A windfall from a loved one can be both rewarding and complicated.
Provided by TechGirl Financial
Inheriting wealth can be a burden and a blessing
Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if it comes to pass.
Take your time
If someone cared about you enough to leave you a sizable inheritance, then likely you will need time to grieve and cope with their loss. This is important, and many of the more major decisions about your inheritance can likely wait. And consider, too – when you’re dealing with so much already, you may be too overwhelmed to give your options the careful consideration they need and deserve. You may be able to make more rational decisions once some time has passed.
Don’t go it alone
There are so many laws, options and potential pitfalls – The knowledge an experienced professional can provide on this subject may prove to be vitally important. Unless you happen to have uncommon knowledge on the subject, seek help.
Do you have to accept it?
While it may sound ridiculous at first, in some cases refusing an inheritance may be a wise move. Depending on your situation and the amount of your bequest – it may be that estate taxes will drain a large amount. Depending on the amount that remains, disclaiming some (or all) of the gift is worth contemplation.
Think of your own family
When an inheritance is received, it may alter the course of your own estate plan. Be sure to take that into consideration. You may want to think about setting up trusts for your children – to help ensure their wealth is received at an age where the likelihood that they’ll misuse or waste it is decreased. Trust creation may also help you (and your spouse) maximize exemptions on personal estate tax.
The taxman will be visiting
If you’ve inherited an IRA, it is extremely important that you weigh the tax cost of cashing out against the need for instant funds. A cash out can mean you will have to pay (on every dollar you withdraw) full income tax rates. This can greatly reduce the worth of your bequest, whereas allowing the gains of the investment to continue to compound within the account, and continuing to defer taxes, may have the opposite effect and help to increase the value of what you’ve inherited.
The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct. This is especially true with regard to the taxation on capital gains. The assistance of a seasoned financial professional may be more important than ever before.
Remember to do what’s right for YOU
All too often an inheritance is left in its original form, which may be a large holding of a single company – perhaps even one started by the relative who bestowed the gift. While it’s natural for emotion to play a part and you may wish to leave your inheritance as it is, out of respect for your relative, what happens if the value of that stock takes a nose dive? The old adage “never put all your eggs in one basket” may be words to live by. Remember that this money is now yours – and the way in which you allocate assets needs to be in line with YOUR needs and goals.
Part of a series on how to care for your aging parents.
Provided by TechGirl Financial
As Consumer Reports notes, half of Americans older than 65 will fall this year
Those over 80 are most at risk.1
Up to 30% of seniors that take a spill suffer “moderate” or “serious” injuries, according to the Centers for Disease Control. Some will even die as a result of a brain hemorrhage, a broken neck, or ensuing medical problems such as brain trauma or pneumonia linked to blood clots after a hip fracture.1,2
Can you tell if your Mom or Dad is especially susceptible to a fall?
There are two routine tests that may help you and your parent predict future fall risk.
One is the Functional Reach Test, in which you stand with your feet shoulder width apart or narrower, extend one arm out front at shoulder height, and reach forward as far as possible with that arm without falling. If Mom or Dad can’t reach forward more than 7” from that initial position, they are at definite risk for falls.1
The Get Up & Go Test is also a predictive indicator. In this test, Mom or Dad sits in an armless chair, rises and walks 10’ straight ahead, makes a U-turn, and then walks back to the chair and sits. If this takes more than 14 seconds, Mom or Dad is at considerable fall risk.1
Even without those tests, a senior with an off-balance gait or the inability to stand on one foot for at least half a minute faces sizable fall risk.1
Can you teach your Mom or Dad to guard against a fall?
Yes you can, though you may not be able to mitigate the behavioral or medical factors that lead to falling.
Some physical conditions lead to falls: poor vision, poor balance, and impairment due to strokes or arthritis, even a Vitamin B12 deficiency or low blood pressure. Some medications (or more properly, their side effects) can contribute to the problem.1
All that said, most falls can be traced to gait problems and balance problems. So improving gait and balance is the goal.
Ever wonder why there are so many tai chi classes at senior centers? Seniors practicing the Chinese martial art can improve their balance and lower their odds of falling – a 2012 study in the New England Journal of Medicine affirmed that. Other group exercise programs and physical therapy may help seniors strengthen muscles and improve coordination.2
Can Mom or Dad do some preventive exercises at home? Of course. Three that seem to help are all fairly simple. They can practice standing on one foot (with a spotter), they can hold onto the back of a chair and do leg lifts, and they can consciously do some heel-to-toe walking.1
When is it time for a cane or a walker?
