Monthly Archives: May 2011

The Entrepreneur’s Guide to Retirement

Everyone knows that entrepreneurs and small business owners often march to the beat of a different drum. After all, in order to start (and keep) a successful business you have to have a somewhat different and dynamic way of looking at the world and its possibilities. But this different way of looking at the world doesn’t always work in their favor.

This article in Entrepreneur.com points out that “In some ways, planning and saving for retirement runs contrary to the typical characteristics of successful entrepreneurs… Does planning for retirement make you a pessimist who assumes your business will never grow big enough to be sold for millions of dollars, making retirement savings irrelevant? Does relying on a retirement nest egg mean you’ve lost the entrepreneurial confidence you once had?”

Entrepreneurs and small business owners often feel the best investment in their future is to invest in themselves. Where an employee in a large corporation is likely to take any investment income and put it in stocks or savings, a small business owner is more likely to turn around and put that money back into growing her own company.

Contrary to what the dedicated business owner may think, it’s not pessimism to save for retirement—even as an entrepreneur; it’s just plain common sense. Luckily, there are ways for entrepreneurs to invest and save that don’t feel as if they’re taking away from their investment in their business. The article mentions cash balance pension plans, zero coupon bonds, individual retirement accounts and 401(k) plans.

But in addition to planning for your own future, you need to plan for the future of your business as well. After all, you won’t be around forever, and your successful business should be the legacy you leave for generations to come. Planning the successful transition of your business requires a comprehensive, well thought out, and flexible business succession plan. This is where our office can help. Whether you plan to leave the business to your heirs, sell it to pay for your children’s futures, or transfer your shares to a partner, our firm will be there to guide you every step of the way.

Even the Most “Normal” Families Require Special Estate Planning Consideration

Many people would like to think that estate planning is a piece of cake: choose your beneficiaries, write up a simple will, and voila – you’re done! The truth is that while estate planning can sometimes be achieved with this amount of simplicity, most of the time there’s more to it than that—a lot more—especially if you have any variables or special circumstances to consider. Variables and special circumstances can encompass just about anything, including:

  • Young children
  • Adult children with differing financial needs
  • Adult children who don’t get along
  • A child, parent or sibling with special needs
  • A second (or third) marriage

And according to this article in the Chicago Tribune special circumstances also include:

  • A non-citizen spouse
  • A much younger spouse
  • Health concerns

One of the best tools you have in your estate planning toolbox to deal with any or all of these “special circumstances” is to distribute your assets through a trust rather than just a simple will. A trust is comprehensive, plus it gives you the flexibility to you need to provide for every circumstance—even if these circumstances change after your death.

For example, parents with three children ages 21, 17 and 15 would likely not want to split their estate evenly, especially considering that they’ve likely already paid for the 21-year old’s college education, but have yet to pay for college for the 17 and 15 year olds. These parents can place their assets into a common trust which can be used to pay for the needs of all the children at the discretion of the trustee, and then split into separate and equal trusts when the youngest child reaches the age of 21, or when all have graduated from college.

Very few families fit the simple “boiler-plate” description, and even fewer families will benefit from a boiler-plate estate plan. Our office can help you craft exactly the estate plan you need to fit your family’s unique and special circumstances—right now, and years in the future.

Take Advantage of Tax Law Changes and Give Grandkids a Head Start

We’ve recently seen a number of news stories with disturbing figures about the rising cost of college education, and the growing inability of graduates to pay off the debt they incur from student loans. In fact, recent studies reveal that student loan debt now exceeds credit card debt in the U.S.!

All of this has motivated many grandparents to find a way to help pay for their grandchildren’s college education. According to this article in the Wall Street Journal “Recent tax-law changes are making it easier for families to help pay education bills for multiple grandchildren and even future generations. But grandparents have to make some tough decisions first.”

For grandparents whose grandchildren are already in school there may be fewer tough decisions to make, these grandparents will find it easy to “pay an unlimited amount of tuition directly to an accredited school for their grandchildren’s education without incurring any gift tax or using their exemption.” Additionally, under the annual gift tax exclusion, anybody—including grandparents—can “give up to $13,000 to an unlimited number of people each year free of tax.”

Grandparents with younger grandchildren are finding that they also now have more options if they want to contribute to their grandchild’s future college education. “Under the Tax Relief Act of 2010, the federal gift-tax exemption increases to $5 million from $1 million for individuals, as does the exemption for the generation-skipping tax… The changes make it easier to pass along money for education to future generations free of taxes—at least through 2012, after which the exemption is scheduled to revert to $1 million.” The only question is how is the best way to set aside the money until the child reaches college age?

The most popular method right now is for the grandparent to set up or contribute to a 529 College Savings plan for their grandchild. “Assets you contribute to a 529 account are no longer part of your estate. If you are the account owner, you can withdraw the assets later without penalty.” However, care must be taken with 529 plans because “When the assets are withdrawn they will be counted [for tax purposes] as the student’s income.”

