Debt Repayment, Irony in Action

As Willie Nelson fans know all too well, owing the federal government back taxes can lead to some very public and potentially embarrassing financial loses. It can easily lead to bankruptcy, and that in turn might very well mean the collectible beer stein display you've got in your basement goes on the auction block, too.

Everything is up for grabs when you get in real financial trouble. No matter how much you love it, or how long it has been in the family, it's fair game to the auctioneer if you get in deep enough.

This is exactly why the average John or Jane Doe needs to have a solid handle on their finances. It is also why those same folks need to avail themselves of some solid legal advice if they suspect all is not well on the economic horizon. The difference between the family that has to hunker down for a while by cutting back on cable television services, and the family that sees their belongings auctioned off in the front yard, is often nothing more exotic or mysterious than the fact that one family had a plan, and one did not.

How weird can all this get? That's a good question. Perhaps the story of Robert Kubick is a good way to illustrate the point. Robert went to jail in the great state of Alaska after being convicted of defrauding his creditors. Judges tend to frown on that sort of thing, and so Mr. Kubick was relocated to a state run facility that was designed to keep its residents from leaving until the judicial system agreed they had paid their debt to society.

The fact that he was incarcerated satisfied part of Kubick's ills. But there was still a financial aspect that had to be cleaned up. That's the part of this case that is a real eye-opener, because while Kubick's belongings were being liquidated as part of the bankruptcy settlement, some of his belongings were in the form of mounted and stuffed animals - animals like an African white rhinoceros, and a snow leopard. Both are endangered species.

Now, it's illegal to traffic in endangered species, so this is a bit of a sticky wicket. So the rare and less than entirely legal trophies weren't sold initially. Instead, they were transferred from federal office building to federal office building, where they were used to educate wildlife agents.

Eventually, all the educational benefits had been wrung from the stuffed animals, it would seem. With no pressing need on the government side of the equation to have possession of them any longer, a means of selling them off was settled on. It was agreed that as long as the buyers were fellow Alaskans, and the trophies would not leave the state, an auction could commence – and so it did.

And that is how the stuffed remains of two endangered animal species came to be on the auction block as part of a bankruptcy settlement – even though it is otherwise unlawful to traffic in these exact items.

Having a plan and some good advice in advance of economic disaster might have averted this whole mess. But then, that's so often the case, isn't it?

It's quite a story. And aside from the part about the endangered stuffed animals, it's all too common – and completely avoidable.

Three Classic Estate Planning Blunders

As we push our way through Tax Month, we are reminded of the importance of the basics of estate planning.  My estate planning colleague in Hawaii, Scott Makuakane, recently posted the following article to revisit three areas we should avoid in estate planning. His article reflects the practical experience that comes his practicing estate planning and trust law in Hawaii since 1983.

 

Three Classic Estate Planning Blunders

Too often, estate plans fail.  Here are the three most common reasons.

1.   FAILURE TO PLAN.  You have heard that failing to plan is planning to fail, and it is true.  People procrastinate with their estate plans for a variety of reasons, one of them being the refusal of some of us to accept our own mortality.  Not to rub it in, but passing into the Great Beyond is not an “if,” but a “when.”  It will make a tremendous difference to your loved ones, your pets, and your favorite charities, if you have made a plan for what happens to your stuff (everything you own) when you assume room temperature. 

Your estate plan should also take into the account the possibility of your becoming incapacitated someday.  This is an issue that has become more and more important as advances in medical science have made it possible for us to live longer lives.  Unfortunately, medical science is still working hard to find the causes, and come up with solutions, to the various forms of dementia.  Although we live longer today than in years past, a growing number of us ends up needing long-term care.  It is absolutely critical to plan for how you and your loved ones will deal with the issues of long-term care, not the least of those issues being how you will pay for it.

2.   FAILURE TO IMPLEMENT.  Having a plan is great, but failing to implement your plan renders it all but worthless.  One of the primary ways people fail to implement their plans is to neglect to transfer their assets into the right “buckets.”  If you have a revocable living trust, it should probably hold most, if not all, of your assets.  Yet many people die with assets in their own names, which, in turn, results in costly and time-consuming probate proceedings that could easily have been avoided with some simple asset transfers. 

3.   FAILURE TO UPDATE.  Once you have set your course with your estate plan, you have to remember that even the best of plans will require course corrections.  Your health will change.  Your stuff will change.  The law will change.  The list of people you like and trust will change.  It is important for your estate plan to change so you can be sure that it will work as intended.  The best way to do this is through a regular discipline of reviewing your estate plan and updating it when necessary.

I’m here to help you avoid all three of these “blunder” traps.  If I can help, please contact me or leave a “comment” on this blog post.  As a trained estate planning professional, my goal is to guide and support you through the estate planning process. 

 

 

Financial Parenting Tips

Every parent is challenged to prepare their children for living meaningful lives and managing their affairs responsibly.  Here are a few parental tips to help set the tone for your children and their approach to handling the money you provide.

My thanks to my WealthCounsel colleague, Wayne Ball, for turning my attention to these financial planning tips first shared by his legal colleague in Little Rock, Arkansas -  Dee Davenport of Delta Trust.

·       Make money meaningful:  Good financial parenting could begin with an allowance that is tied to the completion of specific chores.  It’s important to teach children that money is the result of performance or effort.  It must be earned.

·       A sense of sharing: Give young children holiday gifts in three pieces: one piece to spend, one piece to save, and one piece to give to someone who is in need. Families report great results with this simple plan, and heirs remember the lessons learned and speak of them gratefully for a lifetime.

