Priorities matter

Temptation is a difficult challenge. Regardless of who we are, where we live, how much we earn, or what we own – we are all tempted to acquire new belongings, and splurge on ourselves from time to time. Certainly there is nothing wrong with a day at the spa, or a new car, or any number of purchases that we might make for ourselves. But each of us has only so much legal tender to circulate, and where we spend that cash can have a profound impact on our future. In extreme cases, it can even cause us to relocate, by force if necessary.

There have been two high profile examples of poor financial decision making in the news this year. Okay, there have been lots of high profile examples of poor financial decision making in the news this year. But there are two that caught my eye, and I'm willing to bet that at least one of them caught yours, too. They are both income tax cases, and if you take the superficial view we could leave it at that. If you look more deeply though, these are both prime examples of successful men, with extensive means, who were unwilling, or unable to prioritize their use of resources. And both are paying a price for that failure.

Wesley Snipes was in the news often, well before his financial difficulties caught the attention of the public, or the federal government. An actor with an impressive resume, Snipes had successfully worked his way up to the heights of Hollywood, earning significant sums of money with his biggest hit movies.

Unfortunately, the government took the position that Snipes was not paying his fair share of taxes on that income. A contention that the courts ultimately agreed with. And so Snipes is in prison today, serving a three-year sentence for tax evasion.

Last week another highly paid professional was sentenced to prison for failing to pay taxes. This time it was an attorney, not an actor. Michael “Mickey” Sherman, a prominent Connecticut attorney who has been seen on a host of television news programs in the role of a legal commentator, was sentenced to one year in prison for failing to pay his full tax bill.

In both cases the tax bills in question were several years old. It may surprise some to learn that tax evasion cases are not filed quickly. These cases are built over a period of years. In many cases, with substantial fines and fees building up along the way.

The Los Angeles Times quoted Snipes at one point saying, “Everybody has tax problems,” and “Everybody's failed to file at some point in time.” A contention that I believe most of us would refute. But his example, and that of Mickey Sherman should give all of us pause. Prioritization is important when it comes to how you handle the contents of your pocketbook, and your bank account. Making the wrong choices just might lead any of us down a road we would really have rather not taken.

The ins and outs of robo-signing

  Robo-signing is a term that has come into common use lately. However, the term is new and largely misunderstood. Although it may be counter-intuitive, there are no robots involved in robo-signing. But as the term implies, the humans involved in signing foreclosure documents may in some cases be acting as robots, or automatons, by processing paperwork while putting little if any thought or research into the documentation they are working with. Paperwork that can lead to foreclosure actions that have the ability to financially and emotionally devastate a family.

In October 2010 the problem became mainstream and was splattered across the airwaves by national news providers. Courts got involved and began holding up foreclosures so that judges could review the documentation more closely. What was once perceived to be a virtual slam-dunk (the foreclosure of a property that was in arrears) had become a high-profile embarrassment for the financial institutions that held the paper on the loans that were used to purchase that property – if the paper existed at all.

CNNMoney.com ran a very good piece in late October that does a good job of explaining what the basics of the issue are, and why the problem of robo-signing should be of real concern to anyone who owns property, or hopes to purchase property that may have been involved in a foreclosure proceeding. The article can be found at: http://money.cnn.com/2010/10/22/real_estate/foreclosure_paperwork_problems/index.htm

I sincerely hope this helps to shed light on a truly modern problem that so many of us may find ourselves faced with at some point, now – or in the future.

The Tax "Deal" - the Forecast is Dark Clouds on the Horizon

My fellow member of WealthCounsel, Richard Wohltman of Alexandria, VA,  posted this relevant commentary on the Tax “Deal” currently being ushered through Congress. 

There has been a lot of talk this month about the "deal" to extend the Bush tax cuts. That "deal" also includes a substantial increase in the amount that can pass to your heirs without paying any federal estate tax. The 'exemption amount' will be increased to $5,000,000 per person.

The stated reason for that increased exemption amount is to help 'small' business owners and family farmers pass the business or farm to their heirs without having to pay estate taxes. It also means that all but a very limited number of multi-millionaires will have to file and pay federal estate tax.

Dark Clouds are Forecast.

There really are dark clouds on the horizon even if the "deal" is passed by Congress before the end of the month. The increase in the exemption is going to add billions of dollars to the federal deficit. The Treasury is going to have to borrow that money and we are all going to have to pay taxes or have benefits reduced just to pay the interest on those loans. And the day will come when the loan will have to be paid in full.

There is a more pressing problem, however, for estate planning. The "deal" only lasts two years! At the end of 2012 we will find ourselves right back where we are now -- facing a stupendous increase in the number of estate tax returns and tax payments when the exemption amount falls to just $1,000,000 starting January 1, 2013. The problems from the end of the Bush tax cuts (and the increased exemption amount from the "deal") return in 2o13. The uncertainty of how all of the estate and gift taxes will be interpreted once the large exemption disappears is the big grey cloud on the horizon for estate planners.

Estate planning attorneys have been hoping for some stability in estate tax policy so plans can be designed based on a clear expectation of how estate taxes will be calculated when death occurs. That stability disappeared with the Bush tax cuts. Estate planning attorneys all knew we were faced with the potential return to the 'old rules' with only a $1,000,000 exemption in 2011 and had to plan for the return of the middle class taxable estate. The same lack of stability continues since we can only look at what happens at the end of the next two years.

What does all this mean to you?

Don't think that the "deal" will make your estate planning easier just because you don't have Five or Ten Million Dollars. The vast majority of our clients require extra tax planning if the exemption returns to 1 Million Dollars.

Your estate planning lawyer must assume that the lower exemption will return and is forced to include options to address the substantial estate tax liability that will return in 2013. Your estate plan will continue to require more complication just to protect your family and your business with the automatic termination of the "deal" in 2013.

Where's the silver lining?

Just remember, if there is a silver lining in every grey cloud, that doesn't mean that the grey cloud is gone.  Don't let the proposed silver lining blind you to the limits inherent in any "deal" that lasts only two years!

What is, what was, and what might be

If you found yourself driving down the road this past 4^th of July while holding a cell phone to your ear, you were on solid legal ground in Connecticut. Talking on cell phones while driving was officially discouraged, but it wasn't going to result in a ticket. By Halloween the circumstances had changed, however. You would have been risking a ticket with a price tag of between $100 and $200, depending on whether it was your first offense, your second offense, or you deemed to be a habitually conversational driver. The same goes for texting on that phone while driving. What was perfectly okay during the summer months, was illegal and expensive by fall.

