Tell Your Life Story On Proust

I have written several times about leaving your heirs the gift of the life lessons you have learned. More valuable than mere possessions the love and experience you can pass on to the next generation can now be captured and shared privately at a site named Proust.

I hope you will check it out for yourself and maybe make use of it.

New Age Philanthropy

In the sector of charitable giving a new trend is emerging. This trend pools together the resources of the middle income class and has become for the second largest recipient of charitable funds in the United States behind only the Red Cross. Since the mid 1990's Donor Advised Funds have flourished into a dominant force in philanthropy and continue to grow as more money managers and investors become aware of their simplicity, flexibility, and low cost.

Donor Advised Funds (DAFs) are just that, individuals give money or assets to a charity or sponsorship organization who sets up a Donor Advised Fund account. That account is then invested in options offered by the specific organization that the donor has chosen. From this account, donors can make grants of $50 or more to specific organizations or causes that are important to them. While this seems basic, there are many choices to be made in creating, investing, and continuing this charitable account. But first, I will explain WHY you should consider setting up a DAF if you're looking to make charitable donations.

Simplicity

The first major advantage DAFs have over private foundations is the simplicity of setting up the fund. For donor advised funds, a simple agreement between the sponsoring organization and the donor is all that is needed to create the account. This method is much easier than applying for IRS tax-exempt status, filing all required tax reports, and maintaining compliance with all the rules that apply to charitable foundations.

Low Cost

Another positive aspect of the Donor Advised Fund is the low cost to create it. Needing as little as a $5,000 in initial contributions those who wish to donate even on a modest scale can get involved in charitable giving. Further, grants to individual charities can be made in increments of as little as $50.

Flexibility

Flexibility is the foundation of the Donor Advised Fund. When choosing a specific plan with a sponsorship organization there are many various investment options to select from. The plans range from broad investment choices, where donors are allowed to choose their own investment portfolios- to basic mutual fund choices offered by the sponsor, and finally to the option of pooling together mutual funds to invest. Only rarely are donors offered no investment choice at all but in these situations the sponsoring organization chooses and manages the investment options for the donor.

In the past most donors have contributed through private foundations often set up by the individuals themselves or through a third party. There are many benefits in doing so: up to 30% of cash contributions can be deducted and 20% of all other assets can be written off as well.

However, the up and coming DAF has joined the race and offers even more bang for your buck as well as less hassle than is involved in giving through private foundations. Offering a write off of 50% of initial cash contributions and a 30% write off of other assets contributed, the Donor Advised Fund trumps the private foundation in terms of tax breaks, as well as potentially reducing estate taxes since more of your assets are donated to the fund.

Free ebooks

Lulu.com offers writers a place to sell their books online. There are some titles that are offered as free down loads that you can read from your computer, laptop, or ebook reader. You might want to check out the following titles.

• Basic Financial Management - Practice of basic financial management with creative learning exercises. Analysis of financial statements, management of short-term cash, funds flow, management of long-term funds, investment of surplus funds etc. with 30 minute audio, all in about a day.

• Educating Your Dollars: High Finance for Young Adults - Workbook to teach teens and adults about finances.

• It's Not Rocket Science: A Simple Guide to Managing Your Money - A concise guide to personal financial management suitable for the beginning investor.

• Emergency! Get Out of Debt Now! - Written by the creator of Frugal101.com, Emergency! Get Out of Debt Now! focuses on getting the desperate college student or young adult out of the debt prison using real, workable strategies.

• Wills, Trusts,&Other Fun Stuff - Decisions Your Not Dying to Make - This book presents basic estate planning information on Wills, Revocable Living Trusts, Irrevocable Trusts, Asset Protection, Probate and more.

Online Help for Letters of Instruction

Writing a letter of instruction is an estate planning measure I have covered before. Now there are some web based applications that promise to make the job a little easier.

• YouDeparted.com. This site isn't about social networking or sending scary messages from the grave. It's about organizing your life so if you die unexpectedly, the important details of your life can be made available to those who really need it. It's about having the ability to update your information in a timely manner as opposed to keeping everything in a safe deposit box or hidden away in a desk drawer somewhere.
• PrivateMatters.com. Keep a detailed record of your last wishes and instructions, store email messages for delivery up to a year after your death, and build a lasting memory for someone special.