Other options for savings include “setting up a ‘pot trust,’ or dynasty trust, which names all of the grandchildren, including any future babies, as beneficiaries. The length of such a trust varies by state but generally can serve at least a few generations of college students.” Of course setting up a trust with such a long intended duration means choosing a trustee who is likely to outlive you. Many grantors choose one of their own children (a parent, aunt or uncle of their grandchildren) or a trusted financial advisor, although corporate trustees (such as a bank) are also an option.

If you are interested in contributing in some way to your grandchildren’s college education please contact our office—we can help you understand your options and choose the one that’s best for you and your family.

Estate Tax Calculator May Provide a Peek into the Future

Everyone who kept up with the recent changes in the estate tax laws—and the flurry of speculation, news stories and blog posts that came with it—knows just how important estate taxes are to estate planning. Although we make it clear on our blog that estate planning should be at least as much about family and personal legacy as it is about money and taxes, the truth is that much of the technical planning that goes into creating your estate plan is hugely affected by the estate tax laws and regulations.

This is why we thought our readers might like to have a little sneak peek at what you might owe in estate taxes were you to pass away under the current laws. SmartMoney.com recently published an interactive Estate Tax Calculator which can help estimate the amount you might owe based on your current financial information.

Although it is certainly interesting to see what you may end up owing in estate taxes, and it is absolutely helpful to see a list all of your assets and liabilities in one place, please remember that what this calculator provides is only an estimate. There is more to estate tax calculation and estate planning than can be provided in one form. What we hope is that this calculator may pique your interest, and inspire you to contact our office for the more thorough planning you and your family deserve; planning based on face to face discussions about your unique goals and situation.

Retirement Planning Goes Back to its Roots

When it comes to retirement planning you can find suggestions, rules and guidelines of just about every shade, but it wasn’t until this article in the U.S. News and World Report that we’ve seen the biblical “7 Deadly Sins” applied to retirement planning. The tone of the article is light and tongue-in-cheek, but the advice it contains is serious and spot on.

Planning for retirement can often feel overwhelming to anybody without a background in economics or investing, but the use of the well-known and easily remembered religious/literary reference makes planning for your retirement a little more relatable. For example, the concept of diversifying your portfolio becomes easier to understand when related to the sin of greed:

“Greed is a killer when it comes to your investment portfolio. Greedy investors often chase past results, choose higher risk investments, or don’t do their research before investing. This can lead to falling for scams, buying at the top of the investment bubble, and other problems. Solution: Start with a balanced portfolio, research all investments thoroughly before buying, and remember that if an investment sounds too good to be true, it probably is.”

And of course who could ever forget the ever-popular sin of lust: “Lust can be equated to extravagance and longing to the point it becomes all-consuming. Signs of giving in to lust include spending too much on luxury items and living beyond your means. It could also mean having champagne taste on a beer budget. Excessive spending can lead to unmanageable debt if left unchecked. Solution: You need a budget and you need to stick to it.”

The article tackles sloth, pride, envy, wrath and gluttony in the same helpful and informative manner, reminding us that although retirement planning today—with our Roth IRAs, 401(k)s and online investment portfolios—may at times be complex, convoluted and fast moving, the principles behind it are well known and ages old.

The Importance of Estate Planning for New Parents

News sources such as the Washington Post entertainment section promise that this summer will be flush with celebrity newborns and proud mamas and papas. Some of the stars expecting additions to their families include Natalie Portman, Kate Hudson, Jennifer Connelly and more. Here at our office we wonder how many of these new parents will remember to update their wills or estate plans after the birth of their child… and how many of our readers have remembered (or will remember, if they are currently expecting a new child or grandchild) to update their own estate plans after an addition to their families.

Every parent knows that the time after the birth of a new baby can be a tired, busy and chaotic transition, and updating their estate plan is probably the last thing on any new parent’s mind. But after the first few months, when things have calmed down and you’ve settled into a routine, updating your estate plan to include and provide for your new little one should take top priority.

Here are a few things new parents will want to consider as they prepare to update their estate plan:

  • Guardians for your child. Who are the people who will raise your child if the unthinkable should happen to you and your spouse? Many people choose close family members, others choose trusted friends.
  • Keep your child’s inheritance in trust. Settling your entire estate on a 5, 10 or 16 year old is never a good idea. Consider instead creating a trust for your child which will provide for him until he reaches maturity.
  • Trustees of your child’s inheritance. Who do you trust to invest and distribute the estate for your child while she is still a minor? Some parents choose to have the guardians also serve as trustees; others prefer to nominate separate trustees and guardians who will work together, providing a natural system of checks and balances.
  • Providing for your child’s special needs. If your child has special needs he will need special planning to ensure that his needs continue to be provided for. Ask us (or your own local estate planning attorney) about a special needs trust.

