Q&A

While traveling is good for your souls, it can be hard on your wallet. In fact, AAA estimates that a family of four should budget at least $244 per day for meals, lodging and automobile travel costs. And that figure does not include the staple of family vacations, entertainment. As usual, the best way to keep the costs down is to plan ahead and make informed decisions.

With this in mind, here are some suggestions to make your family vacations more enjoyable and less draining on your pocketbook.

Prioritize your vacation – Determine how important a vacation is to you and your family and make plans accordingly. If the vacation you’re set on is an expensive one, and it is important to you, then go ahead and have fun. However, make plans now for how you are going to pay for your fun. This could mean cutting spending in other areas of your budget ahead of time to save the necessary money.
Use credit for emergencies only – You may want to take a credit card along for safety and convenience. However, it is important to remember that credit should not be used as an extension of your income. No matter how much fun you had on vacation, it’s never fun to still be paying it off years later. In fact, if you put a $2,000 vacation on your 18 percent interest credit card and make only minimum monthly payments, it would take you more than 18 years to pay it off. A credit card would come in handy if an unexpected incident occurred such as roadside emergencies or a family member got ill.

Do your homework – This is a very important key to planning a family vacation on a budget. Visit the local Chamber of Commerce or Visitors Bureau in the area you are planning to visit, many of these organizations can be found online. They may guide you to low-cost or even free entertainment and activities. Many areas have local parks, playgrounds, museums, community concerts, annual festivals, art exhibits, fairs and craft shows to enhance your vacation plans without breaking your budget. Consider alternatives closer to home to cut down on travel costs, or plan day trips to eliminate the cost of lodging.

When determining how much you can afford to spend on vacation, be sure that you consider other periodic expenses that may be waiting for you when you return, such as back-to-school costs, holiday expenses, and next year’s taxes.

Any life change can be hard on a family budget, even if it is a happy event like having a baby. Fortunately, we are given nine months to prepare for parenthood, and the sooner you start preparing, the better. In planning your personal finances for the baby’s arrival, there are several things you can do to ease the transaction.

Re-visit the family budget. Your family is changing and so should your spending plan. When creating your new family budget, don’t forget to factor in often overlooked items such as increased healthcare and insurance costs.

Be realistic when shopping for the new baby. While it is nice to have new things, it may be wise to look for gently used items at thrift stores and consignment shops, since most baby necessities are costly and only used for a short period of time. When it comes time for the baby shower, ask your hostess to let people know of the things you need so you don’t end up with an unnecessary amount of clothes and no thermometer. Also, when registering for the baby shower, try to enter items that you will need rather than the items that you want for the baby.

Plan to make it work at work. Investigate your company’s maternity or paternity policy as soon as possible. Most people will have to prepare for a reduction in their income for at least part of the leave. Because of taxes and child care costs, take time to determine whether or not it is worth it for both parents to go back to work.

Before seeking any credit, prepare a spending plan, or budget. How much of your monthly income will go toward paying credit card bills? Monthly debt should not exceed 20 percent of your monthly take-home pay or monthly allowance. Invest time when shopping for credit and know your options. Look for cards with low interest rates, and little or no annual fee.

Finally, remember to consult with your trusted financial planner during any major life changing events such as adding a new bundle of joy to your family.

People have traditionally seen Social Security benefits as the foundation of their retirement planning programs. The Social Security contributions deducted from your paycheck have, in effect, served as a government-enforced retirement savings plan.

However, the Social Security system is under increasing strain. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. And as the baby boom generation (those born between 1946 and 1964) approaches retirement, even greater demands will be placed on the system.

In 1945, there were 41.9 active workers to support each person receiving Social Security benefits. In 2000, there were only 3.4 workers supporting each Social Security pensioner. And it is projected that by 2030, there will only be 2.1 active workers to support each Social Security pensioner.

You should consider that as your income increases, Social Security replaces a proportionally smaller percentage of retirement benefits. It used to be that you could receive full benefits only after you reached the age of 65. But in 2003, the age to qualify for full benefits began to increase on a graduated scale. By 2027, the age to qualify for full Social Security benefits will have increased to the age of 67, where it is scheduled to remain.

This means in the future, you will probably have to wait longer to qualify for full Social Security benefits to start replacing a smaller percentage of your pre-retirement income.

Your long-term retirement planning program should recognize Social Security benefits as playing a more limited role when calculating retirement income. It may be best to ignore Social Security altogether when developing a retirement income plan. When you start planning for retirement, consult your trusted financial planner who will always help you make smart money decisions.