Change is constant, even for the law.

I mention this for the simple reason that we all make decisions based on what we know to be true. The problem for many of us is that what we know to be true, just isn't. It might have been true at one time, but times change, and the law changes with it. So while we may have complete confidence in our judgement based on years of experience and careful consideration, it is worth at least taking a moment to consider the possibility that the rules of the game may have changed since we last played.

As I write this, there is great consternation and concern across the country about what the tax code will be for 2011. Right now nobody knows for sure what that tax code might say, or what our tax rates might be. It is a fair bet that changes will be coming our way no matter which tax bracket we find ourselves in; and there is a lesson in that for all of us.

The law changes. State legislatures and governors spend a great deal of time debating issues, putting forward initiatives, and pressing for legal remedies for the challenges that confront their constituents. The result of all that work is law. New laws, specifically. And many of those new laws kick in with little fanfare or press coverage. In truth, the law often changes in ways that the average person never suspects, until they get caught in a jam. Because ignorance can be expensive. Which is a lesson that many Connecticut residents learned quickly and painfully when they found out that talking on a cell phone while you're at the wheel was no longer discouraged – it had become illegal. It is almost certain that at least a few of those who were first ticketed after the law went into effect in October said in surprise, “But I've been doing this for years – it's not illegal!”

That's a tough way to get an update on what the legislature has been up to.

When we act we have to make sure our actions are based on what is, not what was. And if we're really sharp we'll take into account what might be, too. Because the future matters, and while we can't predict the future with perfect clarity, we can certainly make educated decisions based on what we know to be true, currently. That's true of every facet of our lives, for as long as the law is in a state of constant change, which it always will be, I'm sure.

If nothing else, knowing this is incentive to read the paper more carefully, watch the news with greater interest, and perhaps do a little extra homework every now and then. That may require some extra effort on a continuing basis, but that time is well spent if you can save yourself the trouble of being out of step with the law. Nobody needs that kind of stress. Especially during the holidays.

Little things mean a lot

Tis the season to state the obvious. Ironically, the obvious isn't always obvious to everyone. So let's make an attempt to do something good and wholesome with the closing weeks of 2010. I believe we can do that best by getting back to basics and remembering some very simple things that will one day become important to each of us, if they aren't already.

The basics are true all year long, actually. But during the holidays, and it doesn't matter which holidays you and your family might celebrate, the basics are especially true. And the basics are these, as we age we tend to become less mobile and less socially active. However, our desire to spend time with people and feel cared for sticks with us throughout our lives.

A personal visit from a friend or family member is invaluable to an elderly person who doesn't get out as much as they used to. This is especially true during the holidays, when the cold wind, icy sidewalks, and blowing snow conspire to make even a short walk outside a real risk for many of our more seasoned citizens. You may be surprised how uplifting your presence can be to an old friend, a relative, or a former neighbor who spends much of their time indoors, often alone. The social interaction of your time spent together is like gold to many of the elderly. It lifts their spirits and buoys their outlook on the future. So if you have friends, or family members who might be alone this season, I encourage you to take the plunge and visit if you can.

Of course many of us have relocated far from our hometown's through marriage, work, or circumstances that may be beyond our control. That distance can make visiting in person difficult. However you can still reach out and make a someone in your life feel special and cared for. A phone call, or a card that includes a personal note can go a long way toward making a distant friend or relative feel the warmth of your caring, even from across a continent, or an ocean.

We should all keep in mind too that gifts are just as rewarding to receive at 90 as they were when we were 9. Practical or sentimental gifts can remind the recipient of how important their family ties still are, even if they don't see you in person as often as they once did. Certainly, grandma probably has no need for a skateboard, or an Xbox – but there are a whole host of inexpensive options that have the ability to let grandma know that her children, grandchildren, and even great grandchildren are thinking of her and value her presence. If that gift can be presented in person, all the better. But even a brief interaction with a package delivery person can make someone in your life feel brighter and more enthusiastic during the holidays.

I sincerely hope you, your family, and your friends enjoy a wonderful holiday season this year. If for no other reason than the end of the year tends to encourage us to reflect a bit on what is important to us, and how we might be more engaged and active in our own lives in the coming year. For that, we can all be grateful. Hopefully, grateful enough to call, write, and visit those we think of often, but seldom see.

The Federal Estate Tax Lapsed for 2010

The federal estate tax lapsed for 2010, and barring no action by Congress it was scheduled to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent. 

I have good news to share with you.  The long wait for action to address the unknown status of the federal estate tax may be approaching an end.  In a December 6, 2010 online posting by the New York Times, they reported that President Obama announced a tentative deal with Congressional Republicans on Monday.

An excerpt of the article appears below, and a link to the full article is included.  The accompanying photo by Joshua Roberts of Reuters appeared with the article.

Mr. Obama made substantial concessions to Republicans. In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many Democrats. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.

http://www.nytimes.com/2010/12/07/us/politics/07cong.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=a2

 

But the NY Times article also cautioned that the deal is not supported by all parties.  So resolution may be within sight, but it is not yet a finalized deal. 

“The House Democrats have not signed off on any deal,” Representative Chris Van Hollen of Maryland, who has been representing House Democrats in formal negotiations on the tax issue, said Monday night. “We will thoroughly review and discuss the proposed package in the caucus.”

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers.

With this positive news in the air, it may be time to schedule a meeting to adjust your estate plans to maximize the impact of this likely change in the federal estate tax law.  Call me for an appointment, or leave a comment with a question below.

 

Protecting yourself from fraud

Identity theft and other forms of preventable fraud are nothing to sneeze at. However, as attention grabbing as the word, “fraud” might be, the operative word in that sentence is, “preventable.” Much of the fraud that affects the public today can be prevented relatively easily through simple changes in the way we think about our personal information, and how we handle it. I think you will agree that preventing a crime from happening is far better than being forced to jump through the hoops that are required to repair the damage done, after the fact.

Whether you are young and just starting out in life, or well into your golden years, we all have to consider the reality of fraud, and the profound damage it can do to us if left unchecked. So consider these simple changes to your way of thinking that just might help you prevent identity theft, and fraud, from being a part of your personal life story.