Many older people are reluctant to use them, seeing them as symbols of weakness and dependence. In reality, they are smart choices that affirm the safety of the senior and help him or her maintain ambulatory independence.3
For help answering this question, you and/or your parent should visit a physical therapist for a balance assessment, where one or both of the aforementioned tests may be used to predict the chances of fall risk. The PT may recommend a walker if the risk is great, a cane if the risk is relatively minor. Not all canes are alike, and neither are all walkers. Some are sportier than the rote, institutional-looking models. Some are taller, some are shorter, some have different bases and some have different grips. Mom or Dad should have the opportunity to try a few models out, perhaps in a medical supply store.3
How can you make Mom or Dad’s home safer?
You can take little steps such as getting rid of rugs that could snag a walker or cane, clutter on or near the floor and narrow passages between furniture. They should have space to maneuver within a room, and grab bars or railings to help them as they enter or exit a room, a toilet seat, or a bath are handy. A sturdy shower seat or transfer bench may be needed, even a “European style” bathtub with a door that opens nearly at floor level. Interior designers know that seniors want style, not a house that looks like a hospital or a municipal building – so these days, safeguards such as these may be installed with style, although the more style you want the more it will cost.
Your concern & gentle encouragement might keep Mom or Dad on their feet longer
If you worry about your Mom or Dad falling, act on that worry. Discuss the matter, in a loving and caring way.
Part of a series on how to care for your aging parents.
Provided by TechGirl Financial
How can you make sure that your parents are following their medication schedules?
Can you check up on that without feeling as if you are snooping or violating their privacy?
You can, and you can do so respectfully. You may have to at some point.
Did your Mom tell you that her blood pressure is up? Does your Dad’s dementia seem to be progressing faster than expected? You may become one of those adult children who, out of curiosity, opens the bathroom medicine cabinet at Mom or Dad’s house and finds expired medication bottles that appear just half-empty. After your jaw drops, what do you do?
First, communicate your concern
This conversation should have three objectives. One, you want to tell your parent that you are really concerned that they are not taking their medication(s). Two, you want to find out why. Three, you want to learn what your parent is actually taking (and not taking) – the amount, the frequency of the drug.
Consult your parent’s doctor
In no way should you attempt to revise Mom or Dad’s medication schedule on your own. Share your concerns with their doctor, who has the knowledge to note alternatives and solutions. Talking to that physician should provide you with more insight into the how and why of their medication schedule.
Perhaps simplifying the medication schedule would make things easier
If Mom or Dad takes multiple medications a day, check with their doctor to see if equivalent drugs might be available that require fewer daily doses. Perhaps there are extended-release versions of a particular medication. Sometimes seniors absentmindedly ask for obsolete prescriptions to be refilled. If swallowing is a problem, large pills can be crushed (any medical supply store should have pill crushers for sale) and mixed with applesauce (which some people dislike) or pudding (which seemingly everyone likes).
Talk with the pharmacist who helps your parent refill medications
Obviously all medications have side effects, but certain drugs can also potentially interact with each other, and if your Mom or Dad takes multiple medications in a day, they might even have the same ingredients.
For example, some seniors take Tylenol for minor aches and pains. Tylenol contains acetaminophen. So do many cold and flu syrups. If your parent takes Tylenol and 1-2 doses of cold and flu syrup on the same day, they are probably taking 2-3 doses of acetaminophen (or more) in that day.1
Prozac is a commonly prescribed antidepressant. Occasionally, people taking Prozac will buy some St. John’s wort over the counter, thinking it will further help them counter depression. A pharmacist would call this a redundancy, and the medicines have the potential to interact.1
If a pillbox is needed, you have options
Some seniors are fine with the classic days-of-the-week, S-M-T-W-T-F-S pillbox. If Mom or Dad has poor eyesight, there are talking pillboxes available. Others have alarms. Can you find pillboxes noting the days of the week in languages other than English? Yes, online (and perhaps in your local medical supply store as well). There are color-coded pillboxes, and pillboxes that are larger and serve to hold multiple per-day medications. There are even day-of-the-week cups for liquid medications.1
You may want outside help
If you don’t live with your aging parent (or live close to them), it can be hard to check up on them with regard to adherence to medication schedules. You may want an RN or a caregiver service to visit your parent once a week for this purpose. The cost might be $20-100 per visit – an “extra” health care cost most of us can manage, a cost that might even be covered.