Before making any investment decisions, one of the key elements you face is working out the real rate of return on your investment.

Compounding interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.

With simple interest, interest is paid on just the principle. With compounding interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest.

But just how quickly does your money grow? The easiest way to work that out is by using what is known as the “Rule of 72.” Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you’ve invested on a compounding interest basis to double. You divide 72 by the interest rate to get the answer.

For example, if you invest $10,000 at 10 percent* compounding interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent* to get the time it takes for your money to double. The “Rule of 72” is a general rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

While compounding interest is a great ally to an investor, inflation is one of the greatest enemies. The “Rule of 72” can also highlight the damage that inflation can do to your money.

Let’s say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5 percent, in 16 years your $10,000 will have lost half of its value.

The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent* interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value.

The “Rule of 72” is a quick and easy way to determine the value of compounding interest over time. By taking the real rate of return into consideration, you can see how soon a particular investment will take to double the value of your money.

*Rate of return is for illustrative purposes only and is not indicative of any particular investment; your results will vary.

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It is never too early to begin planning your financial future. The sooner you make time to think seriously about your financial goals and your financial security, the more successful you will be in living your future on your terms. Each stage of life requires a different way of looking at your personal finances.

Let’s start with someone who just finished school and is beginning a career. At this point, it is most important to start budgeting immediately. School loans should be your first priority in addition to living within your means and avoiding accumulating any more debt. You should have an emergency savings fund of three to six months of living expenses in the event that you are laid off or unable to receive income. This is also a good time to begin saving for long-term goals. As you move through life and take on more adult responsibilities, you will have more complex financial planning decisions to make.

Marriage will tie you and your spouse together legally and financially, so it is important to know where you both stand financially and commit to talking about your finances together regularly before and after you get married.

A home represents most homeowners’ largest financial asset. It can be used to make a profit for retirement or as a line of equity when you need to borrow funds against it. Planning needs to be involved so you know what your home can do for you financially.

Having children also brings about several financial issues that must be planned for. Budgeting becomes a major factor in your daily life and you must decide how to plan for your child’s education if they plan to go to college. A very important aspect of financial planning is retirement. With the uncertain future of Social Security and changing pension plans, it is very important to plan ahead.

The earlier you start saving for retirement, the more secure your retirement will be. Throughout life, it is crucial to make smart money decisions. Seeking the guidance of a professional is a great way to start.

As you have been moving through the process of providing for your child with special needs, you have probably heard that you need a “special needs trust.” Before you contact an attorney, let your special needs planner help explain this type of trust and how it will affect your child.

This trust is an important part of the planning process. It lets people know what your wishes are in regard to your child, but, more importantly, it can help your child qualify for benefits and programs that are vital to her health and happiness.

What is a special needs trust? It is a vehicle that holds assets that are to benefit your child. It is also the instruction manual for how assets should be handled. It answers the question of who is in charge and if there are limits to how the money for your child is used. It can be set up by anyone except for the beneficiary, and it can be used for supplemental care for your child. The beneficiary of the special needs trust cannot be changed. However, the trust can, and should, be amendable if the laws change.

When do you create it? There are two times when you can create a special needs trust. The first is at your death, and the second is now, while you are alive. Many times attorneys set up what is called a “testamentary trust,” which your will creates and activates only upon your death. However, certain laws could change before your death that could affect such a trust. It is cumbersome to change a trust that your will creates, so you might consider creating a special needs trust now. You can do this by having your lawyer draft a stand-alone trust. This way it will be easy to change the trust if the laws change. Your lawyer would send you a “trust amendment” that you would sign and keep with your trust papers.

In addition, if the special needs trust is already established and the laws change, the laws set today would most likely be grandfathered into the trust. If your will creates the trust and you don’t change your will, the “testamentary trust” may not receive favorable treatment. Setting up a trust with the current laws also allows others to use or refer to the trust that parents set up (such as for gifts or inheritances).

For example, Grandma wants to leave money to the child with disabilities. If the child receives the inheritance directly, it could disqualify him from getting government-based benefits or getting into certain programs. Under current laws, if Grandma names the trust as the beneficiary, then this prevents the government from disqualifying the child from receiving benefits (provided the trust is drafted properly).

How do you fund a special needs trust? Any asset, including proceeds from the life insurance policies that you have for the benefit of your child, should be titled under the trust. There are three primary ways that a trust can be funded: inheritance, savings on the child’s behalf and child support. It is very important that you remember to change the beneficiary of your retirement, annuity, IRA and life insurance account to the child’s special needs trust. Be sure to speak with a financial professional before you do this so that you are aware of certain tax consequences. Remember, anything that comes to the child directly may disqualify him from benefits and programs.