1. Don't give out personal information over the phone. This is especially true if you are asked for information by someone who called you. We always have to be careful when sharing personal information, but when you're on the receiving end of the call, you are assuming that the person on the other end really is who they say they are. Sadly, that is not always the case. If someone calls and identifies themselves as a bank employee who is checking your account security, do not give them your bank account number, PIN, or password. Ask for their name and branch location, then either call them back using the phone number printed in the phone book for that branch, or go visit in person. More often than not, you will find that the person who represented themselves as a bank employee on the phone, is not an actual employee of the bank.

2. Review and reconcile your bank statements regularly. Many of us can find and correct small mistakes quickly and easily, before they become bigger, more debilitating financial problems, if we simply check our statements on a regular basis.

3. Store personal information securely, even if it is in your home. Leaving personal information like account numbers, social security numbers, and similarly sensitive information out in the open can lead to accidental disclosure. Unless you are willing to share your personal records with your plumber, furnace repair person, pizza delivery man, or the neighbor who comes over to chat now and then – put your papers securely in a desk drawer, filing cabinet, or safe. Roving eyes cannot see what is not visible, and it is easier to prevent the opportunity for temptation than it is to prevent temptation itself.

4. Check your credit reports annually, or more frequently if possible. The process is simple, but the rewards can be profound. A single erroneously opened credit account in your name has the potential to cripple you financially. So check those reports as often as you can. If you find an account that is listed as yours, but shouldn't be – you have the opportunity to correct that error before it does damage to you.

5. Do not respond to e-mail requests for bank account numbers, passwords, or other personal information. Most of us do not have secure e-mail accounts that use encryption. The result is that any personal information you send via e-mail can be easily read by people other than those you intended it for. A secondary, but no less important concern, is the fact that some unscrupulous individuals fish for personal information by sending e-mails that appear to be legitimate requests for personal information, but are in fact an attempt to defraud anyone who replies to the e-mail request. A good policy is to never share personal information through e-mail.

NEWS FLASH: Yankees Beat the Miami Dolphins!

Yes I know, that's impossible. But the heirs of George Steinbrenner, who died recently at the age of 80, certainly came out ahead of the heirs of Joe Robbie, the former owner of the Miami Dolphins who died in 1990.

Steinbrenner's timing couldn't have been better. His heirs will inherit the team without having to pay any estate taxes on a $1.1 billion estate. See “How Steinbrenner Saved His Heirs a $600 Million Tax Bill” from the Wall Street Journal here.

Contrast this with Joe Robbie. When he died in 1990 the heirs had to sell the football team and the stadium at fire-sale prices in order to pay a whopping $47 million estate tax bill.

Unlike most owners Joe Robbie built his own stadium entirely with private capital. The stadium had to be sold along with the team and it no longer bears Joe Robbie’s name. For more details see “Yankees vs. Dolphins: Steinbrenner’s Final Victory”

You could say, "Yeah, but his heirs are still wealthy." True. But it really isn’t just about money. Robbie's intentions were defeated; his family was removed from the success he worked so hard to build from his very modest depression-era beginnings. Estate planning affects the heart as well as the pocket book.

(What happens to the ultra-wealthy can happen to any small business owner…often with more devastating results. I’m always available to share my experience and knowledge to create a better estate plan.)

 

My thanks to my associate Greg Turza who practices in the state of Illinois for this clever commentary on estate planning. 

 

Estate planning for the rest of us

An acquaintance asked me about estate planning, not long ago. They weren't asking for professional advice, they were literally asking if I could explain what estate planning is, and how it might affect them. It's a good question, one that I wish more people knew the answer to. So this space seems like a perfectly reasonable spot to address the issue.

First, it's worth knowing that estate planning is not limited to the DuPont's and Carnagie's among us. Admittedly, Bill Gates and Warren Buffet have amassed fortunes so large as to suggest that significant thought needs to go into the planning of their estates. But estate planning isn't just about money. It's also about security, philanthropy, and control of our own interests.

One aspect of estate planning includes our health care plans. Not only can estate planning help determine our eligibility for Medicaid benefits, it can also allow each of us to issue specific directives about our own future health care. Even if a health crisis leaves us unable to speak for ourselves at some point, our prior planning can provide documentation of our wishes, which enables us to maintain control of our own destiny, even if we are temporarily, or permanently incapacitated.

In fact, our estate planning can extend to the appointment of a specific person to act as our health care representative, as well as our desire to donate organs upon your death. It isn't just about our money and holdings. It is in a very real sense about us, as people.

Yes, estate planning allows us to make decisions in our prime that will come into play even after we are gone. And those decisions are legally binding on those who may, or may not agree with our wishes. Remember, this is your own estate and your own life you are planning to protect.

Beyond health care, estate planning allows us to designate who speaks on our behalf should the need arise. Entering into a power of attorney allows us to appoint the person we trust most to oversee our personal business if we are unable to conduct our affairs ourselves. Many people assume that we must appoint our lawyer when we issue a power of attorney. And you certainly can do that if you wish to. But you can also give that authority to your spouse, or a child, or a close personal friend, or anyone else you wish. A power of attorney is yours to give, or revoke, at your discretion. Estate planning can help you enter into, or terminate a power of attorney, on your terms.

Perhaps the most commonly known aspect of estate planning is the drawing up of a will. But even that can be more far-reaching than most people realize. You have the opportunity to not only decide what happens to your holdings after your death, you also have the chance to establish a trust if you wish to, so that you can provide for the care of a family member, or another charitable cause that is important to you. Trusts can also be used to minimize a tax burden, in some cases. Estate planning can even allow an individual to develop a strategy to avoid probate on some holdings. A practice that allows a well planned execution of our wealth, no matter how big or small, that keeps it all in the family, for lack of a better term – rather than running the entire contents of our lives through the court system before it is distributed to our heirs, or whomever we wish it to go to.

The assumption that only the very wealthy have any need, or the even the option of engaging in estate planning, is incorrect. Almost anyone who has something of value to leave behind can benefit from estate planning. And even those who do not have significant wealth can benefit in terms of health care planning.

Each and every one of us has a unique situation to deal with as we walk through life. There is no blanket answer or master plan that will work for everyone under every possible circumstance. Perhaps the practice of estate planning would be more readily understood of we called it Individualized Planning, instead?

