Enlightened Financial Planning

Providing for Pets      January 28th, 2015

This summer, the entertainment world lost one of its most prominent and popular figures: Joan Rivers.  When her estate planning documents were unveiled, it became clear that she was a careful planner of her legacy–and also a devoted pet owner.  One of the most interesting details of her estate plan was the careful provisions Rivers made for her pets.

Rivers left the bulk of her estate to her daughter Melissa and her grandson Cooper–an estimated $150 million in total value.  The two rescue dogs who shared her New York residence, and two other dogs who lived at her home in California, were beneficiaries of pet trusts, which included an undisclosed amount of money set aside for their ongoing care, and carefully written provisions that described the standard of living that Rivers expected them to receive for the remainder of their lives.

Traditional pet trusts are honored in most U.S. states, as are statutory pet trusts, which are simpler.  In a traditional trust, the owner lists the duties and responsibilities of the designated new owner of the pets, while the statutory trusts incorporate basic default provisions that give caregivers broad discretion to use their judgment to care for the animals.  Typical provisions include the type of food the animal enjoys, taking the dog for daily walks, plus regular veterinary visits and care if the pet becomes ill or injured.  The most important provision in your pet trust, according to the American Society for the Prevention of Cruelty to Animals, is to select a person who loves animals and, ideally, loves your pets.

The trust document will often name a trustee who will oversee the level of care, and a different person will be named as the actual caregiver.  In all cases, the trusts terminate upon the death of the last surviving animal beneficiary, and the owner should choose who will receive those residual assets.

Some states have different laws that require different arrangements.  Idaho allows for the creation of a purpose trust, and Wisconsin’s statute provides for an “honorary trust” arrangement.  There are no pet trust provisions on the legal books in Kentucky, Louisiana, Minnesota and Mississippi, but pet owners living there can create a living trust for their pets or put a provision in their will which specifies the care for pets.  A popular (and relatively simple) alternative is to set aside an amount of money in the will to go to the selected caregiver, with a request that the money be used on behalf of the pet’s ongoing care.

It should be noted that a pet trust is not designed to pass on great amounts of wealth into the total net worth of the animal kingdom.  The poster child of an extravagant settlement is Leona Helmsley’s bequest of $12 million to her White Maltese, instantly putting the dog, named “trouble,” into the ranks of America’s one-percenters.  Rather than confer a financial legacy on an animal, the goal should be to ease any financial burdens the successor owner might incur when caring properly for your loved animals for the remainder of their lives, including food and veterinary bills.

How long should you plan for the funding to last?  Cats and dogs typically live 10-14 years, but some cats have lived to age 30, and some dogs can survive to see their 24th birthday.  Interestingly, estate planners are starting to see some pet trusts extend out for rather lengthy periods of time, as owners buy pets that have longer lifespans.  For example, if an elderly person has a Macaw parrot as a companion, the animal could easily outlive several successor owners, with a lifespan of 80-100 years.  Horse owners should plan for a life expectancy of 25-30 years, and, since horses tend to be expensive to care for, the trust will almost certainly require greater levels of funding.  On the extreme end, if you know anyone who happens to have a cuddly Galapagos giant tortoise contentedly roaming their backyard, let them know that their pet trust would need to be set up for an average 190-year lifespan.

By Bob Veres, publisher of Inside Information – the premier publication of financial industry trends and information for leading practitioners in the financial planning profession.

 

 

Protecting Yourself Against Identity Theft      January 13th, 2015

 We’re hearing a lot more about identity theft these days—from hackers stealing credit card numbers from big banks and retail stores to individuals opening up credit card or bank accounts in your name, which they can use to write bad checks or make expensive purchases.  Criminal identity thieves may also take out a loan in your name for a car or even a house, and some have managed to receive Social Security benefits or tax refunds that rightfully belong to others.

In some cases, when arrested for some other crime, hackers have helpfully provided a victim’s name to the arresting officers, showing the police a falsified driver’s license with that person’s number and their picture.  They post bail and skip town.  When their victim doesn’t show up for a court date he was never informed of, he could be arrested.

How do you protect yourself?

According to the National Crime Prevention Council, the biggest threats are coming from places that might surprise you.  A study by Javelin Strategy and Research found that most identity thefts were taking place offline, where someone managed to steal your credit cards, or found social security information or credit card information in a dumpster, or filed bogus change of address forms to divert a victim’s mail to their address, where they can gather personal and financial data at their leisure.

Even more surprising, 43% of all identity thefts were committed by someone the victim knows.

An organization called IdentityTheft.net estimates that over 10 million people are victimized by identity theft each year, although that number may be boosted by the aforementioned mass hacking incidents.

The Council and an organization called IdentityTheft.net say that you do a reasonable job of protecting yourself by taking a few common sense steps that make it much harder for someone to make purchases in your name or withdraw funds from your accounts.

First, never give out your Social Security number, and don’t carry your social security card, birth certificate or passport around with you.

Copy your credit cards and your driver’s license, and put the data in a safe place, to ensure you have the numbers if you need to call the companies.

When you use a credit card to buy something in a retail store, take the extra copy of the receipt with you and shred it.

