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Archive for the ‘Retirement/Estate Planning’ Category

Many people have the misconception that they are responsible for paying their parent’s debts, particularly when the parent dies with outstanding bills. Unless you co-signed for your parent’s loan or are the joint account holder with your parent, you are not legally responsible for paying the debt. Any outstanding debt your parents have upon their passing will go against their estate. The home may be sold to pay their debts and assets will be used to pay off creditors. If there is a positive net worth, the heirs will get an inheritance. If there is a negative net worth, the heirs will not get anything.

So how can parents maximize the amount of assets going to their heirs and not to creditors? You can either have no debt when you die or you can use probate avoidance tools while you are still living. When a person dies, their estate property is transferred to beneficiaries through a Will or intestate succession (if no Will). The result is probate. Many use the probate process but I recommend avoiding probate if possible because it is expensive (5-10% of gross estate value) and time-consuming (18-24 months on average). It is possible to transfer property outside of probate using probate avoidance tools such as Will substitutes like living trusts or payable on death accounts. This way, property goes directly and quickly to your heirs. So what are some of the valid ways to transfer property and avoid probate? Some include:

-Pay on death (POD) accounts can be created using a simple form at your bank. Simply choose a beneficiary to receive the money in your account when you die.

-Life insurance/retirement accounts avoid probate by designating a beneficiary. You should check your accounts annually to make sure you have the correct people selected as beneficiaries.

-Joint tenancy is a type of property ownership that when one spouse dies, the surviving spouse automatically gets ownership.

Note: This article was originally posted in February 2011 but because of its popularity, I am reposting.

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If you are fortunate enough to have amassed wealth and want to keep it in the family, you should die this year and not in 2013.

For 2012, the current law provides a generous $5,120,000 per person federal estate tax exemption. This means that if you die this year, the first $5,120,000 of your estate isn’t subject to taxes. This compares with a $1 million federal estate tax exemption and a 55% effective top tax rate scheduled to take effect in 2013.

Of course I’m making light of the estate tax hike that takes effect January 1st, 2013. But, if you are wealthy and want to provide for posterity without the government taking most of it in the form of the estate tax, you need to see your attorney or CPA right away to make changes before the end of the year. There are many things you can do (gifts to family, charities, POD accounts, joint tenancy deeds of trust, etc) to protect your family.

Do you ever wonder why the laws seem to protect the wealthy?

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Life is fairly easy when you are young and single but add a marriage or kids and life gets real hard real fast. Planning for your financial future today will ensure you and your family will have a brighter future tomorrow.

There are six basic financial mistakes young families make. Can you guess what they are? Read more: http://www.smartmoney.com/personal-finance/marriage-divorce/the-six-mistakes-young-families-make-15555/

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Many people have the misconception that they are responsible for paying their parent’s debts, particularly when the parent dies with outstanding bills. Unless you co-signed for your parent’s loan or are the joint account holder with your parent, you are not legally responsible for paying the debt.  Any outstanding debt your parents have upon their passing will go against their estate. The home may be sold to pay their debts and assets will be used to pay off creditors. If there is a positive net worth, the heirs will get an inheritance. If there is a negative net worth, the heirs will not get anything.

So how can parents maximize the amount of assets going to their heirs and not to creditors? You can either have no debt when you die or you can use probate avoidance tools while you are still living. When a person dies, their estate property is transferred to beneficiaries through a Will or intestate succession (if no Will). The result is probate. Many use the probate process but I recommend avoiding probate if possible because it is expensive (5-10% of gross estate value) and time-consuming (18-24 months on average). It is possible to transfer property outside of probate using probate avoidance tools such as Will substitutes like living trusts or payable on death accounts. This way, property goes directly and quickly to your heirs. So what are some of the valid ways to transfer property and avoid probate? Some include:

-Pay on death (POD) accounts can be created using a simple form at your bank. Simply choose a beneficiary to receive the money in your account when you die.

-Life insurance/retirement accounts avoid probate by designating a beneficiary. You should check your accounts annually to make sure you have the correct people selected as beneficiaries.

-Joint tenancy is a type of property ownership that when one spouse dies, the surviving spouse automatically gets ownership.

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A spousal IRA is an IRA account established to build retirement savings for a non-working spouse. So, if you are a stay at home mom or dad or are taking time off from work, you can continue saving for retirement. Here is what you need to know:

#1. You can contribute up to $5,000 ($6,000 if age 50 or older). You should check IRS guidelines for deductibility and phase out levels.

#2. Who contributes? Usually the working spouse but it can also come from the non-working spouse. The source of the money does not matter.

#3. Any special rules? No. A spousal IRA is treated the same as a regular IRA.

#4. You must be married to your spouse at the end of the tax year.

#5. You must file a joint federal tax return.

#6. The working spouse must have taxable income for the tax year.

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Recently, the Social Security Administration announced that 58 million retirees and people with disabilities won’t get a cost of living (COLA) increase in 2011. This is the second year in a row that there will be no rise in benefits.

If you retired with lots of money, this won’t affect your standard of living but Social Security accounts for about 40% of the average income for retirees 65 and older. The pay freeze coincides with another hit to senior’s incomes: low-interest rates. The national interest rate average for one year certificate of deposit was 0.56%. Investments that offer a higher rate of return are often too risky for seniors.

Seniors can get the most out of their savings from laddering (Ladder = buying CDs of different maturities). Laddering a CD portfolio is a lot like dollar cost averaging when you buy stock. You don’t invest all your CD money at one low rate of return. You are also never more than one year away from at least some of your money. Here’s how it works: if you had $10,000 to invest, you would buy five CDs and put $2,000 in a one-year CD, $2,000 in a two-year CD and so on. Each year is a new rung on a ladder. Every time a CD matured, you would invest it in a five-year CD. The advantage of this strategy is that you benefit from higher rates from longer term CDs, while at the same time having more liquidity to reinvest when interest rates rise.

One problem with this strategy is that long-term CDs aren’t paying much now. The national average interest rate for a five-year CD is 1.61%, according to Bankrate.com. For this reason, you may want to consider going out no further than two or three years. Interest rates will probably go up quite a bit at some point in the future.

Another strategy is to shop around for CD rates. I recommend www.bankrate.com. Bankrate.com provides consumers with comparisons of different products such as CDs, mortgages, credit cards, bank interest rates, etc.

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Starting July 16, 2011, participants in 401(k) and 403(b) retirement plans will finally see how much they are paying in fees. This will help you make better investment choices and will pressure employers to stop using high-cost plans.

Final rules were issued by the US Department of Labor which requires employers to disclose fees and investment performance in a standard, consumer friendly format.

This is excellent and long overdue news since most retirement plan participants are unaware that their plans typically have very high expenses and hidden fees.  These expenses and fees lower your investment gains over time.

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