It's worth thinking about, at least.

Dollars to donut holes

When I was young, my father would often say, “I'll bet you dollars to donuts...” and then make some wild pronouncement about what was happening in the news. I was thinking about that the other day when I realized two things. One, that I'm not entirely sure what my dad's expression was supposed to mean. I suspect it had something to do with the price disparity between a dollar, and a donut. But now that dollars and donuts are becoming ever closer in value – the meaning may be reversed in the not-too-distant future.

The second thing that came to mind was the fact that many older American's are becoming increasingly focused on...not donuts, but the donut hole. More specifically, how the new health care bill passed by Congress and signed into law by the President, might affect their prescription drug benefits – both now, and in the future.

That's an entirely reasonable concern. So it seems reasonable to touch on the subject, at least momentarily, and in a somewhat generic manner.

The term, “donut hole” refers to a prescription drug benefit, or lack of benefit, that affects many American's who are covered under Medicare Part D. And to those who are affected, this is a serious issue. In fact, there almost 50,000 residents in Connecticut who fell into the so-called donut hole in 2009. So we're not talking about small potatoes, here. The benefits are important, and the dollars being spent are considerable.

In short, if your total drug costs were more than $2,830 for the calendar year, 2010 – you are in the donut hole. The gap in coverage means that you will be required to pay the full price for your pharmaceuticals, until the cost rises high enough for you to qualify for catastrophic coverage. This year that threshold has been set at $4,550.

The difference, for those who do not have a calculator handy, is $1,720.00

The total cost of your prescription drugs is tallied up as the total of what you paid, as well as what your plan paid out, over the course of the year.

The effort to close the donut hole is incremental. Each year the hole is scheduled to get smaller and smaller, until it completely disappears by 2020.

This year the hole closes just a small amount, with a check for a $250 rebate being issued to each Medicate Part D recipient who was impacted. Next year, the plan is scheduled to offer donut hole dwellers a significant discount on name brand prescription drugs (50 percent) and a somewhat smaller discount for generics, which are less expensive to begin with.

So there is a light at the end of the tunnel. The donut hole is getting smaller. Nine years from now, it should be gone completely. I hope that offers some encouragement to those who are stuck in it for the moment.

Have a wonderful Thanksgiving. For all our trials and tribulations, we are still fortunate whenever we get to enjoy the opportunity to spend time with our family and friends.

Who ever heard of a Pooled Trust?

The New York Times ran an outstanding article last week, detailing the basics of Pooled Trusts. Most American's are not familiar with the term, or the tool – but thanks to the Times, a much larger audience had the opportunity to read about a means of caring for aging family members, while intelligently keeping the wolf away from the door.

The unfortunate reality for many of us is that a time may come when we can no longer manage to personally provide appropriate care for a loved one in our own home, or in their own home for that matter. But at the same time, we may not have the financial capacity to afford private care providers that would be able to fill the gap.

Pooled Trusts are designed to bridge that void.

Rather than reiterate the content of a well written and very informative piece, I will simply recommend that anyone with an elderly family member read this piece, if for no other reason that to gain some basic insight into an option that may be available and viable, in certain circumstances.

You can find the story on the Internet at: http://www.nytimes.com/2010/11/05/business/businessspecial5/05TRUST.html?_r=3&adxnnl=1&src=twrhp&adxnnlx=1289307765-CdcouVKW+F0EwVbdadQHMQ

As a woman who has faced these issues in my personal life, with my own family members, I am intimately aware of the emotional and financial drain that advancing age and health issues can impose on a family. In order to deal with these issues to the best of our ability, we need to be aware of our options, and informed regarding the pros and cons of each of those options. This story is a good step in the right direction on that count.

I am so pleased the New York Times published Tara Siegel Bernard's excellent article on this very important topic.

Doctor, it hurts when I do this

It's an old joke. A man walks into a doctor's office and announces, “Doctor, it hurts when I do this.” To which the doctor replies, “Then don't do that.”

Pardon me if I don't tell the joke well. Henny Youngman killed with material like that.

Time's have changed however. In many cities and towns around the country if a patient was to walk into a doctor's office and announce, “Doctor, it hurts when I do this,” the reply just might be, “No problem, I can give you a prescription for that.”

The federal government, several state governments, and more than a few sheriff's departments have taken notice of this change in pharmacological distribution lately. And they're not laughing. It's not that anyone is particularly upset that exceptionally effective pain medication is available through licensed medical professionals working out of established medical facilities. It's that Medicare and Medicaid are footing the bill for much if it, and the volume of prescriptions some professionals are writing appears to be excessive. The combination of those two issues has gotten a spotlight shining on pain clinics and medical specialists, from coast to coast.

How much is too much? Nobody knows for sure, but the discussion is underway. A doctor in Texas wrote more than 14,000 prescriptions for a single anti-anxiety drug in 2009. A Florida doctor wrote nearly 97,000 prescriptions in 18 months. That works out to an average of more than 150 prescriptions a day. In Ohio, another doctor wrote over 100,000 prescriptions over a period of two years.

It would certainly appear that the substantial volume of prescription drug use is on the rise. That may cause all of us who access medical care to have to jump through more hoops, wait longer for care, and pay more for our medical needs than we might have if the use of prescription drugs was somewhat less dramatic in nature.

With the focus on healthcare, fraud, and funding becoming a triple hot potato at all levels of government in recent years, it is reasonable to assume that this issue will be even more a part of our daily lives in the years to come.

The nature of confidence

Words have meaning. That's obvious, of course. There would be no point in owning a dictionary if words didn't have meaning. But then we have all had our experiences with slang expressions that mean something entirely different than Mr. Webster suggested they should. In fact, there are at least some slang expressions that mean the exact opposite of what the dictionary proposes.

That brings me to a very important word; confidence.

The word, confidence, implies trust, certainty, and assurance. These are all positive terms that give us comfort. They add stability to our lives. They gently lull us into a sense of security that suggests we can forget our cares, let down our guard, and smell the roses without any risk or worry.

Oops. That's the dictionary definition of confidence. There is another meaning for the word, too – a version that is often paired with a second word that suggests fun, frolic, and a carefree attitude. The word is, game. Together, they add up to, confidence game – a term that no one wants to be on the wrong side of. There is no fun or frolic here, only heartache and anxiety.