What happens if an asset does come to the child directly? It happens. Grandma had several bonds that she had been buying for your child during the last 10 years and they are in the child’s name. There is a solution for that. It is called a “payback trust” or OBRA 93 trust. The purpose of the payback trust is to place these assets into the trust to be spent on supplemental care during the life of the child. However, only the child’s parents, grandparents, legal guardian or the courts can create this trust. The child cannot do it himself or herself. When the child passes away, whatever is left in the trust reimburses the state for benefits paid during the lifetime. Whatever is left after that passes on to the heirs.

What about setting aside money for my other children? This is a difficult one for many parents. The heart tells us to divide the assets evenly, but that is not always the logical thing to do. The decision is not an easy one and involves several factors that are both tangible and intangible. Your other children may have more opportunities to do things for themselves than the child with a disability. They may have the chance to go to college, get married, have a job and have children. The child with disabilities may or may not. A special needs planner can help you walk through the decision-making process.

What do you mean that was the easy part? Setting up the special needs trust was the easy part. The hard part is choosing Future Care People for your child with special needs. You will need to consider who will want to handle the day-to-day living responsibilities, what goals you have for your child and who is willing to learn what is involved in making daily decisions for your child. Ask potential caregivers to take the child for the weekend and see how they manage.

What are some other considerations that I need to be aware of? Have a conversation with your attorney about how to choose caregivers for your child in the event of your death. You may also want to decide if the guardian and trustee should be the same person. A special needs planner can help you through these emotional decisions before you get to the attorney’s office.

A special needs trust is a tool in the special needs planning process that provides for care above and beyond the basic living needs and allows you to maximize the benefits that your child receives. Having a knowledgeable special needs planner and estate attorney is an invaluable asset to you and your child. If you have not yet set up a special needs trust, you need to set up an appointment with a planner to discuss your situation and your next steps. It is too important for you to delay.

It is always a good idea to consult an attorney to make certain your legal rights are protected. From a financial standpoint, the first step you need to take is to get a copy of your credit report and review it carefully. If you find that you and your spouse still have any joint accounts, either change them to individual accounts or close them. Also make sure that the information on your credit report is actually correct.

If you have any secured loans, make sure to notify the lending institutions of your pending divorce. Make sure they know not to make any changes to your accounts without your specific permission.

When a married couple has debt, any agreements to pay debt in the divorce decree are agreements between you and your spouse, not between you and the creditors. If you were responsible for the debt during your marriage, you may still be held responsible after the divorce is final. It may be wise to arrange for as much debt as possible to be paid off before the divorce is final.

Once you have these things under your control, you need to take time to become more comfortable with your new financial lifestyle. Then you will need to re-evaluate your situation and take a new look at your investment goals and strategies to make sure that they are right for you.

A financial planner works to help you achieve goals of having the financial lifestyle you desire for you and your family. Many middle class families today have financial concerns such as funding retirement, children’s college educations, protecting assets and managing unexpected changes in health, unemployment, and marital status.

A financial planner will generally have a procedure when working with clients. The first thing that should happen when you meet with a financial professional is that the relationship would be defined. You and the professional would discuss your expectations of each other and determine whether you in fact can work together. The next thing that happens is the financial planner will explore your financial life identify your goals, your time horizon for achieving the goals and the level of risk that you may or may not be comfortable with. The planner will then compare your goals with your current financial situation and make recommendations on possible ways to meet your goals by using your current resources. Once you and your planner decide upon a strategy, you decide how to implement the strategy. It is important to periodically check in with your advisor to make sure that progress is being made toward your goals and to determine whether any changes need to be made in your strategy. Sometimes your goals may change and the strategy will need to be revised.
It is important to consult with a trusted financial planner who can help you make smart money decisions when determining how to achieve your financial goals.

A home equity line of credit can be put to good use as a convenient source of cash for things such as home improvements, a child’s college education or even the rare emergency. As with any major financial decisions, it is important to consider the advantages as well as the disadvantages before moving forward.

One of the major advantages is that homeowners are generally free to use the home equity line of credit for anything they wish. Another nice characteristic is that interest is not usually charged until the line of credit is actually used. Also, in order to minimize the homeowner’s initial cash outlay, the financing costs associated with the line of credit may actually be built into the line of credit.

Two of the greatest benefits of the home equity line of credit are that interest is generally tax deductible up to a certain point, making other debt that would have no tax deductible interest become deductible if the line of credit was used to pay off this other debt. The other benefit is that once the line of credit has been obtained, it belongs to the homeowner. This could leave the homeowner with an available source of cash that can serve as a safety net if a situation were to arise where it might be needed.

