The #1 Mistake People Make Trying To Avoid Probate?

First, Why Do People Want To Avoid Probate? Most people want to avoid probate for two reasons. First, because assets are frozen and not available to heirs during the year or more it takes for probate to be completed. Remember, probate is the process of validating a will and is designed to give creditors time to get paid and relatives time to challenge the will. The more challenges, the greater the delays.
Second, probate can be very expensive. Attorneys can charge up to 5% of the value of the estate. Note: You can reduce or avoid the attorney fees by appointing a family member to serve as executor of your will. They can always hire an attorney, if needed. This could save your heirs (estate) tens of thousands of dollars in legal fees.
How Do Most People Avoid Probate? The easiest and most common way people avoid probate is by putting assets in their children’s names. While this does avoid probate, it can create other very costly problems.
Example; A widowed mother owns a home worth $200,000, that she would like her son to inherit. When her husband died 10 years ago, she went through the probate process. She would like her son to avoid the hassles and costs of probate when she dies. So, she decides to put her son’s name on the deed. By doing so, the son will indeed avoid probate.

However, by titling the home in the son’s name she has probably created a current gift tax liability. (or estate tax problems at her death) Depending when and if the gift is caught. (You are generally only allowed to gift $10,000 annually to each person)
Unfortunately, she has also created a capital gains tax problem for her son.
Let’s look at what can happen; Thirty years ago, the mother & father bought the home for $40,000. When the mother dies, because the son’s name is now on the deed, the IRS will consider him as an owner, not as an heir. If he decides to sell the home right away, he will have to pay capital gains on $160,000 of profits. That’s $32,000 or more, which is a huge amount to pay just to avoid estate taxes. It will be even more as the home appreciates in value in later years.
More Concerns; Jointly owned property, it is legally exposed and attachable by the creditors of each the owners. If any of the owners are sued, go through a divorce, or they have an income tax problem, the asset can be seized to satisfy a legal judgment against that owner.
What’s The Best Way to Avoid Probate? Generally, the best way to avoid probate is to establish a revocable living trust, naming yourself as trustee and your heirs as beneficiaries. Because the trust is revocable, you can put assets into the trust and take them back out at any time during your lifetime. And because the assets are owned by the trust, and not by you, your estate avoids probate. When you die, your assets pass directly to the trust’s beneficiaries (your heirs).
To set up a trust, meet with an attorney who specializes in estate planning.

FUN FACTS
Interesting Facts:
-The verb “cleave” is the only English word with two synonyms which are antonyms of each other: adhere and separate.
-In 1895 Hampshire police handed out the first ever speeding ticket, fining a man for doing a blazing 6mph!
-The average person walks the equivalent of twice around the world in a lifetime.
-Laughing lowers levels of stress hormones and strengthens the immune system. Six-year-olds laugh an average of 300 times a day. Adults only laugh 15 to 100 times a day.

 

Improve Your Attitude, Improve Your Life; Part 1

Our attitude has a profound effect on the quality of our life. Optimism and pessimism create two completely different realities. By taking a few simple steps to adopt a more optimistic and positive attitude, you can enjoy both immediate and long-term benefits. Here are some practical steps to help you lead a happier life!
1. Gratitude
According to Hans Selye, an expert on stress, gratitude is one of the healthiest of all human emotions. Being grateful exerts a powerful influence on your attitude. Not only does it make you feel better in that moment, but it will shift you towards more positive thinking. One simple technique is twice daily, before you go to bed and before you start your day, say three things out-loud that you are thankful for. You should find you not only sleep better, but your days will be better too!
2. Choose Happiness
Attitude is not about our circumstances or any other outside force. It is a decision we choose. You can see the negatives of a situation or you can look for the positives. See the positives, embrace happiness.
“The greatest part of our happiness depends on our
dispositions, not our circumstances.”
-Martha Washington
3. Challenges not Problems.
There are always going to be hardships that arise in your life. Everyone goes through ‘problems’ at one time or another. The key here is to never call your hardships problems, instead call them challenges. The reasoning for this is subconsciously, problems are malicious and send us the message that something is wrong. Challenges, however are an opportunity, or an obstacle to overcome. It does not have the same negative connotations there; it will help you focus on positive things.
“The pessimist sees difficulty in every opportunity. The
optimist sees the opportunity in every difficulty.”
-Winston Churchill
4. View Life as a Journey
Life should be enjoyed; it should be an adventure filled with discovery and wonder. Don’t let fear or anxiety come in the way of your happiness. None of us know what is going to happen in the future. There will be both changes and challenges; don’t be afraid of them, welcome them! Look forward to the new experiences they will bring, and how they will help you grow.
To be continued (on next month’s issue)