I point this out for a simple, but very important reason. Sometimes, out of the goodness of our hearts, and a willingness to believe that all people are basically good, and caring – we forget that the truth is otherwise. Surely, most people are good and caring, and they really are basically decent people who have no intention of doing us any harm. However, there is a minority of people who prey on the unwitting, the passive, and the trusting among us who feel it is impolite to ask for credentials, or proper identification. Of course they don't seem like bad people. They may very well earn their living with a winning smile, after all. They may display nothing be the best manners, a sincere interest in our well-being, and an honest curiosity about our family and friends.

But of course, good manners, sincere interest, and honest curiosity does not mean that we are dealing with an upstanding person who means us no harm. How many times have we each seen a news story about some poor elderly couple who paid a solicitor for repair work to be done to their home, only to find no work crew ever shows up? Worse, what about the work crew who does show up and begins the job, only to disappear when a check for the full balance of the bill changes hands – and the workmen never appear again, leaving an even larger repair bill to be paid than if the work had never been started in the first place.

Sadly, the reality is that we all need to remain wary, at least to some degree, all the time. We are often safest when we work with contractors we know, or those who we can obtain solid references for.

Warning signs of a potential confidence game include workmen who sell their services door-to-door, refuse to show proper identification and licensing information – even if they refuse very politely, and you should always be suspicious of contractors who demand payment-in-full before the work is completed to your satisfaction.

Remember, it is always acceptable to tell a salesperson, even a salesperson who appears to have real concern for the well being of your home, “Thanks for sharing this information with me. I will certainly give your company serious thought, and I may be back in touch with you after I get another quote from a competing company.”

After saying those words, and closing your front door, or hanging up your phone, you just may feel a sense of confidence swell up inside you as you realize you have just behaved like the cautious consumer you know you should be. And that is the nature of true confidence, with no games.

Is this great deal, really a great deal?

Mortgage rates are at historic lows at the moment. For many of us,
that is good news. At the same time, the housing market contains a glut
of homes in many areas of the country, which has driven the price of
real estate down dramatically. In some states, such as Nevada and
Florida, home values have been cut in half over the past few years.

These facts can light a fire under some people, causing them to get in a
rush to invest in real estate, and to invest in real estate quickly.
Stock market losses, devalued 401K plans, and anemic IRA returns can all
add fuel to that fire.

Making a major purchase based on emotional considerations, is often a
mistake. Then again, the current market may be agreeable to the savvy
investor. If you know the market, have confidence in the property, feel
you can afford the risk, and have a long-term plan that the purchase
plays a role in – jumping into real estate at a steeply reduced price,
while financing is at gleefully low rates, might be a good move.

But take a moment to think before you jump. Anyone considering buying
real estate as an investment should consider their qualifications very
seriously. For while the potential for profit certainly exists, the
potential for heartache, misery, massive financial losses, and legal
entanglements exist, too. The variable that determines which deal is a
great deal, and which deal is a nightmare-in-waiting is often the level
of experience the buyer possesses.

Before making any significant financial change to your life, and
potentially, your long-term future, it is a good idea to do your
homework, and enlist the assistance of experienced men and women who can
offer valuable insight. Honestly evaluate your aversion or acceptance of
risk before you sign any documents or accept any offers. A pause for
reflection and study can be a lifesaver when you are preparing to plunk
down a year's salary or more on an investment, whether you intend to
live in the home, or profit from owning it as an investment.

Financial security can take years to build up. But it can be washed away
in a flash as the result of a single poorly made, hasty decision.

So build your team, create your plan, and move forward with steady
confidence. When you have all your ducks in a row, you just may find a
great deal, that really is a great deal – and dodge the ones that were
really big fiscal anchors disguised as once-in-a-lifetime opportunities.

Disabled and no Medicare to help!

There is a “gap” in Medicare coverage for those who are disabled and under 65.  Richard Wohltman describes his concern about this “gap” below.  Wohltman and I are both members of WealthCounsel – a nationwide Community of Estate Planning Practitioners.  He is located in Alexandria, VA and I find his views valuable, because he is frequent lecturer on Estate Planning and related issues.  And he is also a contributing author of Ways & Means - Maximize The Value of Your Retirement Savings. 

 

"More than 50 million people in the United States have disabilities, a number that is growing rapidly as the population ages. Experts say disability will soon affect the lives of most Americans." Patricia Bauer.

 

If you are unlucky enough to suffer a disability when you are under 65, you may find that Medicare is the only way your health care costs can be paid. If you or a loved one becomes disabled and are unable to work, you may be extremely frustrated to discover that there is a long delay before you are qualified to receive Medicare assistance. The general waiting period is two years after they start receiving Social Security Disability Income.

 

Andy Hook is a respected elder law attorney in Virginia who wrote about this dilemma in his article "Waiting for Medicare" in the September 17, 2010 edition of the Oast and Hook News.

 

"A recent Kaiser Health News article addresses the issue of Medicare and persons younger than 65 years of age who have disabilities. Under current federal rules, such persons are not eligible for Medicare until two years after they start receiving Social Security Disability Income. . . . Congress created the waiting period in 1972 when Medicare was expanded to cover persons with disabilities. The waiting period was designed to control costs and to ensure that only those with ongoing, severe disabilities received Medicare coverage. According to the Kaiser Family Foundation, approximately seventeen percent of Medicare’s 47 million beneficiaries receive disability benefits."

 

Andy notes that the waiting period is shorter for people with certain specified disabilities, many patients face extreme financial hardship during the extended waiting period. The new health care program may eventually remove barriers for patients to be eligible for private health insurance, the only answer to this unhappy situation is in Congress' hands.

 

"Edmund Haislmaier, a senior policy research fellow at the Heritage Foundation, said that eliminating the waiting period “is always going to be an issue in Congress. Some of it is money, some of it is politics, too. For members of Congress, irrespective of party or where they stand on the issue, it’s kind of all-or-nothing because if they did it for some diseases, they’re immediately going to be inundated with ‘Why didn’t you do it for us?’” Some groups, however, such as the Huntington’s Disease Society of America, are asking Congress for specific waivers from the waiting period for their diseases. They believe it may be more politically feasible to press for relief for specific diseases, because the cost of doing so would be less than the cost of across-the-board relief."