On the other side of this, there are many potential disadvantages to obtaining the line of credit. If the credit is not used for a certain period of time, the lending institution may charge inactivity fees. The freedom to use the funds in any way the homeowner wishes could get them into trouble if a large amount is spent on consumables such as vacations, food, or clothing. Paying for those things over an extended period of time is never a smart money decision.

Some of these equity lines of credit also carry a balloon payment at the end of the term. If the homeowner cannot pay off the balloon when it is due, he could risk losing his home. Refinancing the balloon payment amount could also lead to yet another set of closing costs which may not be tax deductible.

Depending on each individual’s situation, a home equity line of credit may or may not be a great thing to have. If this is not the right option for you, there are many others available. It is always important to consult with your trusted financial planner who can help you make smart money decisions.

The first thing that you need to do is take a good look at your husband’s and your own wills and make any necessary changes. If this is not done correctly, you could have a very difficult time straightening things out once your husband is gone. It is also important to consider durable powers of attorney, health and general. An attorney can help guide you through the process, as needed.

The next step is to have your husband show you where all of the checks and financial records are kept. You need to become familiar with the process of writing checks, paying bills and balancing the monthly statements.

You also need to know where your important documents are kept. Some of these would be social security cards, birth certificates and marriage certificates. Another important document to have would be a list of current assets, account numbers and possible income that you would receive when your husband passes away. The possible income might include things such as life insurance benefits, pension plan benefits or estimated social security benefits. On the opposite end of this, you would also need to have a list of all of your household debt with corresponding account numbers, payment amounts and due dates.

Once you have documented all of the household assets and liabilities, it is time to determine what the financial impact of losing your husband is going to be. After determining this potential impact, it is important to consult with your financial advisor who can help you make smart money decisions to make your financial transition as easy to handle as possible.

In planning your estate, it is customary to consider wills and trusts as a means of property distribution. As a matter of fact, the manner in which you hold title to your assets may supersede provisions contained in other transfer documents. Likewise, significant tax benefits can be gained or lost depending on the characterization of your property.

Here is a look at the general classifications of ownership.

Sole ownership occurs when one owns a complete interest in property. Ownership is passed by the typical transfer documents, or by the laws of interstate succession. The complete interest is included in the estate of the decedent. Because of this, the beneficiary receives a full step-up in basis. This, in essence, brings up the original purchase price to the fair market value, thereby eliminating a capital gain.

Joint tenancy exists when two or more persons share equal, undivided interests in property. Joint tenancy is not limited to spouses. Anyone can share joint interests, but there are tax benefits when this arrangement is shared only between husband and wife (qualified joint tenancy).

A joint property interest cannot be passed through traditional documents, such as a trust or will. Ownership of a joint interest passes by “operation of law” to the surviving joint owner(s). Further, property held in joint tenancy will not be subject to probate.

Under qualified joint tenancy, half of the property is included in the first decedent’s estate. Because of this, the surviving spouse obtains a stepped-up basis only on the first decedents half of the property.

If any non-spouses participate in joint ownership, the entire value of the property is includable in the decedent’s estate, reduced to the extent that the estate can prove that the surviving tenant(s) contributed to the cost of the property.

Another form of joint ownership – tenancy by the entirety – is similar to joint tenancy, but it can only be created between husband and wife. Unlike joint tenancy, and interest cannot be transferred without the consent of the spouse. Tenancy by entirety is only recognized in certain states.

Tenancy in common provides an undivided interest in property between two or more people. Unlike other forms of joint ownership, however, these interests can be owned in different percentages. A tenant in common can utilize the traditional transfer documents, but interest cannot be passed by operation of law.

Community property: under community property statutes, all property earned or acquired by either spouse is owned in equal shares by each spouse. The essential principle of community property is that the earnings of either husband or wife and the revenue from their property belong not to the producer but to the community of the husband and wife.

For estate conversion purposes, there are no restrictions on how each spouse can give away his or her half of the community property. There is no law requiring one person to leave his or her half to the surviving spouse, although, of course, many do.

The amount includable in the estate of a decedent is based on his or her percentage of ownership. The beneficiary of the property interest receives a stepped-up basis on that portion of the property. It is important to remember that the beneficiary can be chosen by the decedent. This is in contrast to joint tenancy, under which the surviving joint tenant(s) automatically inherit the interest of the decendent.