You may meet some resistance
Your Mom or Dad may feel as if you are micromanaging their daily activity. Let your parent know that this is not your intention. Tell your Mom or Dad that you are checking up on this because you care, and assure your parent that he/she is still the decision maker when it comes to medicines. You are trying to help them, and help maintain their health and quality of life.
Seven aspects of your financial life to review as the year draws to a close.
Provided by TechGirl Financial
The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next…
Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.
Your retirement planning strategy
Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. Be sure to take your Required Minimum Distribution (RMD) from your traditional IRA(s) by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2016, that forces you into taking two RMDs next year, both taxable events.)1
Your tax situation
In years past, high-earning business owners and executives didn’t always look deeply into deductions and credits because they assumed they would be hit by the Alternative Minimum Tax (AMT). The recent rise in the top marginal tax bracket (to 39.6%) made fewer of them subject to the AMT – their ordinary income tax liabilities grew. This calls for a closer look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options, and certain types of tax-advantaged investments.
Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.
Your charitable gifting goals
Plan contributions to charities or education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2015, so you can gift up to $14,000 to as many individuals as you like this year without tax consequences. A married couple can gift up to $28,000 tax-free to as many individuals as they wish. The gifts do count against the lifetime estate tax exemption amount ($5.43 million per individual, $10.86 per married couple in 2015).
You can choose to gift appreciated securities to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4
Besides outright gifts, you can plan other financial moves for your family – you can create and fund trusts, for example. The end of a year is a good time to review trusts you have in place.
Your life insurance coverage
Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.
Speaking of life events…
Did you happen to get married or divorced in 2015? Did you move or change jobs? Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family? Did you receive an inheritance or a gift? All of these circumstances can financially impact on your life, and even the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.
Lastly, did you reach any of these financially important ages in 2015?
If so, act accordingly.
Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).
Did you turn 65 this year? If so, you’re now eligible to apply for Medicare.
Did you turn 62 this year? If so, you’re now eligible to apply for Social Security benefits.
Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.
Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.
Did you turn 50 this year? If so, “catch-up” contributions may now be made to IRAs (and certain qualified retirement plans).1,5
The end of the year is a key time to review your financial “health” & well-being
If you feel you need to address any of the items above, please feel free to give me a call.
Paying attention to the wrong things becomes all too easy.
Provided by TechGirl Financial
If you ever have the inkling to manage your investments on your own, that inkling is worth reconsidering. Do-it-yourself investment management is generally a bad idea for the retail investor for myriad reasons.
Getting caught up in the moment
When you are watching your investments day to day, you can lose a sense of historical perspective – 2011 begins to seem like ancient history, let alone 2008. This is especially true in longstanding bull markets, in which investors are sometimes lulled into assuming that the big indexes will move in only one direction.
Historically speaking, things have been so abnormal for so long that many investors – especially younger investors – cannot personally recall a time when things were different. If you are under 30, it is very possible you have invested without ever seeing the Federal Reserve raise interest rates. The last rate hike happened before there was an iPhone, before there was an Uber or an Airbnb.
In addition to our country’s recent, exceptional monetary policy, we just saw a bull market go nearly four years without a correction. In fact, the recent correction disrupted what was shaping up as the most placid year in the history of the Dow Jones Industrial Average.1
Listening too closely to talking heads
The noise of Wall Street is never-ending, and can breed a kind of shortsightedness that may lead you to focus on the micro rather than the macro. As an example, the hot issue affecting a particular sector today may pale in comparison to the developments affecting it across the next ten years or the past ten years.
Looking only to make money in the market
Wall Street represents only avenue for potentially building your retirement savings or wealth. When you are caught up in the excitement of a rally, that truth may be obscured. You can build savings by spending less. You can receive “free money” from an employer willing to match your retirement plan contributions to some degree. You can grow a hobby into a business, or switch jobs or careers.
Saving too little
For a DIY investor, the art of investing equals making money in the markets, not necessarily saving the money you have made. Subscribing to that mentality may dissuade you from saving as much as you should for retirement and other goals.
Paying too little attention to taxes
A 10% return is less sweet if federal and state taxes claim 3% of it. This routinely occurs, however, because just as many DIY investors tend to play the market in one direction, they also have a tendency to skimp on playing defense. Tax management is an important factor in wealth retention.