 

You can find Andy's complete article at "Waiting for Medicare"

 

I guess we all assume that health care is something we will be able to obtain if we are disabled. I know that I was upset after reading Andy's article. I think you will be too.

 

Your local elder law attorney may be able to help you find alternatives and opportunities if you or a loved one has to face this unfortunate situation.

**********

The fact that my colleague, Richard Wohltman, finds this information upsetting surely means that you may be unaware of this “gap” in Medicare coverage.  Please contact me if you have questions….or please comment on this posting.

Dotting the i's, and crossing the t's

Most of us take great pride in the fact that we can fend for ourselves over the course of our life. We are an independent bunch, after all. However, we also take great joy in the realization that we can choose to share our life with someone else. That process often begins when we become engaged, and then married. Children may come along, expanding our families and providing us with real comfort in times of emotional strife.

Combining that sense of independence with a willingness to be selfless enough to become a part of a family group is one of the things that allows for a rich and enjoyable life over the long term. Along the way, trust is nurtured and grows between husbands and wives, as well as parents and children. Even grandparents and their grandchildren can establish strong ties that involve confidence, trust, and true caring.

Those relationships are important. They are especially important when we find ourselves dependent, rather than independent, as so many of us will at some point in our lives. This is especially true in our later years. And even during the prime of our lives there may be circumstances where although we may be perfectly capable of conducting the business of our lives, our work schedules or geographic location may make it difficult or impossible to be as personally involved in the business of our day to day lives as we want to be.

Fortunately, there is a method of passing our seal of approval on to another, trusted individual when we need to. A Power of Attorney allows us to indicate who we deem capable of exercising our personal and business decisions on our behalf, either in our absence, or if we are incapacitated and unable to act in our own best interest. In effect, a Power of Attorney is our legal means of telling the world who we authorize to act as our representative in legal, business, financial, and medical matters that affect us directly.

You can designate anyone you choose to hold your Power of Attorney. It is entirely up to you. You might select your wife, your husband, your sister, or your brother. One of your children can be entrusted with your Power of Attorney, or even a good friend, or neighbor, if that is your choice.

Whether or not any of us should enter into a Power of Attorney with another person is a highly unique and individual choice. For many of us, it is a practical decision that provides comfort and stability during a time of life when we need it most. For others, it may be the acknowledgement that we are not quite as permanent and will not remain as perpetually strong as we might have hoped. Or perhaps we are simply accepting a temporary work assignment overseas that lasts long enough that we want someone on the case back home, who can legally act on our behalf if we need them to.

Whatever the case, I find it somewhat comforting to know that there is a method for assuring that we will never be truly alone, and that even under the most dire circumstances, we have a means of selecting the one person in the world who we think will represent us best – and announcing that selection to the world in a solid, legal manner that gives us a sense of peace and satisfaction.

Is “For Sale By Owner” your best bet?

When selling a property, many homeowners choose to go it alone. Certainly the allure of saving a hefty commission is attractive. And many of us are perfectly willing to shoulder more of the paperwork load in a tight economy to squeeze every possible penny of profit out of the deal. But going it alone doesn't mean you have to go totally solo. In fact, it may not be in your best interest to ditch the realtor, and the whole support team that relationship implies. Or maybe the deal will work out fine. It's hard to say for sure.

There are questions you can ask yourself before advertising your home for sale that may save you some king-size headaches later. If only somebody knew exactly what those questions are. But that's the trick of it, isn't it?

The fact is, every real estate deal is a unique negotiation, with myriad possibilities, prices, responsibilities, and terms to agree on. Looming over that negotiation is the anxiety that comes from knowing that this is a one-shot deal for the seller. Set the price to high, or the terms too stringently, and you may blow the deal. Set the price too low, and you may lose out on a a payday you've been working towards after decades of investment. Establish terms that are too loose, and you may find yourself holding the bag long after you thought the sale was final.

And then there's the risk of litigation. Like it or not, a buyer can come back with a list of issues that disturb them well after the closing date. In a worst case scenario, they may take an intractable stance that suggests they intend you to pick up the tab for improvements you had no knowledge there was a need for. They may even imply, or straight out make the statement, that they are willing to go to court if necessary to seek a remedy for their ills.

That is about time you may begin to seriously wonder if writing that sales document yourself was such a good idea. If you know for sure that your sales contract complies with all the appropriate State laws, your blood pressure may remain rock steady and your palms stay dry. If, however, you have doubts, you may have a long series of sleepless nights in your future, with the potential for a large and unanticipated outlay of cash if the worst occurs.

Certainly there are people who are well versed in real estate transactions who can reliably come out of a closing with their head held high and a song in their hearts. If you are one of those fortunate few, congratulations. You have earned your peace of mind, and should revel in the joys of a swift and satisfying closing. If however you are unsure of the vagaries of real estate law, prefer to avoid confrontation whenever possible, and do not see yourself as a hard-core marketing professional – the For Sale By Owner route may not be for you.

There is reason to take heart in either case, however. Because the confident seller who walks away from their real estate closing has no regrets. And the seller who assembles a team of advisors to assist with the sale just may learn something along the way about tax law that could conceivably offset that lost sales commission, plus some.

It all depends on how the deal is structured, and what you are comfortable with. Every real estate transaction is unique and deserves to be treated as if it's the most important financial deal you'll make in your entire life - because it just might be.

Hey, you know what I heard?

A story crossed my mind recently that it seems might be worth passing along. You have probably heard it before, frankly. It's half joke, half cautionary tale. In either case, it's worth re-telling.

As the story goes, a lawyer bought a box of expensive cigars, then bought an insurance policy to protect his investment. Of course, the lawyer then proceeded to smoke the cigars over a period of time, as might be expected, . The twist in the story comes in the revelation that the lawyer then made a claim against the insurance policy, suggesting that the cigars had been lost in a series of small fires.

It sounds funny, so far, right? And the twist is...

The narrative goes on to suggest the case went to court, and the lawyer actually won the case. The insurance company issued a check to cover the losses – and the lawyer cashed it.

Get set for twist number two!

After cashing the check we are told the insurance company had the lawyer arrested for arson – the proof being his own court testimony about the fate of his cigars, which he willingly set alight. The lawyer is found guilty on the criminal charge and goes to prison for 2 years.