·       Give just enough:   The sage of Omaha, Warren Buffet says “Give your children enough so they can do anything, but not enough so they do nothing”. At the same time, mature children whose values are intact could do so much good in the world, not only for themselves and their families, but also for their communities.

·       Think long range:  Some of the most successful families have constructed “100 year plans” (four generations) to pass on both the family values and the family financial assets. Increasingly, families are engaging community members in their legacy development processes to assure the effectiveness of the gifts made.

These are just a few guidance tips for instilling many of the basic tenets of financial planning.  I hope you find one or more that you can incorporate into your parenting activities. 

For more formal estate planning strategies, I would enjoy meeting with you and sharing my experience and knowledge.  We can meet – just give me a call, or you can leave a comment on this post.

 

Compensating Caregivers

One in Seven Americans are Caregivers

There are some serious issues looming on the horizon for baby boomers.  Almost one in seven Americans looks after a disabled person age 50 or older.  Many compensated and many not compensated, but it is a rapidly growing number (the number has jumped 28% since 2004). It’s an emerging situation that needs the compensation element to be formalized for many.

In the recent November issue of Financial Advisor the article “Compensating Caregivers” quoted a  2009 survey found that 14.5% of the U.S. population – about one of every seven of us – is responsible for the care of a disabled person age 50 or over, up 28% since 2004.  Increasingly, the elderly disabled are paying family members to care for them in family home. This raises a number of issues.

This article takes stock of the situation and urges caution and awareness. It may seem odd, unnecessary, or even heartless, but they advise that the arrangement with caregivers be legally formalized, reported, and in some cases even treated as employment. The reason is two-fold.

Firstly, by formalizing and documenting the arrangement, you make it legally acknowledged and transparent for both the care-giver and care-recipient. As the recipient of care, you may be able to claim an income tax deduction all or part of the payments as qualified medical expenses. Additionally, your payments will be well-documented, should Medicaid eligibility ever become an issue. Without this documentation, the unidentified transfer of funds to family members could be seen as an attempt to cheat the system.

Secondly, simply establishing a legal process for payment of care can help open up family dialogue, and raise awareness – especially among non-care-giving family members. Arrangements of this nature are bound to put stress on all parties, but dialogue, contractual understanding, and compensation can help smooth over difficulties for the care-receiver, the care-giver, and other family members. The care-receiver has a vital say in the arrangement, can avoid feeling like a “burden,” and remain a vital part of the family. Family members can discuss who is to administer care or how exactly they can support one another in fairly supporting the care-receiver. For that matter, too, sibling squabbles can be lessened when it comes to inheritance and estate arrangements if the family care arrangement is legally recorded.

I thank my WealthCounsel colleague in Nevada, Lizette Sundvick, for authoring this commentary on “Compensating Caregivers”.

Foresight, solid financial planning, and an awareness of the extent of any care arrangements are vital. I am always available to assist you with long-term care and other legal issues commonly associated with aging. You are welcome to give me a call to schedule a consultation, or leave a comment below this post, and I’ll share the dialogue with all. 

 

Filing for Bankruptcy: What Can You Protect?

With 1.6 million Americans expected to file for Bankruptcy this year, we know that at least these 1.6 million and very likely many more researching the bankruptcy option have been asking the same basic questions.  “What can I protect?”   “What will be left?”

A recent article in the Wall Street Journal Digital Network addressed these very questions.  My colleague in Nevada, Lizette Sundvick, offers a summary commentary on this article.

Some may opine that we are climbing out of the recession, but the effects are still wearing on us. According to estimate by the American Bankruptcy Institute, more than 1.6 million Americans are expected to file for Bankruptcy this year, with 42% of filers citing “job loss” and another 65% citing “income reduction” as the determining factor. Against this backdrop, it’s unfortunate that bankruptcy hits responsible persons the hardest because they likely have the most to lose. If you are filing this year, then you may have a great deal you wish to protect. I thought I’d share some tips from a recent article on SmartMoney about what you can protect.

• A Home: The protection afforded your home depends on your state of residency.  In addition, different states offer different acreage allowances for city and rural properties. Beyond that, the equity you have in your house also can be important to protect, because most states have an exemption allowing a certain amount of that equity to remain with the homeowner in the event that the home is sold by the bankruptcy trustee.
• Tax-Exempt Retirement Funds: These are usually safe, and IRAs usually can be protected up to $1.17 million per person. Don’t, however, try to dump other assets (i.e., from investments that are not protected) into the retirement fund. This is a no-no.
• A Car: Trying to retain the car is similar to retaining the house, since your level of protection depends on the laws of your state of residency. If the value of the car is below the exemption limit, and it is owned by the filer, then it can be kept. Otherwise, equity up to the exemption can go to the filer in the event of sale. Of course, in the 16 states that allow the federal “wild-card” exemption, the rest of the value of the car may be covered and the car itself retained, but this itself depends on state laws and exemptions.
• Life Insurance Policy: If the policy is term-life insurance, then it is generally safe. Whole-life policies are generally regarded as investment vehicles, however, and in that case it will depend on state exemption levels.
• College Savings: If college savings are held in a 529 plan or a Coverdell account, there are a couple of factors you need to know. If the account is only 2 years old, it is only protected up to $5,000. However, if the account is older than 2 years, it will be safe for so long as the beneficiary is not also the filer.

Generally speaking, the biggest factors are the state-specific exemption levels and allowances. Be sure you obtain competent professional advice to protect your interests (and stay out of hot water).

If you're worried about the future and how you can guard against economic fallout, we can give you some reassurance.  Give me a call to discuss your options.  If you have a question or two, please submit as a comment to this blog post, and I’ll respond in the comment thread or address in a fresh blog post.   

 

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.