Inheriting wealth, particularly life-changing sums of wealth, can spark financial and emotional reactions and problems you may never have thought about or are prepared for.

Inherited money can cause grief, while sometimes gifted while the benefactor is alive, usually comes at a deep personal cost; the loss of a loved one such as a parent, a close relative or a dear friend.

This pain may often cloud one’s financial and emotional judgment. For example, some inheritors deny their inheritance as a way of denying the person’s death.

Guilt is a powerful and far more common emotion among heirs than people may realize, and is often a cause for either doing nothing with the inheritance or even disclaiming it.

One thing heirs may ask themselves, what did I do to earn this money?

Anger might arise when someone doesn’t receive as much as they thought they would or that they thought they deserved. They may feel there is an unequal or inequitable distribution among multiple heirs, including siblings. Heirs sometimes measure the benefactor’s love by the size of the inheritance.

Ironically, some heirs get angry because they received more than they thought they would and question why they had to live financially deprived until they received the inheritance.

Wealth is often created by talented, resourceful, hard working people and an heir may feel inadequate or unworthy of the inheritance. An heir may feel this way because he or she does not possess the same characteristics as the benefactor.

People who are not financially responsible; commonly people who inherit at a young age or have never learned good money management practices may simply be immobilized by what to do with all this money. The deceased, for example, might have been the one that handled all the family finances, and the surviving spouse doesn’t know what to do.

So they end up doing nothing, or the opposite, spend it all immediately and recklessly, resulting later in regret or financial hardship.

An inheritance may cause conflict with your spouse. Spouses can disagree over what to do with the inheritance, especially if they have different money personalities.

The heir may feel it is his or her money and not want to share it with their spouse; or the non-heir spouse may feel inadequate because their partner has brought disproportionate wealth into the household.

Many of these challenges can be minimized or even eliminated if the benefactor seeks financial advice and does long-range planning before death.

Your qualified financial planner can help you make not only important investment decisions, but more importantly, help you with these emotional and financial issues you face.

A Health Savings Account (HSA) is a special account owned by an individual in which contributions to the account are used to pay for current and future medical expenses. They are used in conjunction with a “high deductible health plan” (HDHP). A HDHP is insurance that does not cover “first-dollar” medical expenses.

There are several financial benefits to contributing to an HSA. In short, the HSA provides triple tax savings, including tax deductions when you contribute to your account; tax-free earning through investments, and tax-free withdrawals for qualified medical expenses.
According to the Department of Treasury, any individual who is covered by an HDPD and; 1) is not covered by other health care insurance that is not HDHP, 2) is not enrolled in Medicare, and 3) can’t be claimed as a dependent on someone else’s tax return. Eligibility to contribute to an HSA does not depend on:

1) Your income

2) Earned income

3) Who the primary policy holder is

4) Insurance coverage of your children

Those who have the following type of “first dollar” medical benefits would be ineligible to establish a HSA: Medicare, Medicaid, Tricare, Flexible Spending Arrangements (FSAs); Health Reimbursement Arrangements (HRAs); and coverage under a spouse’s plan, including a low-deductible insurance plan or an FSA or HRA through the spouse’s employer.

Money that is contributed to the HSA and not used may be rolled over to next year or future years. As with an IRA, the money in an HSA grows tax free and distributions taken to pay for qualified medical expenses are tax free, too.

HSA distributions not used for qualified medical expenses are subject to ordinary income taxes and a 10 percent penalty unless the individual dies, is disabled, or is 65 years of age.

There is no time limit on distributions. There are no “use it or lose it” rules as there are with FSAs. Distributions from an HSA can even be used to reimburse prior years’ expenses as long as the expenses were incurred on or after the date the HSA was established.

As with IRAs, it’s important that individuals keep good records to prove that the expenses were incurred and they were not paid for or reimbursed by another source or taken as an itemized deduction.

It may make sense depending on your personal circumstances to contribute to an HSA. Your trusted financial advisor can help you make smart money decisions.

For the vast majority of people, it is essential to keep a portion of their assets liquid in order to meet monthly commitments. For example, most families have to meet their mortgage or rent payments, groceries, utilities, and transportation bills out of their monthly paychecks. There are many other expenses that arise from month to month that help keep the pressure on the family cash flow.

If people are fortunate enough to have anything left over once all the expenses have been met, then they can designate some of that money to savings or investments for the future.

The paychecks that you deposit in your checking account constitute a portion of your short-term cash. The money is no sooner in your bank account than it flows out again as payment for goods and services. However, because the money that we use to meet our monthly expenses is so liquid, there is a tendency to simply look at it as a method of payment. We often leave more than we need in our checking accounts, gaining little or no interest until we need it for a future expense.