Failing to pay attention to your emergency fund
On average, an unemployed person stays jobless in the U.S. for more than six months. According to research compiled by the Federal Reserve Bank of St. Louis, the mean duration for U.S. unemployment was 28.4 weeks at the end of August. Consider also that the current U-6 “total” unemployment rate shows more than 10% of the country working less than a 40-hour week or not at all. So you may need more than six months of cash reserves. Most people do not have anywhere near that, and some DIY investors give scant attention to their cash position.2,3
Overreacting to a bad year
Sometimes the bears appear. Sometimes stocks do not rise 10% annually. Fortunately, you have more than one year in which to plan for retirement (and other goals). Your long-run retirement saving and investing approach – aided by compounding – matters more than what the market does during a particular 12 months. Dramatically altering your investment strategy in reaction to present conditions can backfire.
Equating the economy with the market
They are not one and the same. In fact, there have been periods (think back to 2006-2007) when stocks hit historical peaks even when key indicators flashed recession signals. Moreover, some investments and market sectors can do well or show promise when the economy goes through a rough stretch.
Focusing more on money than on the overall quality of life
Managing investments – or the entirety of a very complex financial life – on your own takes time. More time than many people want to devote, more time than many people initially assume. That kind of time investment can subtract from your quality of life – another reason to turn to other resources for help and insight.
If you aren’t married, you should consider these potential expenses & needs.
Provided by TechGirl Financial
How does retirement planning differ for single people?
At a glance, there would seem to be no difference in the retirement saving effort of an individual versus the retirement saving effort of a couple: start early, save consistently, and use vehicles that allow tax-advantaged growth and compounding of invested assets.
On closer inspection, differences do appear – factors that single adults should pay attention to while planning for the future.
Retirement savings must be built off one income
Unmarried adults should save for retirement early and avidly. Most couples have the luxury of creating retirement nest eggs from either or both of two incomes. They can plan to build wealth with a degree of flexibility and synchronization that is unavailable to a single saver. So when it comes to building retirement assets, a single adult has to start early, save big and never let up, as there is no spouse around to help in the effort and only one income from which savings can emerge.
The Social Security claiming decision takes on more importance
An unmarried person’s Social Security benefits are calculated off his or her lifetime earnings record. Simple, cut and dried.1
Married people, however, have an option that the unmarried lack. Once their spouses begin to collect Social Security, they have a chance to claim a spousal benefit as early as age 62 rather than wait for benefits based solely on their own earnings. In fact, they may be able to claim this spousal benefit at age 62 even if they are widowed or divorced. If they are caring for a son or daughter from that marriage who is also receiving some form of Social Security benefits, they may be eligible for a spousal benefit before age 62.2,3
All this means that a couple can potentially rely on two Social Security incomes before both spouses reach what the program deems full retirement age. An unmarried person cannot exploit that opportunity, so the decision to claim Social Security early at reduced monthly benefits or postpone claiming to receive greater benefits becomes critical.
An unmarried person may someday have a huge need for long term care insurance
If there are no adult children or spouse around to serve as caretakers in the event of a debilitating mental or physical breakdown, an unmarried individual may eventually become destitute from costs linked to that sad consequence. LTC coverage is growing more expensive and fewer carriers are offering it these days, so many married baby boomers are wondering if it is really worth the expense; in the case of a single, unmarried baby boomer retiring solo, it may be.
Housing is often the largest expense for the unmarried
In an ideal world, a single adult could pay half of the monthly housing expense of a married couple. That seldom happens. Relatively speaking, housing costs usually consume much more of a sole individual’s income than the income of a couple. This is true even early in life: according to Bureau of Labor Statistics data, married folks in their late twenties spend $7,200 per person less on housing expenses annually. So a single person would do well to find ways to cut down housing expenses, as this frees up more money that can be potentially assigned to retirement saving.1
Saving when single presents distinct challenges
In fact, saving for retirement (or any other financial goal) as a single, unmarried person is often more challenging than it is for a married couple – especially in light of the fact that spouses are given some distinct federal tax advantages. Still, the effort must be made. Start as early as you can, and save consistently.
While it has narrowed, a notable inequality remains.
Provided by TechGirl Financial
Last year, the median weekly earnings for an American woman came to $719
Bureau of Labor Statistics data shows that the median weekly earnings for an American man were $152 higher, or 21.1% more.1
Calculated over the course of 52 weeks, that means the median yearly pay for a man in America was $45,292 in 2014. Median yearly pay for a woman: $37,388.1
The good news, relatively speaking: in the past 35 years, this gap has narrowed. In 1980, women working full-time earned only about 65% of the wages of their male counterparts.2
After all these years, why is there still such wage inequality?