How To Write Your Life Story

I have posted before about writing your ethical will. It is a way for your loved ones to benefit from the life lessons you have learned when you are no longer around to teach them yourself. Now there is a book available to help you do the job. Ralph Fletcher's book "How to Write Your Life Story" was penned with the goal of helping young people learn to be better writers, but the how-to guide can be helpful no matter what your age. It is available at Amazon.

Selecting A Corporate Trustee

A comment on my recent post "Five Questions To Consider When Naming a Trustee" writes, "Your comment about a corporate trustee is interesting, as I am leaning significantly that direction because of a lack of qualified individuals within my personal relations to manage my trust. How would you recommend finding a suitable corporate trustee ?"

Corporate trust services are offered by trust companies, banks, some attorneys, and some financial advisors.

Your first step should be to determine just what services you expect to receive from the trustee. You can choose a trustee to perform the administrative functions only. This could include:

• Administration of the trust in accordance with the trust agreement.
• Accounting and reporting of income, expenses, and capital gains and losses.
• Distribution of income and/or principal to beneficiaries as determined by the trust.
• Annual administrative account reviews
• Issuance of broad fiduciary guidelines
• Filing of annual trust income tax returns.
• Providing custodial services and executing transactions.

Using only administrative trust services the beneficiaries or a trusted financial advisor could be entrusted with managing the assets of the trust.

You can also hire a trustee to provide both the administrative and asset management functions.

When you have determined exactly what services you want the trustee to provide you can move to the next phase which is where you should request proposals from several sources. If possible you should meet face to face with a trust officer from each firm you interview. While very intangible the personal touch is a large part of the function of corporate trustees.

Some of the questions you will want to ask include:

• What account minimums does the trustee require?
• How long have they been in the trust business?
• How many trusts do they manage and what is the average size of their trust accounts?
• What level of experience does the staff have and how did they acquire that experience?
• What is the staff turnover?
  
• Do they have an open architecture or are they limited to proprietary in house investment options?
• What conflict of interest might the have?
  

Of course you will also want to compare investment performance and fees along with the services provided. Location is also a consideration. Will they be accessible to your heirs? And finally, be sure they are really in the trust business, not just going through the motions so they can advertise that they offer trust services.

Five Questions to Consider When Naming A Trustee

The responsibilities of a trustee are often complex and time consuming. Managing trust assets often entails familiarity with tax law, real estate markets, security markets, and financial planning. Often it is the oldest or most responsible heir who is given this duty. Here are some things you should consider before deciding on a trustee.

1. Do you trust this individual? The trustee will need to put your wishes and vision of fairness above any of their own. You must have absolute trust in their integrity.
   
2. Is the person willing? You should be sure they have the time to devote to all the many details that can and surely will arise in performing the duties of trustee. If it would be a burden on their family or career let them know it is okay to decline.
   
3. Would you let them handle your affairs today? If they are lacking in the knowledge and expertise now, it is doubtful they will be a suitable choice in the future.
   
4. Will this choice create ill will among the surviving beneficiaries? The trustee must be able to work through disagreements with and among other beneficiaries. Sometimes family dynamics can make it nearly impossible for the trustee to effectively discharge their duties. Don't make a choice that could lead to ill will among family members.
5. Is this person willing to accept the legal ramifications of serving as trustee? Most states have laws requiring high standards of performance by trustees. You should discuss the potential liability with any prospective trustee.

If you have a suitable relative or heir you should talk about your choice with your other heirs and beneficiaries. Let them know why and how you made your choice. This could alert you to unforeseen problems and also make sure that everyone is working from the same page.

It could be that after asking yourself these questions you may determine that a corporate trustee would be better for all. The most common reason for not naming a corporate trustee is expenses, but don't be penny wise and pound foolish. The reason you went to the trouble of setting up a trust is to protect your loved ones; a poor choice of trustee could make it all a waste.