You can provide a means of savings for the future by actively managing the short-term cash that passes through your hands. You can use this money to increase your net worth with little or no additional risk to your principal.

Short-term investments can provide you with the liquidity needed to meet expected and unexpected expenses and to increase your short-term investment income. You must determine how much of your monthly income needs to remain liquid and if a certain amount can be set aside for a certain period of time. You must also decide what the amount of time is.

There are numerous alternatives to cash available to enable you to get your short-term cash working for you. The key to successfully managing your short-term cash lies in understanding the alternatives and choosing the one most appropriate to your particular needs and circumstances.

Consult your trusted financial planner who will help you make smart money decisions when you are ready to get your short-term cash working for you.

Individual retirement accounts are one of the most popular ways Americans save for retirement. Many IRA owners make critical mistakes that can needlessly cost them or their heirs money. There are several ways you can ensure that your IRA works as you designed it.

First of all, you should begin your required minimum distributions on time. Regardless of whether you are still working, you must begin taking an annual minimum required distribution from your traditional IRAs no later than April 1 following the year you turn 72. If you don’t withdraw it on time, the IRS will penalize you 50 percent of the difference between the amount you took out and the amount you should have taken out. It is up to you to take out the money, which you can draw from any or all accounts you own, as long as the total minimum amount is distributed.

Don’t wait until the last moment. Some IRA owners wait until the April 1 deadline to take out their initial minimum withdrawal. But remember, you’ll have to make another withdrawal by December 31 of the same year. Two minimum withdrawals in the same year could bump you into a higher tax bracket and increase your tax liability. Also, owners of large accounts may actually reduce their tax bite by taking some withdrawals during lower-income tax years well before they turn 72.

It is wise to name a beneficiary because failure to do so usually means the assets go to your estate and that will cost your heirs money. That’s because if you hadn’t already started taking distributions yourself by the time of your death, the IRA assets must be distributed to your estate’s heirs within five years of death. Or if you had started, distributions must be paid out to the heirs over what would have been your remaining life expectancy. Either way this deprives heirs from stretching out the tax-deferred assets over their own lives and creates a bigger tax bite.

Name a contingent beneficiary. This allows the primary beneficiary to reject IRA inheritance if he or she doesn’t need the money so that it automatically passes to the contingent, who typically is younger and can stretch out the inheritance longer.

Don’t forget to change, in writing, your beneficiary in the event of a marriage, divorce, birth of a child, death of a beneficiary or other changing circumstances.

Have the right number of IRAs. If you have a single large IRA but want to separate its assets to multiple heirs and a charity or two, consider separate IRAs for the charities and perhaps for each heir. Lumping them into a single IRA accelerates the required minimum distribution rate the heir(s) are required to take each year.

Check to see what your IRA custodian allows. Just because the federal law allows you to choose certain options with your IRA doesn’t mean the IRA custodian does. The custodian might not allow you to stretch out the payments with your children or grandchildren, for example, or allow the descendants of a deceased beneficiary to receive that heir’s share if the IRA has other named heirs. The options are spelled out in the custody agreement.

Consult your trusted financial planner who will always help you make smart money decisions and give you advice on your individual retirement account.

Few areas of financial planning are more complicated for parents than ensuring that their children will have enough money to pay for tuition, room, board, books, transportation and other related expenses of college. But the payoff, the likelihood that a good college education will expand their children’s opportunities to enjoy gratifying careers and higher lifetime incomes, is worth paying for.

What makes the task so complicated is that, on average, college bills have been increasing and continue to do so. Even more challenging, especially when college is still years away, is the uncertainty inherent in the never-ending changes among government and college financial aid programs and relevant federal and state income tax provisions, not to mention lower real after-tax returns on savings and investments.

Parents unable or unwilling to plan until a child is a high school junior may have to contend with uncertainty, but, deprived of the prospects of many years of even average returns on their savings and investments, they have the disadvantage of having to cough up a lot of money out of assets and current income in a short time.

Those who start as soon as a baby is brought home from the hospital may maximize the benefits of compounding interest or equity returns, even if at lower rates, over at least 18 years, but they are aiming at unknowable targets which even skilled financial planners can’t forecast with certainty. Among them: Will the baby grow up to be a prospect for Harvard, with its high costs, a community college, or a vocational school?