Create complicated passwords for your online bank and investment accounts, and don’t write them down on hard copy paper.  Try not to use the same password for every website you access.  (Can’t remember 50 complicated passwords? A free program called LastPass lets you save all your user names and passwords in an encrypted format, so you only have to remember a single strong pass phrase.  You can also store security questions and answers.)

Don’t let anyone look over your shoulder when you’re using an ATM machine.

Be skeptical of websites that offer prizes or giveaways.

Tell your children never to give out their address, telephone number, password, school name or any other personal information.

Make sure you have a virus and spyware protection program on your computer, and keep it updated.

Check your account balances regularly to make sure no unexplained transactions have occurred.

These simple precautions will keep you safe from many of the criminal efforts to hack into your life.  If you feel like you need additional protection, there are a variety of protection services on the marketplace, which basically all do the same thing: they regularly monitor your credit scores, looking for changes and odd debts that might be a clue that someone has stolen your identity, and check public record databases to see if your personal information is compromised.  Some will prevent preapproved credit card offers from being sent to your mailbox, patrol the black market internet where thieves buy and sell credit card numbers, and the fancier services will provide lost wallet protection, identity theft insurance and keystroke encryption software.

Which are the best?  A research organization called NextAdvisor has recently evaluated and ranked eight of these services, with costs ranging from $20 a month down to $7 a month.  The top rated was IdentityGuard (premium service price: $19.99 a month) which offers the most compete protection, including the aforementioned fancier services.  But seven of the protection systems, including TrustedID, AARP (a white-labeled version of TrustedID), LifeLock Ultimate, PrivacyGuard, IDFreeze and LegalShield all received good ratings; only Experian’s ProtectMyID was negatively reviewed for being expensive and only monitoring one credit reporting service.

Do you really NEED these services?  Possibly not.  However, with the growing publicity around identity theft, these firms have become very aggressive in their marketing efforts.  What they don’t tell you is that you can do many of the things they do on your own.  Every quarter, you can review one of your credit bureau reports for free, or—and this is easier—simply look at your statements and balances every day.  The more sophisticated services are a fancy replacement for promptly notifying your bank when a credit card is lost or stolen, or when a strange charge shows up because Citibank or the Target department store was using weak security protocols.

In the near future, as more transactions take place using thumb prints or other biometric security data, we may look back on this period as the Wild West of data security, a strange unsettling time when people had to worry about their lives being hacked by strangers.  Your goal is to arrive safely, unhacked, at that more secure period in our cultural evolution.

By Bob Veres, publisher of Inside Information – the premier publication of financial industry trends

 

Thoughtful VS. Reactionary Responses: Be careful what you say yes to!      December 23rd, 2014

Your kids are planning a weekend away – they want you to babysit.  A friend or colleague wants help on a major project.  Your club asks you to run for president (or secretary or treasurer, etc.).  A family member asks for a loan (with no guarantee for repayment), and so on.  Pressed for an answer you say yes without giving it much thought.  You want to be helpful – it’s your nature!  And honestly, saying no takes explaining, defending, negotiating, and of course, GUILT!

It’s not that you should never say yes to such things.  It’s that taking the time to be thoughtful rather than reactionary will serve you better.

For example, you may prefer to say no if your own projects are not getting done, or you lack the energy to take on a new project, or you’ve been way too generous with your loans in the past.  If you’re saying yes too often to something you later regret, the generosity you give to others may come at your own expense.  Although it may feel good at the time, your personal boundaries can suffer, which can lead to feelings of resentment and anger – both with your self, and with others.  The goal is to balance when to say yes and when to say no.

In the midst of our careers, we are used to juggling tight schedules, over-structured time, long hours, and trying to satisfy someone else’s agenda.  As we make the transition to post-career life, it takes time to adjust, and to think of our time and resources in new ways.  That is, how to spend them, how to embrace them, how to protect them, and so on.

Think about what’s important in your life.  Then, plan how you want to spend both your emotional and financial resources.  Share your plan with those closest to you.  Ask them to not only honor your plan, but to act as accountability partners when you’re tempted to say yes to something that would compromise your plan.  This gives you a chance to be thoughtful rather than reactive.  Then, when you’re offered an opportunity, you can choose to say, “Let me think about it.”  This response can help you balance your time, and is respectful of both you and the one who asks.

It is a fact that baby boomers will live longer, and will potentially have healthier lives than previous generations.  It makes sense, then, to consider carefully the best use of your time and resources.

By Donna Bennett, M.A., Licensed Psychologist

Good News For a Change      December 15th, 2014

One leading candidate for the “most under-reported story” of 2014 is the remarkable drop in the U.S. government’s budget shortfall.  The final numbers announced by the U.S. Treasury for fiscal 2014 (ending September 30) shows a $483 billion deficit.  That’s about $1 trillion lower than the record $1.4 trillion deficit recorded in 2009.  As a percentage of the U.S. Gross Domestic Product, the deficit came in at 2.8%–below the average of the last 40 years.