Your Ethical Will

When you first think about estate planning it is often only about dollars and cents. Who gets what, how to minimize taxes, how to avoid probate. We often forget that the people we love will be facing one of the most emotionally trying times of their life. Yes you need to take care of the financial aspects of your estate but you should also try to incorporate the emotional needs of your loved ones.

Something you should consider is writing an "ethical will". An ethical will is not a legal document, it is like a final chance to communicate with you loved ones. Ethical wills are a way of sharing some of the wisdom you have accumulated over your lifetime. It can be a short letter to your heirs or a long document that includes things like your family history, a statement of your beliefs, and stories about your life that shaped the way you lived. You can include things like where the money your leaving came from, what it meant to you, and how you would like to see it used. If your children or grandchildren are very young, writing an ethical will can provide a link that can reach through the years.

The hardest part is always where to begin. Some ideas that can get you going might be:

• I am most grateful for..
• The most important gift I ever received..
• My parents taught me..
• From my grandparents I learned..
• What mattered the most in my life..

Look at an ethical will as an opportunity to connect your life with future generations, it can be a satisfying experience.

Letter of Instruction

In this months issue of Money Magazine, Jean Chatzky has a good article about writing a letter of instruction to your heirs to help them sort through your affairs should you die. Jean makes the point that often heirs are unaware of where to look to find important documents or whom to contact to find information on your estate. While a letter of instruction is not a legal document, it can help your children or other heirs during a very troubling time. Some of the items Jean suggests for inclusion are:

• The location of estate planning documents (wills, trusts etc.)
• The location of financial documents (tax returns, deeds, bank statements)
• The location of Safe deposit boxes and their keys
• Life insurance policies LTC policies
• Investment accounts and contact information
• Phone numbers for accountants, attorneys, financial and insurance advisors
• Funeral home information if you have made arrangements

Some other items that come to mind:

• Information and passwords for email accounts
  
• Information and passwords on home security systems
• Information and contacts for pensions

While planning for our own deaths is never something we wish to dwell on, making life easier for our heirs is probably a common goal. Maybe looking at it in this light will make this wonderful idea easier to implement.

Medicaid Rules and Gifts

With nursing homes care running north of $40,000 per year many families who have a "comfortable retirement" could find themselves facing the prospect of spending down a large chunk of their savings and investments should the need for nursing home care arise. Without long term care insurance some will find their only option may be to apply for Medicaid assistance.

While Medicaid rules vary from state to state, typically a person needing long term care benefits must spend down their assets to $2,000. If there is a surviving spouse they can usually keep the family home (but states can consider home equity in excess of $500,000) , a prepaid burial plan, and between $50,000 and $100,000 in resources.

Medicare rules are separate from and independent of tax rules. You may know that you can gift $12,000 per year to anyone you choose through the tax code, but did you know that a gift you made to your children within a five year period are considered assets that could disqualify you or your spouse for medicaid benefits?

If you or a family member are facing the prospect of nursing home care, and you do not have long term care insurance, you should quickly consult with an Elder care attorney, to help guide you through the complex set of rules for your state Medicaid system. But as they say an ounce of prevention is worth a pound of cure, so the prudent approach is to plan ahead time.

Why bother with a will?

In going through some files this past weekend I came across this letter written tongue in cheek to someones heirs. It seems worthy of sharing.

Dear loved Ones,

While I understand that I have the right to determine who gets my property when I die, I have decided to let the fair, just and impartial court system make that decision for me. I have decided this, even though it might mean that people I never knew or liked could wind up as my heirs. I also understand that there are perfectly legal and legitimate ways of minimizing the estate taxes that you will have to pay. However, because of our governments kindness and generosity to me over the years, I have decided to let our beloved Uncle Sam take the biggest share of my assets that he can.

In addition, rather than decide who should take care of my children, I think that I would rather have my family fight about it publicly, and then let the courts go ahead and appoint anyone they like, not necessarily one of you. I would also like you to know that I think lawyers, as a group, are hugely underpaid and under loved, and so they should have a large share of my assets.

Finally, I want all the private details of my financial affairs to become part of the public record, so that anyone who is even remotely interested, for any reason, can simply look it up.