All of which brings us to twist number three. The story is an urban legend. It did not actually happen. It's nothing more than an entertaining, albeit untrue story.

The lesson in this humorous little story is a serious one. We all hear stories, and make assumptions based on the plot line of those stories. Whether it's harmless hearsay about a cigar smoking lawyer, or an anecdote with more serious ramifications, it is important to keep in mind that serious decisions affecting our health, wealth, property, and the future stability of our families should be based on something a bit more solid than, “Hey, you know what I heard?”

Do It Yourself Estate Planning

Forbes Magazine’s September 7 issue had a thought provoking article on “Do It Yourself Wills”.  My WealthCounsel colleague in Montana, Mark Josephson, took the conversation one step further with the commentary he shared.  I hope you find this informative. Josephson begins,  “My Larsson estate commentary and a recent article on Forbes.com regarding the pitfalls of do-it-yourself estate planning,  The Case Against Do-It-Yourself Wills  got me thinking about some additional comments.  I could not agree more with the overall point made in the Forbes article.  I do disagree with some of the details.  The Forbes article talks about the famous Montana court case involving Charles Kuralt (remember he was the famous CBS broadcaster who labeled Montana's Beartooth Highway as the most beautiful drive in America) and his handwritten love letter to his mistress.  In a case that went to the Montana Supreme Court FOUR times, his handwritten love letter was ruled to have given his valuable Montana property to his mistress and to add insult to injury Kuralt's family had to pay the estate taxes due on the Montana property because the handwritten letter did not coordinate with the tax clause of his professionally drafted Will. The article reminded me of another Montana case, The Estate of Dern, in which case Mary and Clifford Dern, who each had children from a different marriage, bought a trust package from a non-lawyer and also attempted to amend it themselves four times -- sometimes having proper signatures, sometimes not.  In the end, the children ended up suing Mary with the case ending up in the Montana Supreme Court.  I think Justice Nelson in that case summed up the whole do-it-yourself thing as best as I've ever read.   He said: Given the facts of this case, it is appropriate to make a further observation. If nothing else, our decision here should serve as a warning of the pitfalls of the "canned," "fill in the blanks," "one size fits all" trust instruments that are increasingly being sold to unsuspecting members of the public, particularly senior citizens, by salesmen, many of whom have no professional qualifications whatsoever and some of whom are little better than scam artists. ... In truth, few areas of the law are more technical, complicated and prone to financial disaster than estate planning and trusts, nor more demanding of the sort of individually tailored advice and assistance that can best be obtained from a competent attorney and tax professional. This case, unfortunately, proves that point.  [my emphasis added]”

From his position on the bench, Justice James C. Nelson of the Montana Supreme Court certainly offered a stern warning on the “DIY Wills”.  The Judge’s views seem to have been formed long before the Forbes 9/07/2010 article, but his sentiments seem to parallel the Forbes article.  I’d like to serve as the ounce of prevention by serving as your “competent attorney” that the Judge refers to in his above commentary.   

When verbal contracts go bad

I have an older brother who lives in Florida. While having lunch together recently, he told me a heartbreaking story about one of his neighbors who took a chance on a great opportunity, but due to poor preparation and even worse execution, they are paying a heavy price for leaping forward in haste.

The short version of the story goes like this. The couple was presented with what appeared to be a great career opportunity out of state. Accepting the position being offered meant putting their house on the market at the worst possible time, in a state that is experiencing a higher than average foreclosure rate, and unemployment that is looking to be persistently long lived. But the opportunity appeared to be too good to pass up, so they jumped at it.

Unable to sell their house in the traditional manner within the time frame available to them, they got creative. They entered into a verbal contract to rent their house with an option to buy. That deal gave them a sufficient comfort level that they could move on to a new state, and a new job, with a sense of comfort that allowed them to purchase a second home in the new state.

Six months later, things were not quite so rosy. The new job did not pan out, and both the husband and wife found themselves unemployed, with two mortgages to meet. The verbal agreement to rent the house in Florida didn't work out either. The tenants damaged the house extensively, then left abruptly without a word of warning.

With financial pressure mounting, and no funds available to fix the house in Florida, the couple entered into another verbal agreement, over the phone, with another rent-to-own tenant who agreed to maintain the property, pay the taxes and insurance, and rent the house for a price that would keep the still unemployed owner's heads above water.

Four months later, with a second verbal contract broken, the Florida house in disrepair, and a truly desperate financial situation becoming more bleak by the day, a short-sale appeared to be the only option remaining that would keep the couple out of foreclosure, and potentially, from declaring bankruptcy.

A resolution has not yet been found. And my brother was amazed and saddened to report that the couple continues to do their best to patch the holes in their leaking financial ship, completely on their own.

As sad as this story is, it is made worse with the knowledge that most of the events that have transpired could have been avoided if those verbal contracts had been written contracts. Being in a rush, and trying to get all their loose ends tied up quickly, backfired on these poor people – twice! Now who knows what sort of a future they face? Unless and until they seek guidance from someone who has an understanding of their real options, someone who can make recommendations for how they might best proceed, there is certainly nothing in their story that would suggest the future is any less debilitating than the recent past has been.

It's just sad. It really is.

Estate Planning Traps

This is a helpful bit of information that my fellow estate planning colleague, Mark Josephson, posted from his law offices in Montana.  He’s relatively new to blogging, but I think he’s done well with this information in a summary format.  I am reposting his information to share with you. 

I seem to be on a roll this morning over the pitfalls of do-it-yourself estate planning.  Here is list of Common Pitfalls and Traps I've had in my basic estate planning handout for clients:

1.  “I’m too young to worry.”  Reality: If you die young with a spouse and/or children you need to protect your loved ones.  Also, by planning early you have the power of leverage/appreciation.

2.   “My estate is too small.”  Reality:  If not planned, a smaller estate can suffer greater percentage shrinkage than a large estate due to increased administration costs necessary in a non-planned estate.

3.   “I’m leaving everything to my spouse, so estate tax doesn’t matter.”  Reality: Leaving everything to a spouse just postpones tax and wastes the dead spouse's estate tax “coupon”:  Wasting a coupon meant wasting $1,575,000 in tax savings in 2009.

4.  Believing one size fits all.  Corollary: You get what you pay for.

5.  Not paying attention to who you have on what and how: Beneficiaries of life insurance, annuities and retirement accounts.  Wrong people get the wrong property.