Two quick explanations are often put forth. One, there is still appreciable wage discrimination against women in the workforce, with mothers being perhaps most affected. Two, some women accept lower-paying jobs or leave work altogether while staying at home with their kids or taking care of ailing relatives.
These factors are certainly present in wage inequality, yet so are others that get less media notice.
More women work for low pay than men
Citing BLS data, the National Women’s Law Center notes that more than two-thirds of minimum-wage jobs in this country are held by women. In fact, the NWLC found in 2014 that women made up 76% of employees in the ten most common occupations with hourly wages of $10.10 or lower. Even in these low-salaried jobs, full-time working women still made an average of 10% less than their male co-workers.3,4
As the Great Recession ebbed, these entry-level jobs were an immediate source of work for many women: 35% of the net employment gain for women from 2009-13 occurred in these fields, compared to 18% of the net employment gain for men. As the number of women in these low-wage occupations markedly exceeds the number of men, this is one of the underpublicized reasons for the continuing wage gap by gender.4
Careers in which women predominate pay less than careers in which men predominate
As an example, more than 75% of classroom teachers in America are women (and the median pay for classroom teachers, adjusted for inflation, is essentially where it was in 1970). Only recently have initiatives emerged to encourage women to enter “STEM” career fields (careers rooted in science, technology, math and engineering), which are male-dominated and comparatively high-salaried.5
It may be argued that a teacher contributes much more to society than a software engineer, but that argument is not bolstered by the pay gap between those careers. Looking at Payscale.com, the average salary for an elementary school teacher is $40,311 while the average software engineer earns $63,080.6
Women do a lot of unpaid work
A mother earns no salary for raising children; a wife earns no salary for taking care of a disabled or seriously ill spouse or partner. Historically, women have left the office to perform this work to greater degree than men have. This tendency also contributes to the wage gap, as the woman involved may end up choosing lower-paying work or not work at all.
Wage discrimination still exists, and is partly accountable for the differential in median wages between the sexes. There is more to the story, however; the career and life choices women are encouraged or impelled to make also influence the numbers.
Here is a way for a solopreneur to save much more for retirement.
Provided by TechGirl Financial
Self-employed? Seeking to ramp up your retirement savings?
You should look at the potential of the Roth Solo 401(k). If you are a high-earning solopreneur, this savings vehicle may be a great choice, because it allows you to make both employee and employer contributions to a 401(k) account in the same year.1
How does a Roth Solo 401(k) work?
This is a Roth variation of the standard Solo 401(k). In the standard or “traditional” Solo 401(k), employer and employee account contributions are made with pre-tax dollars. In the Roth version, the employer still contributes pre-tax dollars but the employee contribution is made with after-tax dollars.2
There is a very nice tradeoff for doing this. If you abide by IRS rules, the Roth contributions you make, and the earnings they generate, can be eventually be withdrawn tax-free.2,4
You can make an employee contribution of up to $18,000 to a Roth Solo 401(k) in 2015
This amount will rise in future years, as it is indexed for inflation. Yearly catch-up contributions of up to $6,000 are currently allowed for those 50 and over.1
Your business may also contribute 20-25% of your yearly net earnings to the plan
If you have incorporated your company, this profit-sharing contribution limit is set at 25%; if you have not, the limit is 20%. Total employer & employee contributions to a Roth Solo 401(k) are capped at $53,000 for 2015, $59,000 if you are old enough to make the $6,000 catch-up contribution. (The maximum amount of employee elective deferrals and employer non-elective contributions should be calculated via the methods detailed in IRS Publication 560.)1,3
How can you invest the Solo Roth 401(k) assets?
You can invest them in myriad ways. This is truly a self-directed retirement plan, and that means you aren’t limited to a dozen or two dozen investment options as you might be with a 401(k) sponsored by a large employer.4
What are the restrictions on a Roth Solo 401(k)?
As the name implies, this is truly a retirement plan for the smallest businesses. To have any kind of Solo 401(k), you must work for yourself and have a maximum of only one other full-time employee (and that other FTE needs to be your spouse). If you foresee hiring people as your business evolves, then this is not the retirement account for you.1
Once the Roth Solo 401(k) contains more than $250,000 in assets at the end of a year, you must file Form 5500 annually with the IRS. The plan is also subject to non-discrimination testing if you have common-law employees. (If you have an employee and you can control what will be done by that worker and how it will be done, that is a common-law employee under the IRS definition.)1,5
If by chance you also contribute to a 401(k) at another employer, your total Roth and traditional employee contributions to all 401(k)s will be capped at the common employee limit – $18,000 in 2015, $24,000 if you are 50 or older. Participation in another 401(k) plan does not limit employer profit-sharing contributions to a Roth Solo 401(k).