Good luck and much love.

SC Educational Radio Interview

This morning I was interviewed by Mike Switzer on The South Carolina Business Review broadcast on the SC Educational Radio Network. We spoke about per stirpes designations for beneficiaries, beneficiary designation forms, the need for durable power of attorney, and transfer on death and pay on death accounts.

I have received calls looking for more information on these topics so I am posting links to the articles that have discussed those topics on this blog. Hope this makes it easier to find.

Per Stirpes
Beneficiary Designation Forms
Durable Power of Attorney
Transfer on Death, Pay on Death

Naming A Trust As An IRA Beneficiary

Sometimes there are good reasons to name a trust rather than an individual as a beneficiary of your IRA. Maybe you have a child who you fear will spend the money they inherit wastefully, or maybe you have a special needs heir and a direct inheritance would affect their qualifications for aid, maybe there is a second spouse you wish to provide for but children from a first marriage you want to protect also.

All of these goals can be achieved and the "stretch out" provisions of IRA rules preserved if you do some careful planning.

IRS rules only allow individuals to inherit IRAs without triggering immediate taxation. However if you structure a trust as a "see through" trust you can exert some control without losing the tax benefits of a "stretch IRA". To qualify as "see through" the trust must:

• The trust must be valid under state law;
• The trust must be irrevocable or become irrevocable at the death of the grantor;
• The trust beneficiaries must be identifiable individuals
  
• Documentation must be provided to the custodian of the IRA by Oct. 31 of the year after the owner dies
  

The trust must pay out the IRA's required minimum distributions to the beneficiaries or be subject to taxes at the trust level which reach the maximum tax rate (35%) with only $10,000 of income. The trust must base the RMD on the age of the oldest beneficiary so if there is a large difference in the ages of your desired beneficiaries you may want to consider splitting the IRA to allow a lower RMD for younger beneficiaries.

Having a trust as the beneficiary of your IRA can provide many benefits, but the price of making a mistake is high, so be sure to consult with a qualified legal and tax advisor before choosing this option.

technorati tags:Finance, IRA Beneficiary, estate planning

Tax Credit Trusts

Current tax law allows any individual to pass $2 million to their heirs without the estate being subject to federal estate taxes. This figure is slate to increase to $3.5 million in 2009. But what happens if your estate is greater than $2 million? Federal estate tax rates range from 18% to 46% on amount that exceed the $2 million exemption.

A Tax Credit Trust is one of the first tools families employ to eliminate estate tax liability. Sometimes called an A-B Trust, this tool can effectively double the estate tax exclusion amount for married couples. Here's how it works.

Each person can utilize the $2 million estate tax exclusion, so a married couple have up to $2 million each they can pass to their heirs without federal estate taxes. If you don't use it you loose it. Many couple have simple "I love you" wills that pass all assets directly to the surviving spouse in the event of death. This puts all the assets into the estate of the surviving spouse and relinquishes the estate tax exclusion of the first spouse to die.

What the tax credit trust can do is to receive up to the maximum federal exclusion amount keeping these assets out of the estate of the surviving spouse. The trust is usually set up to pass all income to the surviving spouse, and the surviving spouse can even invade the principle if needed. However because the assets never become a part of the surviving spouses estate they pass to the next heirs in line with no estate taxes due upon the death of the last spouse, and the last spouse still has their $2 million exclusion to pass without taxes also. So with just a little planning couple can pass $4 million to their heirs without triggering any federal estate tax bill.

Many individuals mistakenly believe they will not have a problem, but remember life insurance proceeds, family business interests, and real estate holdings are all part of your taxable estate. Another pitfall is making sure each spouse has enough assets to fully fund their tax credit trust. If a husband owns a business and is heavily insured it is easy to find assets to fund his trust with, but what about his wife. You should look at correctly titling your assets to avoid problems like this. The risks are high enough that you should seek competent counsel to be sure you make the right decisions.

technorati tags:Finance, Tax Credit Trust, financial planning

Power of Attorney - What It Is and Why You Need One

Many of us worry, with good reason, that we might one day become incapacitated and unable to attend to our own affairs. How can we be sure our bills are paid, our investments are managed, or our property sold if the need arises?