Digging into the numbers a bit, the government collected just over $3 trillion in the past 12 months, which comes to 17.5% of America’s total GDP.  That’s up from $2.8 trillion last year, largely the result of a stronger economy, but also reflecting higher tax rates on higher-income Americans.  Meanwhile, spending was essentially flat; rising from $3.45 trillion to $3.50 trillion, reflecting decreased defense spending and cuts in the unemployment insurance program, flood insurance and disaster relief, crop insurance, the Supplemental Nutrition Assistance Program and a variety of housing programs.

If there is bad news in this picture, it’s that Social Security, Medicare and Medicaid are taking over an ever-larger share of the budget, and these costs have been rising much faster than inflation. “Entitlement” expenses are not discretionary; they are basically written contracts with the American people.  Medicaid in particular is worrisome; while discretionary expenditures are down almost totally across the board, Medicaid spending growth came in at 10.2% in 2014, and is projected to rise 14.3% next fiscal year.

How does all this affect you?  Notice that the partisan budget bickering has quietly faded away.  Congress has extended government funding several times without fanfare, and is expected to do so again during the lame duck session after the elections.  This might induce the rating agencies to give American bonds back their A+ credit rating.

We may see a tax reform bill sometime next year, which will certainly lower the U.S. corporate tax rate, and may address America’s tangled individual tax code.  Earlier this year, a House bill proposed to repeal dozens of tax credits, deductions and tax preferences, including the mortgage interest exemption and deductions for charitable contributions.  The legislation would create two individual income tax brackets at 10% and 25%. Another proposal would replace most current federal taxes with a 23% national retail sales tax.

And you may hear more about reforming Social Security, Medicare and Medicaid.  The Social Security fix is relatively straightforward; for persons under the age of 50 today, full benefits would be deferred a year or two, to reflect the fact that people are living (and capable of working) longer.  Medicare proposals have ranged from giving total discretionary control to states, to creating a voucher system that would cap benefits for each participant.

Finally, all of us who are recommending Roth conversions have to pause when we see proposals that would replace income taxes with a sales tax.  The premise of a Roth conversion is that you are paying, today, equal or lower taxes on the converted retirement dollars than you would be paying in the future.  If future marginal tax rates go down to zero, and all government revenues are shifted to a sales tax, that dramatically changes the Roth equation.  Yes, this is unlikely, but even the unlikely contingencies have to be factored into today’s financial decisions.  After all, who thought the budget deficits would fall below 3% of GDP so quickly?

By Bob Veres, publisher of Inside Information – the premier publication of financial industry trends and information for leading practitioners in the financial planning profession.

 

Volatility Is Up. So What?      December 4th, 2014

Professional investors know something that most people find impossible to believe: that the threat of scary ups and downs in the markets is by far the best friend of the long-term investor. Why? Because over the long term, stocks have provided returns far higher than bonds or cash. If it weren’t for the occasional dizzying gyrations, any rational investor would put his or her money where the highest returns have been. Right?

This appears to be one of those times–a time when non-professional investors are reminded of the reasons why they have this lingering fear of the stock market. Since the end of September, the S&P 500 index has done something regularly that it normally does infrequently: moved more than a full percent up or down in a single day. Consider the recent pattern this month:

Oct. 1 -1.3%

Oct. 4 +0.05%

Oct. 5 +1.1%

Oct. 6 -0.2%

Oct. 7 -1.5%

Oct. 8 +1.8%

Oct. 9 -2.1%

Oct. 10 -1.1%

Oct. 13 -1.65%

Contrast this to the calm before the storm: earlier this year, the markets experienced 42 consecutive days without a single 1% price move, and the accompanying chart shows that this is far from the record.

The question we should be asking ourselves is: why are we paying such close attention to daily market movements? Why are we allowing ourselves to fall for the trap of getting anxious over short-term swings in stock prices?

The second chart shows the growth of a dollar invested in the S&P 500 at the beginning of 1950, with dividends reinvested, compared with a variety of alternative investments which have not provided the same returns. (Note that small cap stocks, which are more volatile, have done even better.) The chart also shows all the scary headlines that the markets managed to sail through on the way to their current levels–all of which are scarier than the things we’re reading about today.

This is not to say that the markets won’t go lower in the coming days, weeks or months; in fact, we are still awaiting that correction of at least 10% which the markets delivery with some regularity on their way to new highs, which has been long-delayed in this current bull market. The thing to remember is that the daily price of your stock holdings are determined by mood swings of skittish investors whose fears are stoked by pundits and commentators in the press, who know that the best way to get and hold your attention is to scare the heck out of you. What they don’t say, because it’s boring, is that the value of your stock holdings are determined by the effectiveness of millions of workers who go to work every day in offices and factories, farms, warehouses, power plants and research facilities, who slowly, incrementally, with their daily labor, build up the value of the businesses they work for.

The last time we checked, that incremental progress hasn’t stopped. The economy is still growing. You won’t get a daily report on the value of the stocks you own; only the daily, changing opinions of skittish investors. But if you take a second look at the growth of an investment in stocks over the long-term, you get a better idea of how that value is built over time, no matter what the markets will do tomorrow.

chart1

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By Bob Veres, publisher of “Inside Information” – the premier publication of financial industry trends for financial professionals