In the face of all the unknowns the best that parents and planners can do is start with what is known, such as the year the child is expected to start college, and split the others between the likely and unlikely. The year provides not only the probable period for accumulating assets to meet college expenses, but also the probability and extent of other liabilities, including retirement

Not knowing years earlier what loan and grant possibilities are likely to be, it is essential for parents to start early to accumulate the family’s share. In the financial planning of a child’s education, it may be helpful to consult your trusted financial planner who can help you make smart money decisions for your child’s future education.

If you want your children or others to inherit your individual retirement accounts (IRAs) and your 401(k) or other retirement plans, but you’d like to control the distribution of those assets after you die, then naming a trust as beneficiary of your retirement accounts may be the answer.

You must decide whether designating a trust as beneficiary makes sense. If you have children who are minors or adult children who are incapable of wisely managing your retirement plan assets, they may choose to withdraw and spend all of these assets as soon as they are available. On the other hand, if you funnel the assets through a qualified beneficiary trust, then you can maintain significant control for years by restricting the amount of assets available annually.

To qualify as a designated beneficiary trust the trust must be valid under state law, it must be irrevocable at the death of the grantor, it must have natural individuals as beneficiaries and, it must certify to the retirement plan or IRA administrator the trust’s beneficiaries no later than October 31st of the year following the owner’s death. If these criteria are met, the retirement account administrator can bypass the trustee to the trust’s named beneficiaries as though they had been named direct beneficiaries by the owner of the account.

While all trusts can be beneficiaries of retirement accounts, being qualified as a designated beneficiary trust is important because it can take advantage of the minimum distribution rules set by the IRS in early 2001. Under those rules, the minimum distribution that must be made annually from an inherited retirement account is based on the beneficiary’s age, and the new uniform life table, which takes into account longer life expectancies.

A qualified trust acts as beneficiary of these minimum distributions and the trustee in turn passes them on to the named beneficiaries of the trust. The trustee is not required to pass on more than the minimum distribution, which may prevent the heirs from rapidly depleting a retirement account.

How you set up the trust will depend on several factors, including the size of the estate, the spouse’s age, and the number of beneficiaries and their ages. If you have a large estate, you may want to name the spouse as the primary beneficiary and the children as contingent beneficiaries. Otherwise, you could have significant income and estate-tax liabilities if the trust is the primary beneficiary.

Naming a trust as a beneficiary of your retirement plans can be an effective estate planning tool, but like all estate planning strategies, it must be carefully compared with other options and carefully designed if chosen. When dealing with trusts consult your financial planner who can guide you to make smart money decisions for your family and yourself.

There are many advantages and disadvantages to both renting and owning. There are several questions to consider when deciding whether to rent or own.

How mobile do you want to be? – A renter has the ability to move without having to worry about selling a home or the market value at the time they want to move. A home owner is limited in his ability to move because of the need to sell the house and concerns over market value.

How much money do you have for the initial costs? – A renter does not have to come up with a large down payment whereas there may be substantial cash involved in the down payment and closing costs of purchasing a home.

What about monthly costs? – Monthly rents are usually lower than monthly mortgage payments. On the other hand, fixed rate mortgage payments remain level while rents can increase over time, so you have to consider what is available to you in either situation.

How much maintenance do you want to do? – In renting, there are generally few or no maintenance responsibilities. In owning, all maintenance and repairs are the responsibility of the homeowner

Do you want to build equity? – Renters do not build equity in their home. A homeowner eventually owns the home and substantial equity can be accumulated in the home over time.

How much space do you need? – Rented homes often have less floor space than homes that are purchased by homeowners.

Do you want to personalize your home? – If you are renting, there is generally less freedom to personalize the home. There are restrictions on things like painting and remodeling. If you own the home, it is yours to change as you please.

What about taxes? – There are no tax deductions for rent payments. Homeowners are allowed to deduct interest and property taxes at the end of the year.

All of these things and many others should be considered in determining what the right choice for you is.

Most people have good intentions about saving for retirement. But few know when to start or how much is enough. Far too many people use credit cards as an additional income source and sink further into debt. This leaves precious few dollars to put aside for savings and retirement. And the interest on credit cards usually builds up much faster than interest on a savings account because the interest rates on credit cards are usually much higher than the interest rates on savings accounts.

A good approach might be to allocate a certain amount for savings every month and pay yourself as though it were an expense.
Let’s take a look at two friends, Joe and Jane, who are both 45 and saving for retirement 20 years from now. Their financial advisor told them they need some savings in addition to their employer-sponsored retirement plans. Both save $275 a month for a 10-year period, and both earn 8 percent* on their investments. But there is a difference.

