Helping Your Children Meet Their Promise

As a parent of young children (two toddlers and a new baby on the way), one of the big concerns for me is how are we going to pay for their education.  I don’t know about you, but when I went to college (class of 93) and lawschool (class of 96), tuition did not equal the GDP of a developed nation.  It certainly wasn’t cheap, but it was attainable for your average middle class American family.  I’m not so sure that will be the case for our kids.  

If you want to see a projection of what it will cost for your kids, take a look at www.finaid.org.  This link will take you to a calculator where you can project tuition costs into the future.  My oldest son is four, and using the calculator and assuming he will go to a private college like I did, the cost would be $404,980.82 for four years of college.  That’s only one of my kids too.  The total for all three would be $1,436.649.91.  I don’t know about you, but that seems like an impossible number to me.

In the modern workplace, college is pretty much a requirement.  Paying for it seems like a dauting task.  I have discovered a tool reecently to help,  www.upromise.com.   UPromise is essentially a rebate program like your frequent flyer miles or cashback programs on your credit card, but instead of sending you the cashback, the rebate goes into an account for your children.  When you sign up for the site, you register your credit cards and debit cards and then as you spend money at participating businesses, money is deposited into the account.  You can also register your grocery store discount card as well as shop online through UPromise participating vendors.  UPromise also allows you to send out emails to friends and family who can then register their cards and earn money for your children as well.  The UPromise website also features information about 529 Savings Plans and Student Loans.

If your children are already in high school and nearing their matriculation, you and your family would benefit from sitting down with a college funding advisor.  There are several out there.  The only one I am personally familiar with is Fox College Funding.  If you would like to speak with one of their consultants, send an email to Seth Kovensky at info@liveoakfs.com.  Let him know that I sent you and he will discuss your options with you.

What Everyone Should Know About Protecting Themselves in a Recession

Six Steps You Can Take to Minimize Your Risk in Uncertain Times

1 – Control What you Can Control

The tremendous turmoil in financial markets and financial institutions has caused a great deal of concern for many of us. It’s important to realize that, while we cannot control what happens in the stock market, we can control what we do with respect to our estate planning. Now, more than ever, it is vital to have a plan in place that will protect your assets, provide for your family and spare them the burden and expense of probate. These are things over which you have control. By taking control over the things in your life that you can control, you will be left with a wonderful sense of empowerment that will make the uncertainties of the world seem less scary.

2 – Turn Off the Television

This piece of advice goes along with number one. What is happening on Wall Street as the markets correct themselves is something which is out of your control. Other than doing your civic duty and voting when it comes time to, neither you nor I can do much to affect what happens in the global economy. So, why worry about it. Stressing out over whether Congress passes a bailout bill and what happens in the stock market is not going to help you make any decisions about what you need to do and adds stress unnecessarily. So do yourself a favor and turn off the TV.

3 – Insurance

Based on your age, your income and your asset level, make sure you have enough insurance in place to protect you and your family in the event of death, disability, or a long term medical condition. This is one of the most important things you can do to protect your family. This also falls under the heading of things WE CAN CONTROL. By having an appropriate amount of insurance in place, you can make sure that your family will be taken care of if something unexpected happens to you. And oh, by the way, it’s far more likely that you will suffer a disability than death anytime soon, so make sure that you have adequate disability insurance in place to maintain your lifestyle if you can’t work any longer. Almost as important for those over fifty is to make sure you have long term care insurance in place. As time goes by rates for long term care insurance will rise and now is the time when you can lock in a premium.

4 – Business Succession

If you own your own business, now is the time to make sure that there are plans in place to transition your business to the next generation. Seventy per cent (70%) of family businesses in the United States do not survive past one generation and only three per cent (3%) make it to the fourth generation. Having the right plans in place and establishing the right relationship between your family and your business are keys to long term success.

5 – Savings

Now is the time to focus on frugal living. If you do not work with a financial advisor currently, sit down with one today. The real value you can get from working with a financial planner it to take a serious look at what you are spending money on and what you can cut to increase your savings. Also, if you have any lingering differences with your spouse over money, this is the best way to get those issues out in the open and discuss them with an unbiased and neutral third party.

6 – Living Trust – FDIC Protection

Because of the increased protection your assets can have from the FDIC in a Living Trust, now may be the perfect time to set up a Living Trust for the protection of yourself and your family. Under new FDIC rules, accounts held within a Living Trust have FDIC protection of $100,000 for each beneficiary of the trust. This can greatly increase your level of protection. For more info on this here’s a link to an article on Bloomberg.