College Financial Aid

Having our kids attend college is a dream most of us share. It’s natural. We want to see them excel in all they do. Unfortunately, with the rising cost of tuition, it becomes harder and harder each year to pay for it. There is however, a large amount of financial aid out there. Here are some important things to know regarding financial aid.

First, realize that your income and assets as parents/guardians will affect their financial aid until one of the following criteria are met… They are 24 years or older by December 31 of the current year, if they are married, if they’re enrolled in a graduate or professional degree program, if they have legal dependents other than a spouse, if they are an orphan or ward of the court, or if they ‘re a veteran of the U.S. Armed Forces.

Also, here are some terms you will need to know:

• FAFSA: (Free Application for Federal Student Aid) This determines financial aid eligibility and determines your federal award amounts.
• EFC: (Estimated family contribution) How much the family/student is expected to pay out of pocket. Establishes ‘financial need’. Based on current assets, income, 529 plans etc…
• Parent Plus Loans: These are loans on the parents to pay the student’s cost.
• Unsubsidized & Subsidized Student Loans: These are loans on the student that do not have to be paid until after graduation. Subsidized will not accrue interest until after graduation, unsubsidized will.
• Grants: Funds given out by the government. (PELL-Need based grant)
• Scholarships: Funds given out by various organizations. (Schools, companies, Fraternities, teams etc…)

Where do I start?

Complete the FAFSA. There is a limited amount of funds, so the sooner the better. This will establish the student’s EFC and financial need. The FAFSA will give an award letter saying what federal funds they qualify for. For example, they may receive the PELL Grant. This information is passed on to the school(s).

It is up to the school to either meet the need or not. Each school is different, and accordingly will fund all, some, or none of it. Whatever they don’t cover is considered ‘unmet need’. From there you will have to find the funds on your own. This can be done through other loans, independent scholarships, work study etc… If you have unmet needs, be sure to call the financial aid office and see if they can help. They often have additional scholarships they can give upon request. Additionally, you can find many scholarships outside of the schools and FAFSA; your student can apply for these starting in their junior year of high school.

All in all, there are number of factors that go into the out of pocket cost for higher education. For help planning how to lower your Estimated Family Contribution, to maximize the financial aid your student will receive, while still saving for you and your child’s future, call my office today!

Grandparents: The 529 Plan Mistake

It is no secret that college costs rise every year and generationally we are saving less and less. This created a problem that was “resolved” by the creation of the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

Enter the grandparents. According to a 2014 survey by Fidelity Investments, 53 percent of grandparents were saving or planned to start saving for grandchildren’s college expenses. A whopping 90 percent of those surveyed said that if asked, they would likely help with college costs in lieu of other gifts.

Many financial advisors encourage clients to open 529 college savings plans for grandchildren. Investments in 529 plans are free of federal income taxes until money is withdrawn for qualified educational spending.

While many cash-strapped parents appreciate the assistance from grandparents in financing their children’s education, families should be aware of a potential pitfall to grandparent-owned 529 accounts. A 529 account owned by a grandparent is not reported on the Free Application for Federal Student Aid form (FAFSA).

FAFSA is filed yearly and helps determine a college student’s eligibility for federal financial aid. In contrast with the parent-owned 529 account, which includes 5.6 percent of the value deemed part of the expected family contribution.

However, a different problem arises when funds from a grandparent-owned account are distributed for a grandchild’s education expenses. At that point, the funds are considered student-owned, and reduce the following year’s financial aid award by 20 percent. It’s worth noting: The grandparent’s ownership of the 529 account does not affect the grandchild’s financial aid eligibility. It is only when the money is distributed that it is considered the grandchild’s income.