As you can’t deduct after-tax dollars, you can’t deduct your employee contributions to a Roth Solo 401(k). Your business, however, can still make traditional, tax-deductible contributions.2
December 31 is the annual deadline
If you want to contribute to a Solo 401(k) for the current tax year, you must create the account by that date or earlier. Many self-employed people need to establish a retirement plan, and through a Solo Roth 401(k), you could go a long way toward fixing a retirement savings shortfall.6
Values can help determine goals & a clear purpose.
Provided by TechGirl Financial
Some millionaires are reluctant to talk to their kids about family wealth
Perhaps they are afraid what their heirs may do with it.
In a 2015 CNBC Millionaire Survey, 44% of families having at least $1 million in investable assets said that they had not yet told their children about their future inheritance. Another 27% said they had refrained from mentioning it until their children were 30 or older.1
It can be awkward to talk about such matters, but these parents likely postponed discussing this topic for another reason: they wanted their kids to grow up with a strong work ethic instead of a “wealth ethic.”
If a child comes from money and grows up knowing he or she can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. It may be relied upon if nothing works out; it may be tapped to further whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in an addiction or a penchant for racking up debt, and the stage is set for wealth to dissipate.
How might a family plan to prevent this? It starts with values. From those values, goals, and purpose may be defined.
Create a family mission statement
To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a financial services professional or estate planning attorney. Introducing the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.
This mission statement can be as brief or as extensive as you wish. It should articulate certain shared viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want to be remembered? These questions (and others) may seem philosophical rather than financial, but they can actually drive the decisions made to sustain and enhance family wealth.
Feel no shame in exerting some control
A significant percentage of families seek to define a purpose for transferred wealth. In CNBC’s survey, 32% of parents aged 55 or younger said they were going to specify what their heirs could use their inheritances for, and that was also true for 15% of parents aged 55-69 and 9% of parents aged 70 or older.1
You may want to distribute inherited wealth in phases
A trust provides a great mechanism to do so; a certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later, as carefully stated in the trust language.
This is a way to avoid a classic mistake: giving your heirs too much money at once. In fact, a 2015 Merrill Lynch Private Banking & Investment Group report notes that 46% of high net worth parents share that very concern.2
Just how much is too much? Answers vary per family, of course. In the aforementioned Merrill Lynch survey, 46% of families said that they wanted to avoid handing down the kind of money that would dissuade their heirs from realizing their full potential in their lives and careers.2
By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer.
It’s hard to know if you have the right kind. It’s hard to know if you have enough. And it’s hard to know if you need any at all.
The insurance companies have made it even harder by coming up with bewildering names: whole life, term life, universal life. Some life insurance policies have a cash value while others do not. Some invest that cash value in the stock market while others pay a fixed rate of interest. Some insurance policies combine all of these ideas.
A recent study by life insurance advocacy group LIMRA discovered that most Americans thought a 20-year $250,000 level term life policy for a healthy 30-year-old costs about $400 a year. In reality, annual premiums for such a policy typically run about $150. No wonder, as LIMRA noted, that 83% of consumers forego buying life insurance. I see this misperception all the time. In addition, some people are paying for insurance that is not right for them.1
This is why it is important for you to sit down annually with an insurance professional to review how your policy works and how it will help you to protect your family.
When you’re young, a certain type of policy is needed. As you raise a family and take on more responsibilities, your needs change again. At some point – when the nest is empty or other life changes occur – there may come a time where you don’t need life insurance at all or you may desperately need it to protect your estate. Reviewing your life insurance policies is one way to make sure you have the coverage that is right for you and your family now, today – not when you bought it.
When is the last time you thought about your life insurance? Is it time to take another look?
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Tech Girl Financial is not affiliated with Cambridge. Check the background of this investment professional on FINRA's BrokerCheck. This communication is strictly intended for individuals residing in the states of AZ, CA, CO, FL, ID, IL, IN, KY, MI, MT, NC, NH, NJ, NV, OR, SC, SD, VA, WI. No offers may be made or accepted from any resident outside the specific states referenced.