A power of attorney is a document that delegates legal authority to another person. You may be familiar with a limited non durable power of attorney from attending a property closing when one of the parties is absent. The Power of Attorney allows the principal (person granting the Power of Attorney) to name an Attorney in fact (the person to whom the legal authority is being delegated) to sign documents to effect a property closing on their behalf.

Non Durable Powers of Attorney can be granted for a wide variety of tasks, and they remain in effect until canceled by the Principal or until the Principal becomes incompetent or dies.

A durable Power of Attorney is often granted between spouses or between a parent and a trusted child or other relative. The durable Power of Attorney as the name implies enables the Agent to act on the Principals behalf even if the Principal becomes mentally or physically incompetent. This is an important distinction. Should the Principal become incompetent through disease such as Alzheimer's or as the result of an accident or illness, there is someone in place who can make legal decisions, access funds, and pay bills on behalf of the Principal. As with non durable POA's a durable Power of Attorney ends when revoked by the Principal or when the Principal dies.

If you have not executed a Durable Power of Attorney and you become unable to handle your own affairs your family will probably have to go to court to have you declared incompetent - a very public airing of a very private matter. The court must then appoint someone, maybe not the person you would choose to handle your affairs. Sometimes a bond must be posted, an attorney or CPA hired to prepare detailed financial reports that must be filed with the court, and the court must give permission for certain transactions like the sale of real estate. All of this can be a long and expensive undertaking that can easily be avoided with proper planning.

You should consult with an attorney to have this important estate planning document prepared in accordance to your wishes and personal situation. You also should be sure to update the document from time to time. If a Power of Attorney is over three years old your agent could run into problems with some financial institutions refusing to honor it because of a concern it may have been revoked. Your attorney should be able to guide you.

technorati tags:Finance
Estate Planning
Financial Planning
Power of Attorney

The Estate Plan For Your IRA

Assets can transfer to your heirs in one of two ways when you die. They can transfer by will, which includes probate court and public filing of related documents, or they can transfer by contract.

The advantages of having your assets transfer by contract include:

• Privacy - The details of a contract are private and not subject to the public scrutiny of your will and the probate system.
• Speed - Contractual agreements transfer outside of the probate process and so are not subject to the delays that often arise during probate.
• Expense - By transferring assets outside of the probate process you and your heirs could save significant money in probate fees (these fees vary from state to state).
  

Examples of assets that transfer by contract include accounts or assets titled Joint Tenants with Right of Survivorship, Transfer on Death and Pay on Death accounts, Life Insurance and Annuity contracts, Trusts, and your IRA and 401k accounts if you complete the beneficiary forms correctly.

When you first establish an IRA or 401k, an annuity or life insurance contract, you are provided a form to name beneficiaries. If you fail to complete these forms the assets will usually pass back into your estate and become part of the probate process. By naming a beneficiary or beneficiaries you can let these assets transfer by contract. You should also name contingent beneficiaries and choose whether you want the assets to transfer per stirpes or per capita. By filling out these beneficiary forms you are insuring that your wishes are honored after your death.

Many people name only a spouse as a beneficiary. If the couple have children or grand children they wish to provide for they should consider making them contingent beneficiaries to preserve the tax benefits of an IRA (however if the children or grandchildren are minors be sure a guardian has been named or the funds will be encumbered until the courts name a guardian).

Currently only surviving spouses can transfer assets from their deceased spouse's 401k to their own IRA, but the recently enacted Pension Protection Act of 2006 will extend that privilege to any beneficiary after 2007.

The bottom line is beneficiary forms are an integral and important part of your estate plan. Choosing the right way to transfer these assets can save time and money, but can also be confusing. If you are unsure how to proceed choose a professional to help you, but don't delay.

technorati tags:Finance, estate planning, IRA

The Security Of Your Securities

On more than one occasion a client has come to me with securities they have found or received from an inheritance that they cannot find a value for. Sometimes it is a company that is now defunct, or it could be that there was a buyout or merger in the past where the original company is no longer in existence. But they have a certificate and no idea of the value.

