Begin with Personal Financial Ratios

In his ground breaking self-help book, The Seven Habits of Highly Successful People, Stephen Covey presents an approach to being effective by attaining goals and aligning oneself to “true north” principles of character. Habit two teaches “Begin with the End in Mind.” Whenever I teach students or clients the importance of personal financial ratios, I always make sure that I share this principle. The personal financial ratios are a goal to strive toward and a goal to be obtained.

The first step in the process is to create what is commonly referred to as a budget. Susan Tillery, CPA / PFS, CFP® has coined the phrase “spending plan.” I find this title to be very empowering: it emphasizes choice in spending decisions. Once the spending plan is completed it should be reviewed in light of the following financial ratios. [Read more…]

The Buck Stops Here!

The Recession of 2007 – 2009 generated a great deal of blame and finger pointing. In my mind I visualize the recession as a “multi-car accident” with everyone fleeing the scene and pointing their fingers at the “other guy” as the responsible party. No one hung around to be accountable.

Actually in U.S. history, no one is more accountable than President Harry S. Truman, the haberdasher from Independence, Missouri. He inherited the “multi-car accident,” World War II, the Cold War, and global inflation. But on his desk was a reminder of a strong truth: “The Buck Stops Here.” Many do not know that prisoners in the Federal Reformatory at El Reno, Oklahoma, made this sign. On the reverse side of the sign are the words “I’m From Missouri.” [Read more…]

Tis the Season . . .

December 31, 2013 is fast approaching and the deadline for making charitable gifts and receiving an income tax deduction is fast upon us. I often wonder who is giving and how much is being given. One source for such statistics is the National Philanthropic Trust.

Some of the numbers are encouraging, especially in light of the Recession of 2007 – 2009. The percentage of U.S. households which give to charity is 88%.  Charitable giving is up 3.9% which exceeds the consumer price index. Of total giving, the largest source is from individuals (73%), followed by foundations (14%), bequests (8%), and corporations (5%) [Yes, there are rounding errors—not my issue]. [Read more…]

Quack, Quack! Discernment Needed!

I am a fan of humor, which is off-kilter, offbeat and unconventional. One of my favorite authors of this genre is Douglas Adams. In his book Dirk Gently’s Holistic Detective Agency, he provides the following reinterpretation of a familiar phrase: “If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family anatidae on our hands.”

In a previous posting I made mention of how critical it is for consumers to understand how financial planners are compensated. I stated that for the majority of the financial services industry “compensation falls into two broad categories: products and services provided and employment relationship. Both of these categories can have an impact on recommendations provided by the financial planner.”

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Essential Health Benefits: Pablum for the Masses

I am having entirely too much fun with the Affordable Care Act. The next item I would like to review is the list of Essential Health Benefits. I have entitled the posting “Pablum for the Masses.”

Pablum is an entendre on several levels: it means bland or insipid, which this Act most certainly is. It is a bland soft cereal for infants, and our government is certainly treating its citizens as infants by the passage of the act. Finally, it may mean simplistic writing, speech, or conceptualization, and the act is simplistic to the point of absurdity. [Read more…]

Should You Retitle Your Cemetery Plots?

For today’s posting I thought I would pursue a holiday theme. All Hallows’ Eve is just around the corner. It is the night which precedes All Saints Day. All Saints Day is a Christian holiday in which Christian Saints, martyrs and departed family and friends are remembered. Also, to reinforce the interactive nature of the blog postings I thought I would include an adviser’s question. Here is what came across my desk on Monday:

Tom,
Ok, I had to ask you this because I thought it might be a question you have never considered before.  I have a client who has pre-paid cemetery plots, and she wonders if they should be retitled into the name of the RLT. Is that possible and have you ever heard of such a thing? Thanks for thinking this over.

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IDGT: The Multi-purpose Tool for an Integrated Financial Plan

In my previous post I provided a brief history of IDGTs, the applicable exclusion amount and the need for a trust to be the owner and beneficiary of a life insurance policy on the life of the grantor. The primary reason for trust ownership was to remove the death benefit from the taxable estate. However, as a result of American Taxpayer Relief Act (ATRA) of 2013, this reason was eliminated due to the applicable exclusion amount being raised to $5,250,000. An additional benefit of a properly drafted IDGT is asset protection for the trust corpus.

The trust may hold assets used to pay the insurance premiums on a life insurance policy, which insures the life of the grantor. This is one of the requirements necessary for a trust to be considered intentionally defective. A properly drafted IDGT allows the grantor access to the trust assets either through themselves or a non-donor spouse (spousal lifetime access). Having these assets inside of the IDGT trust provide asset protection for the beneficiaries and the grantor!

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You Have Options

Since the Qualified Personal Residence Trust (QPRT) is also an Intentionally Defective Grantor Trust, it is an excellent asset protection tool. To begin today’s posting, I need to provide full disclosure. The QPRT involves both trust and tax planning: so the underlying mechanisms are complex. I want to advise you not to attempt this strategy on your own. But instead, consult your CPA and attorney before transferring your home into a trust.

A QPRT is an irrevocable trust funded by the transfer of a personal residence, a vacation home, or both, to the trust. The homeowner still retains a right to reside in the home for a term of years. The term selected is typically between five and 20 years, although the IRS imposes no minimum or maximum term: the longer the term, the greater the benefits that are available. At the end of the term the homeowner no longer has the right to live in the residence. However, if they desire to continue to live in the home then they may then lease the property from the trust or its beneficiaries, which is typically involves their children.

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Home Sweet Home

Once again the ‘Good ol’ US of A’ has weathered another storm. The recession is behind us and the economy is again moving forward. The employment numbers are rising, the stock market is doing well and home prices are recovering.

Regarding home price recovery, I have just finished reviewing Household Wealth in the U.S.: 2000 to 2011. I do enjoy statistics, and this brochure by the Census Bureau is chock full of fun factoids. An item of note, for the majority of U.S. households, home equity continues to remain their single largest asset

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Estate Planning with Intentionally Defective Grantor Trusts

As you may have noticed, both of last week’s blogs discussed Intentionally Defective Grantor Trusts (IDGTs). This began our month of focusing on IDGTs. Each month I will have a theme and focus the majority of the blogs on that topic. In addition, beginning this month, I will conclude each month’s theme with a one-hour CE/CPE event. I will host this month’s CE/CPE Webcast: Diamonds in the Rough – Estate Planning with Intentionally Defective Grantor Trusts (IDGTs) on Friday September 27, 2013 at 1:30PM EST.

Daily, I receive questions from advisors on topics ranging from Asset Protection to Life Insurance and my response always begins with the question: Is there an Intentionally Defective Grantor Trust (IDGT) for us to use in the estate plan?

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