only figuring out how to save for your own retirement, but how to provide benefits to your staff, too. And rightfully so! Having an employer retirement plan has been shown to help boost employee morale.Employees view retirement plans as an investment in their future by the company, so it helps attract talent and reduce employee turnover. Click here for more information on benefits for your business.
And if you’re an employee, it’s never too soon (or too late!) to think about retirement. A little each year can go a long way, and allowances are even provided by the IRS to help you catch up if you’re older than 50.
Keep in mind:
Contributions can be made pre-tax, thereby reducing your taxable income. In this case, the funds in the plan grow tax-deferred.
Certain plans are eligible for Roth contributions which are contributed on an after-tax basis. In this case, earnings and qualified withdrawals are generally tax-free.
Compound interest, or essentially earning interest on interest, is an excellent tool in your favor.
What are the four main types of retirement plans?
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA)
Simplified Employee Pension Plan (SEP IRA)
One-Participant (Solo) 401(k)
401(k)
The first three are typically for small businesses that have fewer than 100 employees. And although the 401(k) has historically been associated with larger businesses, it may still be a viable option.
Let’s go to the nuts and bolts of the plans:
SIMPLE IRA
This option is available only for businesses with fewer than 100 employees. An employee must have earned $5,000 or more during the preceding calendar year. More information is available hereand here on the SIMPLE IRA.
Benefits
Low cost and easy to set up
Employees can contribute pre-tax, thereby decreasing their tax liabilities
The employee is 100% vested meaning they have immediate access to the employer’s contributions
Rules & Limitations
The employer cannot have any other retirement plan set up through the business
The employer contributes on a pre-tax basis only
The employer is required to provide a match for participating employees with the following options:
Matching 100% of employee contributions, generally up to 3% of the employee’s salary (see here for more information), or
Contributing a fixed 2% percent of each eligible employee’s salary, regardless of whether or not the employee contributes
Maximum annual contribution: 100% of salary up to $12,500 + $5,000 catch-up (as of 2018) for participants ages 50 and over
SEP IRA
More information on the SEP IRA is available here.
Benefits
Low cost and easy to set up
You don’t have to contribute every year
The employee is 100% vested meaning they have immediate access to the employer’s contributions
Rules & Limitations
The employee must have worked for the employer 3 of the last 5 years and earned $600 during the year from the employer
Only the employer is allowed to make contributions
The employer contributes on a pre-tax basis only
The employer is required to contribute the same percentage of salary for all eligible employees. So if as an employer you contribute 20% to yourself, you must contribute 20% to all eligible employees
Maximum annual contribution: 25% of the employee’s compensation or $55,000, whichever is less (as of 2018)
See here and here for more information on rules and limitations
One-participant 401(k)
This option is only available for a business owner with no full-time employees other than the business owner(s) and their spouse(s). More information on the one-participant 401(k) is available here.
Benefits
Low cost
The spouse can contribute if he/she earns income from the business
The business owner can contribute as an employer and an employee (see rules below)
Contributions can be either pre-tax, after-tax, or Roth depending on the plan documents
Loans and hardship withdrawals may be available
Rules & Limitations
This option has the same rules and requirements as any other 401(k) plan
Maximum annual contribution: no more than $55,000 not including catch-up contributions, or $61,000 with catch-up contributions (as of 2018)
Whencontributing as an employee, annual contributions may be up to 100% of compensation or $18,500 + $6,000 catch-up for participants ages 50 and over, whichever is less (as of 2018)
Whencontributing as an employer, you can contribute up to 25% of compensation or your net self-employment income
401(k)
More information on the 401(k) is available here and here
Benefits
Loans and hardship withdrawals may be available
Contributions can be either pre-tax, after-tax, or Roth depending on the plan documents
The employer can match the employee’s contributions
Rules & Limitations
With more complex compliance requirements, this plan has a higher cost than the other options
Employer contributions may be subject to a vesting schedule where the employee may have increasing access to the matching over a set period of time or full access after a set period of time
Maximum annual contribution: $18,500 with $6,000 catch-up for participants ages 50 and over (as of 2018)
Total (employee + employer) annual contribution is either 100% of participant’s compensation or $55,000 ($61,000 including catch-up contributions), whichever is less (as of 2018)
See here for more information on rules and limitations
Retirement doesn’t have to be a cause of stress. Speak with a financial planner if you’re unsure about what’s best for you, and start thinking more about that bucket list!
Want to buy a house? Here’s how to save for a down payment
Thinking about buying a house within the next 3 years? Or a bit farther down the road? Timing is everything and it turns out that simple question makes a difference.
According to Zillow, the median home value in Diamond Bar is $697,000. So how much of that should you put down? Down payments vary depending on the loan type, but in general they are:
You may have heard this before, but we’ll say it again. Try to put at least 20% down. Why? If you finance more than 80% of the home value, you will have to pay Private Mortgage Insurance (PMI). (But if you can take out a VA loan, PMI is not required.)
Even just 3.5% or $24,395 on a home in Diamond Bar, CA is a good chunk of money. And whether you’re fighting the good fight as a small business owner, still paying back those student loans, or just trying to save a bit each month like all of us, it’s hard to know what to do with that money you have managed to save. Which brings us to …
When are you looking to purchase a home?
I want to buy a home within 3 years
If you’re looking to buy sooner rather than later, consider keeping your money in a cash account, like a savings account or something similar. Remember that savings accounts will yield greater interest than a regular checking account. You don’t want to invest this money for such a short period because of market volatility. Just think:
Imagine you’ve built up a decent amount for a down payment and you invested this money in the stock market. A recession comes and you take a 30% hit on your balance. That will likely prevent you from buying your home within your three-year goal.
I want to wait at least 4 years before buying a home
If you’re not in a big rush, investing in the market might be a better option for you. Should you invest, do so with caution and don’t be too aggressive. Be smart, calculated, and balanced with your portfolio picks. Make sure you have a healthy mix of stocks and bonds. And keep in mind that you’ll want to rebalance your portfolio at least once a year. Why?
Imagine that you have a portfolio of 10 different stock and bond ETFs, or Exchange-traded funds. Each ETF is invested at a fixed percentage of your overall portfolio. As the year goes on, the allocations will wander from their targets. Those doing well will become a larger part of your portfolio. Those not doing so well will become a smaller part of your portfolio. When you rebalance, you bring things back in line with your target percentages, so you’re selling high and buying low.
Also keep in mind dollar-cost averaging, or investing a certain fixed amount on a regular schedule. Basically, you buy a larger number of shares when the markets are down and everything is at a lower price, and fewer shares when prices are high. This is recommended over making large, infrequent, lump sum contributions because it will bring the average cost per share down over time.
If these investing ideas are a bit daunting to you, you’re not alone! Speak with a financial planner to help you evaluate your options and navigate these uncertain waters. An advisor can be just the direction you need to reach your goal and buy a house.