Joe starts saving today and saves for 10 years. But Jane waits 10 years before starting to save. Both will have put away a total of $33,000. After 20 years, Jane, the procrastinator, will have accumulated $49,534, whereas Joe, the early starter, will have accumulated $106,941. That’s more than twice as much available for retirement with the same initial investment.

This example makes a strong case. Not only does it pay to save, but if you start sooner, you can take advantage of the power of compounding. For example, your deposits earn interest and so does your reinvested interest. This is a good example of letting your money work for you. The sooner you start saving money for retirement, the more you will have when you retire. And the sooner you start saving for retirement the sooner you will be able to retire.

If you have trouble saving money on a regular basis, you may try savings strategies that force you to save. Examples of forced savings strategies are employer-sponsored retirement plans, and direct payroll deductions. These financial vehicles allow you to take your savings directly out of your paycheck as an expense. This means you’ll be paying yourself even before your creditors. Some of these options, may also have deferred tax advantages that further increase the advantage of saving early.

For all of your retirement needs, consult with your trusted financial planner, who will help you make smart money decisions.

*Rate of return is for illustrative purposes only and is not indicative of any particular investment; your results will vary.

For years, many people and organizations such as The American Heart Association have benefited from a unique plan called a charitable gift annuity that pays individuals in need and income for life.

The concept of a gift annuity is simple. A person wishing to support someone makes a gift of cash or marketable property to an organization like the American Heart Association. The organization then reinvests the assets and guarantees to pay the donor a fixed income for life, and if desired for another beneficiary’s lifetime. Upon the death of the last beneficiary, the funds are available for the use of the organization. The transaction is partly charitable and partly the purchase of the income interest.

The annuity rate is the dollar amount returned to you annually as a percentage of the value or your gift, and these rates are related to the age of the recipients. The contract specifies the frequency of payments and the date of the first payment.

There are many advantages to a gift annuity for you. First of all, you will receive income for life at fixed payout rates for yourself and possibly another. Another benefit to this plan is the tax deduction savings that come along with it, the portion of the transaction that is considered a gift is eligible to be included as a charitable contribution on the itemized deduction part of your federal income tax return.

Also, part of the annual income is considered a tax-free return of capital, excluding it from gross income until you reach your life expectancy. If you and/or your spouse are the only beneficiaries, the value of the annuity may qualify as a marital deduction.

And finally, the satisfaction you will receive for contributing to a gift that can possible save a life will be outstanding.

Perhaps one of your personal financial objectives is to increase your current retirement income. If you are using a combination of short-term investment instruments whose rates have dropped due to recent market changes, converting those investments to a charitable gift annuity may be the answer.

When you invest in a charitable gift annuity, you lock in the rate of return for life, offering your financial peace of mind. You have the security of knowing exactly what your annual income will be and that it will not vary with market fluctuations. This is a great option to increase your current retirement income.

Preparing a will is usually the best way to be certain your property is distributed according to your wishes after your death. Once you have made your will, it is vital that you review it regularly, ensuring that it reflects any changes in your circumstances.

What many people don’t realize is that keeping your will up to date is as important as having a will. It is critical to review your will periodically, especially when changes to your personal circumstances, your financial situation, or to the tax law occur.

It would be wise to take time once a year to review your will to assure that it is up to date with your circumstances and needs.

Certain life events can have a major impact on your will. For example, if a widow or a widower remarries, it is important that the will is updated to show how the children from the precious marriage and the new spouse should be provided for in the will.

Updating a will is especially important if you have a child, because your will allows you to name a guardian to care for your child in the event that something happens to both you and your spouse.

Also, the death of the named executor, guardian, or trustee signals a need to make changes to those provisions in your will. If you win the lottery, get a personal injury settlement, or receive a large inheritance, additional tax planning might be necessary to minimize the tax bill on your estate.

On the other hand, a significant decline in our financial assets might require making other modifications.

If you relocate, you should have an attorney in the state of your new residence review your will. This is especially important if you move to or from a community property state. Although all states recognize a will that was properly created in another state, there may be some nuances that need to be addressed.

Changing your mind about something in your will should be handled as soon as you’ve decided.

From adding a new beneficiary or charitable donation to second thoughts about your executor or the guardian of your children, be sure to make these changes in a timely matter. If your revised decisions do not make it into print, they will have no legal effect.

Once you have signed your will, keep it in a safe place, such as a safe deposit box, and make sure that your family members know where to find it.

You should keep a duplicate unsigned copy handy and review it periodically to see if any changes are needed. Updating your will is an important part of the estate planning process. Work with your trusted financial planner and attorney to ensure that your will is in alignment with your financial planning objectives.