6.  Failing to consider trusts as vehicles to pass wealth during life or at death.  Convenience trusts, irrevocable life insurance trusts, “Crummey” power trusts, intentionally defective grantor trusts, GRATs, QPRTs (for cabins or vacation homes).

7.  Not planning for your disability; not avoiding a “living probate”.

8.  Not having any will or trust, handwriting it yourself, or having them prepared without proper analysis for your situation.

9.  Too much in joint tenancy with right of survivorship; disproportionate ownership by husband & wife.  Joint tenancy is convenient but it can ruin an estate plan if not used correctly.

10.  Failing to name guardian of minor children.

11.  Failing to prepare business succession plan.

12.  Failing to plan for estate liquidity and/or tax payment alternatives.

13.  Having too little life insurance.  If you, the money maker dies, what is your family going to live on?  Often life insurance is the only affordable way to solve the problem.

14. Not realizing life insurance you own on your own life is included in taxable estate for federal estate tax. While the proceeds may be income tax free, they are not necessarily estate tax free if you own a policy on your life.

15.  Not considering lifetime gifting program:  Children, grandchildren, charitable techniques.

16.  Not considering alternative operating entities.

17.  Procrastination:  Letting indecision lead to inaction.  Usually, doing something is better than doing nothing.  See my post below on How to Avoid Vapor Lock

18.  Lack of Communication.  While your estate is private, you should discuss matters with those you intend to have care for you or handle your affairs after your death.  Often better planning happens when the younger generation is included and aware of what's going to happen.

19.  Not keeping estate plan up to date.  You should review your estate plan at least every few years. 

20.  Believing a magic bullet exists or “This won’t happen to us.” 

21.  BEWARE of “constitutional,” “pure,” or “common law” trust schemes. 

Remember:  If it sounds too good to be true, it is.

 

I enjoy having Mark as a colleague.  For your information Mark does good work, and his firm, Josephson Law Firm,  has received the highest rating through Martindale-Hubbell and is listed in the Bar Register of Preeminent Lawyers.  Additionally, Mark Josephson has recently been selected by his peers for inclusion in the 2010 edition of The Best  Lawyers in America.® 

If you have questions about any points Mark makes in this post, please leave them as a “comment” below, or call my office.

 

Can a DIY Will cost you a bundle?

  Punctuation is important. For instance, consider the difference between a period and a comma. Sure you might think of one as a point of ink, as opposed to a point of ink with a tail. But if you misplace that comma and insert a period instead – that little error of grammar could just cost your heirs a legal tussle like you never dreamed was possible.

It's true. I swear.

Then again, filling in the blanks can be a nightmare in disguise, too. Imagine using a DIY Will package that innocently asks you to, “Insert Name Here.” No problem, right? Well, no problem unless you attach a dollar figure to that line, and fail to include a name. You might just inadvertently have directed a substantial sum of money to, “Insert Name Here,” whomever that might be. If nobody catches the error, your heirs just might be stuck with a battle royal over what you meant to write, as opposed to what your Will actually says.

Deborah L. Jacobs outlines these two disasters of DIY estate planning, as well as some notable others, in an intriguing column featured on Forbes.com. You can find the full story at: http://www.forbes.com/2010/09/07/do-it-yourself-will-mishaps-personal-finances-estate-lawyers-overcharge.html.

Jacobs makes some excellent points about the importance of taking estate planning seriously, whether you are wealthy or not, famous or anonymous, a DuPont or a Miller. We all suffer the same tendency to put off the inevitable – sometimes until the inevitable beats us to the punch.

Anyone who even dreams that estate planning doesn't matter should read Jacobs excellent article if for no other reason than to understand better how a rancher could have lost $3.5 million in estate taxes, as a result of an effort to economize on the cost of having a will drawn up. You may also be entertained, or horrified by the story of how a simple note from the late CBS reporter, Charles Kurault, could have led to a legal battle that lasted 6 years.

It's a subjective question, to be sure. But it's one worth asking ourselves. Where is the real savings found, up front in the estate planning phase of life, or possibly later, assuming no legal wrangling results from using DIY legal forms and software packages?

Estate planning, the Franklin way

The subject of Ben Franklin came up the other day in conversation. More specifically, the subject of Ben Franklin's visionary approach to estate planning, came up during a discussion of how the average person can make the most of their wealth for posterity.

Benjamin Franklin was many things. Born into humble circumstances, Mr. Franklin very literally ran away from home, the followed up by working, innovating, persevering, and struggling to ultimately become one of young America's wealthiest and most respected citizens. He knew a thing or two about math and the compounding of interest, too.

For those who are truly curious, a version of Benjamin Franklin's Last Will and Testament is available online, from the Franklin Institute. Included is a codicil to the original Will, that should give anyone pause. Franklin's significant wealth is apparent, as is evidenced by the extraordinary number of homes, land, and valuables he details in his Will. But the relatively minor sum of one-thousand pounds sterling mentioned in the codicil, which would be equivalent to roughly $4,000 at the time – is particularly impressive for those of us who would like to make an impact on the generations to follow, even if we do not have the financial capacity to astound the neighbors at the moment.

Franklin specified that the money should be held in trust. Two trusts, actually. One-thousand pounds sterling was provided to the city of Boston, where Franklin was born, and one-thousand pounds sterling was given to Philadelphia, the city that is most commonly associated with Franklin as his home. Both funds were specified to be held and invested, in a specific manner, and maintained for two-hundred years. A significant amount of time, certainly. But Franklin wasn't looking for returns that could be looked down on as small potatoes. He was looking to shake the world. And he did. He has. He continues to, and will for years to come.

You see, Franklin's $4,000 investment has grown to millions of dollars in the interim. The funds he put away for posterity have done exactly what he hoped they would do. And through careful management, they have continue to grow, and expand in value through good times and bad.

Now admittedly, most of us don't think two-hundred years into the future – and most of us don't have massive estates like Mr. Franklin had. But almost all of us can find a way over the course of our working lives to put away a few dollars in the hopes that we can make the lives of our children and grandchildren more comfortable and satisfying than ours may have been.

If Franklin's Will proves anything, it is a tangible demonstration of how a well intentioned gift, well managed, well planned, and well executed, can change the lives of generations to follow.

It's something to think about, isn't it?