The key to paying for college is all in the planning process. You cannot afford to leave things to chance, as that is how mistakes are made, and the cost could be your child’s education. Additionally, there are other college planning tools out there besides the 529 plan that offer tax advantaged savings. However, unlike the 529 plan, you can receive the benefits not only tax free, but also as unreported income, and it is hidden from FAFSA. What would that mean to you and your family? How much better off will you and your aspiring student be?
To see how this applies to you, or for more information; call my office today!

 

 

 

 

Interesting Facts:

-The words “silent” and “listen” have the same letters.

-The pound sign (#) is called an octothorp.

-Mickey Mouse was named after Mickey Rooney, whose mother Walt Disney dated.

-The shape of the Earth is called the geoid. It is oblate – flatter at the Poles than at the Equator.

-Every day more money is printed for Monopoly than the US Treasury.

-The Baby Ruth candy bar was actually named after Grover Cleveland’s baby daughter, Ruth.

 

 

 

DID YOU KNOW
Firework Safety

July 4th is right around the corner, and if you are like most families on the 4th, you will light off fireworks with your friends and family. Here are a few safety tips to make sure your 4th is fun and safe.

-Light one firework at a time (not in glass or metal containers), and never relight a dud. Always use the original tubes for launching.

-Don’t allow kids to pick up pieces of fireworks after an event. Some may still be ignited and can explode at any time.
-Soak all fireworks in a bucket of water before throwing them in the trash can.

-Point fireworks away from homes, and keep away from brush and leaves and flammable substances

-Steer clear of others — fireworks have been known to backfire or shoot off in the wrong
direction. Never throw or point fireworks at someone, even in jest.

-Always use fireworks outside and have a bucket of water and a hose nearby in case of accidents.

Let’s all have a happy and safe 4th!

 

A True Financial Advisor

When talking to many of my new clients, one of their biggest hesitations to work with me is that they already have a “financial advisor.” However, after really talking to them and going over their situation with them, they realize they don’t have a financial advisor, they have a Investment Broker. The only thing their advisor is helping them with is investing in the stock market and mutual funds. They use the one size fits all approach. This should be criminal! Everyone has different needs and a different situation. Plus, while yes, investing is an important piece of the puzzle, financial advising is so much more than this!

“[Financial advising is] helping people learn how to spend, save, invest, insure,
and plan wisely for the future, to achieve financial independence.”
-Loren Dutton

1. Your advisor should teach you about your spending and saving!
You both need to be aware of your spending habits so together, you can craft a plan that is best suited for you. They should be able to help you find money that you are spending, needlessly. Additionally, they should help you put money away for savings. An emergency fund is an important piece of being financially secure.

2. Your advisor should invest for the future!
Your advisor should help you reach your retirement goals. No one wants to be forced to work their entire lives. Investing is one of the best ways to make your retirement dreams come true. They should be helping you put money away for your future. Please make sure, they are really talking to you and investing in the right places. They should not be using the ‘one size fits all’ method, but rather what is best for you in your unique situation and risk tolerance.

3. Your advisor should insure you!
The world is full of surprises, no one is guaranteed tomorrow. Insurance is an important piece of your financial puzzle. More than likely, you should have both life and disability insurance to guarantee you and your family’s financial security.

4. Your advisor should help you plan!
The first thing any advisor should do when they sit down with you is get a picture-perfect image of where you are right now and what your goals are for the future. How can your advisor guide you if they don’t know what you have or what your goals are?

A true financial advisor is so much more than someone who simply picks stocks for you. They are your partner in building a life of financial freedom and security. They know your story, understand your goals, and walk alongside you every step of the way — from managing your daily spending to protecting your family’s future. If your current advisor isn’t doing all of these things, it may be time to ask yourself: do I have a financial advisor, or just an investment broker? You deserve someone in your corner who sees the full picture and works tirelessly to help you achieve it. That is what real financial advising looks like — and that is exactly what you deserve.