Guardians, trustees, trusts and special needs planning are the very basics of estate planning for families with minor children, and should serve as a jumping off point for further discussion with your estate planner.

How to Protect and Pass On Artwork, Antiques, and Other Valuable Assets

Some assets—such as real property, stocks and savings—are fairly straightforward when it comes to bequeathal to heirs; other assets—such as valuable artwork or antiques—are not so easy. How do you will an asset to a loved one when there is no deed of ownership? And just as importantly, how do these paperless assets figure into the size and administration of your “taxable estate”?

According to this article by Bonnie Kraham, how you dispose of these assets can be extremely important to the administration and taxation of your estate. One particularly dangerous method is referred to as “the empty hook” method, wherein “When the collector dies, the beneficiaries simply remove the artwork (from the hooks) in accordance with name tags on the items for the intended recipients. Thus, the estate is left with “empty hooks” of what may be part of a sizable taxable estate for estate tax purposes.”

The problem that arises with the “empty hook” method is that wealthy families who collect artwork or antiques as investments often have records of their purchases and sales, as well as a list of valuable items for insurance purposes. Any of these documents and records would be reviewed during probate or administration of the estate. “If you don’t fully disclose the value of your art collection, or don’t properly plan to gift art in compliance with estate tax rules and regulations, you can pass on tax fraud, instead of art, to your beneficiaries.”

Perhaps the best way to hold and legally dispose of your art or antiques collection upon your death is to transfer ownership of these valuable assets into a trust. “Transferring your art collection to a trust may be the most effective, efficient and transparent way to administer your estate after death . . . Trusts are private documents and, although the tax reporting remains the same for trust assets, trusts protect the privacy of an art collector or artist, which can be an emotional protection for the beneficiaries.” Additionally, keeping valuable artwork in trust provides an extra layer of protection from divorce or frivolous lawsuits during your lifetime.

Contact our office, or your own local estate planning attorney, for more information.

What to Do When Mom Can No Longer Manage Her Own Money

One of the most difficult aspects of caring for an elderly parent (or helping an aging parent who lives far away) is keeping one step ahead when that parent begins to lose the ability to manage his or her own finances. Many seniors can be very resistant to discussing what they feel is an extremely private and sensitive topic. Furthermore, according to this article in AgingCare.com, “for many elders, being able to take care of their own finances is an important symbol of independence and self-worth,” and one that they are not likely to relinquish easily.

Unfortunately, an elderly parent’s ability to manage their own money may cease before they are willing to ask for help. In these cases, it may be up to their children and loved ones to step in and help as best they can. What follows is a list of some non-invasive, non-offensive steps adult children and caregivers can take to help aging parents manage their finances.

* Ask for a list of important people and information you might need in case of emergency. This list would include contact information for an attorney, financial advisor, primary care physician, and insurance agent.

* Ask where your parent keeps important documents and how an executor or advisor could access those documents upon your parent’s death or incapacity.

* If your parent is willing, discuss their estate plan with them, including who they have chosen as their agent or executor, and what you can do if something happens.

* Ask your parent to make a list of monthly bills, expenses and account numbers. Although your parent may not want to hand over this information right away, the list should be stored with other important estate planning documents so that it can be accessed in case of emergency.

* As you keep track of your own financial deadlines (tax filing deadlines and the like) set up reminders for your parent as well.

* Ask that your parent list you as an “emergency contact” with their utility services, this means that you would be informed if your parent’s service is in danger of being terminated.

* And finally, talk to your parent as often as you can. Keeping open lines of communication is the very best way to stay informed about the abilities and well-being of your aging parent.

    The Benefits of a Retirement Trust

    Most of us start thinking about retirement as soon as we get our first job. Even if we can’t start saving as much as we’d like right away, we know it’s there, looming on the horizon, and we think about it. The closer we get to retirement age the more we begin to consider our options and make specific plans. But even with all these years of thought and planning, U.S. News and World Report thinks that there may be a few things you haven’t considered in regards to your retirement. Although not specifically mentioned in the article, one of the things you probably haven’t considered is how your retirement savings will fit into your estate plan.

    The first and most common option for distributing your retirement benefits upon your death is simply to name your spouse or children as the beneficiary (beneficiaries) of your retirement benefit plan; however, there is another way. A Retirement Benefit Trust (or Irrevocable Retirement Trust) can be used to keep retirement assets out of your spouse’s taxable estate upon your death. This may not be a big deal if your retirement assets are waning, but if retirement assets comprise a large portion of your estate then this can be a huge benefit.

    A Retirement Trust also has the advantage of allowing your beneficiaries to stretch out the financial opportunities of your retirement assets. Instead of withdrawing the entire amount of your retirement savings right away (and paying taxes on the income) a trust allows your beneficiaries to make withdrawals over the course of their entire lives; not only stretching out the investment opportunity, but also helping to keep them in a lower tax bracket.

    For more information on Retirement Trusts, and whether one could benefit you and your family, contact our office today.