Sometimes when a client has a relative die they know the deceased had shares of a company but they can't locate the certificate, or they receive a dividend check from a company they knew nothing about.

Having physical possession of stock and bond certificates can make things hard for your heirs and yourself. If a certificate is lost or stolen the owner must complete an affidavit with the facts surrounding the loss or theft, obtain a indemnity bond to protect the corporation and the transfer agent against the possibility that the certificate may be presented later by an innocent purchaser, and the request must be made before must be received before the company receives notice that the missing certificate has been acquired by another bona fide purchaser. Indemnity bonds generally cost about 2% of the value of the lost certificates.

In the event of a corporate merger or acquisition you may overlook the instructions for having certificates of the new company issued and your heirs may not know what happened to the company you originally invested in. If the certificates become part of your estate an affidavit of domicile and copy of your death certificated must be sent to each company to have the shares reissued to your heirs.

Finally, if you wish to sell your shares they must be presented and deposited with a broker dealer before they can be sold. This could cause an inopportune delay in executing your sale.

Having your certificates held in an investment account can make things much easier. You will be informed of any corporate actions requiring your attention, any changes in corporate name, merger, or acquisition will be handled by your custodian, your shares will be in a safe place, will be available for sale on any day the market is open, and if you die your heirs only have one entity (your brokerage firm) to provide with affidavit of domicile and death certificate.

technorati tags:Finance, stock certificates, financial planning

Per Stirpes - Two Small Words That Make A Big Difference

Per Stirpes is a term you must learn about in order to build a successful estate plan. It is a Latin term meaning "per branch". Sometimes it is omitted from beneficiary forms, wills, and trusts with sometimes devastating consequences.

Per Stirpes is an important term because it indicates how property should be distributed in the event of a deceased beneficiary or heir.

For example let's say you have a son and daughter who each have two children of their own. You have an IRA which you wish to leave to your children in equal shares. If you have indicated this on the IRA beneficiary form you may think all is well. However, suppose your daughter is traveling with you when you both die in an automobile accident. What will happen to the assets in the IRA?

Without the per stirpes indication your son will inherit all the assets in the IRA, leaving your grandchildren from you daughter with no share. If, however, you included the per stirpes designation on the beneficiary form, your surviving son would inherit his half of the IRA, and your daughters heirs would inherit the other half of the assets. This dramatic difference is due to those two small words - per stirpes.

The lesson is to be sure to review your beneficiary forms for IRA's, insurance policies, employee retirement plans, wills, and trusts to be sure your assets transfer according to your wishes when you are no longer here to explain your intent.

Technorati Tag financial planning, estate planning, per stirpes

Transfer on Death

Many times I have had clients ask about having a child named as a Joint Tennant with right of survivorship on an investment or banking account. The reasons the client cites is usually to provide liquidity for the estate, avoid probate, and have someone who can access funds should they not be able to write checks for a period of time. I will generally discourage this as it can cause problems with the final disposition of assets and leave the clients vulnerable to divorce or other legal proceedings.

An often overlooked tool is called Transfer on Death (TOD). Many states have adopted laws that enable individuals to transfer assets by contract rather than by will, which greatly simplifies final distributions for heirs. For a complete list of states that have adopted the Uniform TOD Securities Registration Act you can look here.

A TOD account allows you to specify beneficiaries for each account you may have that is registered in your name. You may specify a different percentage ownership for each beneficiary. Upon your death the assets in the TOD account will transfer to the named beneficiaries without the delay of probate, and separate from other items in your will. You can make changes to the beneficiaries and their percentage participation whenever you choose. There is usually no additional charge for having the TOD designation added to your account, but not all institutions may offer this type of account, so be sure to ask.

For banking accounts you should know about the Pay on Death designation which works in a similar fashion, and also avoids probate. Again, ask your banking institution if they offer this account.

If you need someone who can write checks and pay bills for you if you become incapacitated you should have an attorney draw up a Durable Power of Attorney. But that's the subect of a future post.

Technorati Tag Transfer on Death