The Silver Lining in Tough Economic Times

The economy is weaker than it was in the late 1990s. Interest rates have been rising. Food and energy prices have been skyrocketing. Home prices have been falling. It is getting to the point that we don’t even want to watch the news anymore.

However, there is a silver lining behind the dark economic outlook. As home prices fall and interest rates rise, one estate planning strategy for persons with taxable estates becomes particularly attractive. A Qualified Personal Residence Trust or “QPRT” is a great way to get the value of your home out of your estate for estate tax purposes at a discount. You transfer your home to an irrevocable trust you set up for that purpose. You retain all rights in the home for a period of years, which you select. After the expiration of the period, you can continue to live there by paying rent to the trust (which further helps diminish your taxable estate). The amount an individual can leave estate tax-free is $2 million, rising to $3.5 million in 2009, but then falling to only $1 million in 2011. If you have less than $1 million in assets, a QPRT may not be an appropriate estate planning strategy for you.

Let’s look at an example. In 2003, your home was worth $500,000. Today, it is worth $400,000. The interest rate used by the IRS was 3% in 2003. Let’s say that at the time of your transfer that interest rate has increased to 5%. Let’s further assume you are 70 years old and keep a retained interest for 8 years and then pay rent. The actuarial value of the remainder interest gifted to your kids in 2003 would have been approximately $292,000. If you did that same transaction in today’s environment with the home at $400,000 and the interest rate at 5%, the value of the gifted interest would be less than $200,000. That’s about a 31.5% reduction in the value of the gifted interest. Let’s say your home goes up in value to $800,000. You will have gotten the whole thing out of your estate for a value of less than $200,000! This preserves more of the amount that can pass estate tax-free to be used for your other assets.

As you can see, this is a great time to think about this strategy. The higher the interest rates and the lower the home values, the more powerful this strategy becomes. There may not be much to be thankful about in economic news nowadays. But, this can be a great time for certain estate planning strategies like this one. A qualified attorney who focuses his or her practice in estate planning can help you design and implement a strategy for these tough economic times that meets your unique needs.

A Reverse Mortgage Might Not be the Best Idea

This New York Times article points out some of the drawbacks to reverse mortgages.  These include high fees and pressure from salesmen to invest in high risk investments.  Not all reverse mortgage salesmen are charlatans, but it is important to fully understand what you are getting yourself into with a reverse mortgage.  The things to consider are what are the fees the mortgage company will charge, what is the interest rate and how much money are you going to be able to take out of your home.  Also important to consider is whether you want to leave the home to your heirs or beneficiaries.  If you do, a reverse mortgage can create a situation where the payoff is greater than the value of the property upon your death.  If you are considering a reverse mortgage transaction, talk with your estate planning attorney and your financial advisor first to see if the mortgage you are considering is a good deal and what your other options might be.

Here’s the link:

Tapping Into Homes Can Be Pitfall for the Elderly – New York Times

Newswise Medical News | Mild Alzheimer’s Patients Show Rapid Decline in Financial Skills Over One Year

This article details a new study on Alzheimer’s disease out of the University of Alabama Birmingham which demonstrates a significant deterioration of an Alzheimer’s patient’s ability to manage financial affairs within one year.  This highlights why it is so important to do early planning and that if someone you know or love is diagnosed with Alzheimer’s it is best to get any financial or estate planning matters squared away immediately.

Newswise Medical News | Mild Alzheimer’s Patients Show Rapid Decline in Financial Skills Over One Year

Britney’s Family Takes Control

I don’t usually pay much attention to pop culture, except when it intersects with estate planning.  Britney Spears’ recent problems did not even register on my radar until I stumbled across this article which indicates that Britney’s family has taken over management of her affairs through a conservatorship.  A conservatorship is a probate proceeding to appoint a petitioner (who is usually a family member or other responsible party) to manage financial matters for an incompetent adult (in Georgia anyway).  The petitioner must prove to the court through testimony and affidavits from doctors that the ward is unable to handle his or her own affairs.

Mistress battles Cobb millionaire’s kin over estate

This story from the Atlanta Journal Constitution details a will dispute winding it’s way through the Georgia courts. The validity of certain amendments to the will made by the testator in the days just before his death is being decided by the Georgia Supreme Court.

Link