Yes, I’m grateful

“The best years of your life are the ones in which you decide your problems are your own. You don’t blame them on your mother, the ecology, or the President. You realize that you control your own destiny.”

- Albert Ellis

It’s Thanksgiving Week around here [and, I suppose--everywhere in the country ], and we’re all getting set for turkey on Thursday.

The holiday has an interesting history, and not just the original story (which I won’t rehash now –you can Google that one). I did want to highlight for you, though, when it actually became an official holiday. It was in 1863, when President Abraham Lincoln finally proclaimed the last Thursday of November as a national day of Thanksgiving that should take place every year.

Now … I believe that President Lincoln struck on something very important. You may have noticed the date–the country was mired in civil war, and, of course, the national mood was bleak. But President Lincoln understood that the mindset of a nation (and a family) is to be protected at all costs. Yes, it may have *seemed* a ceremonial gesture, but I can assure you that if a war-torn nation can turn its eyes upward–so can you and your family.

And, therein lies the wealth (and happiness) “secret” of Thanksgiving: When you walk in gratitude, you never feel poor.

I’ve worked with families with seven, eight figures in their bottom line…but some of them are flat-out miserable. Why? They’ve forgotten gratitude, and they can never get enough. Yes, they may *seem* wealthy, but they sure ain’t rich.

“Rich” is a state-of-mind–and it’s tied to gratitude. It can affect how you see savings, retirement and investment. And, of course, gratitude is the enemy of fear. It’s like an opposite magnet for it–walk in gratitude and fear just melts away.

So, here’s my advice for this week: Whatever financial situation you happen to find yourself in, be thankful. There are hidden blessings in any trial … and hidden fear-traps in any windfall. Find them, savor the blessings, and watch your family thrive.

For my part, I’m simply grateful for YOU.

I’m grateful for your trust, for your attention to my weekly ramblings, for your business, for your referrals…for so many things. I don’t forget that it’s people like you who enable me to do what I do–to breathe life and hope into families, and to give them lasting peace-of-mind about what will happen in the ensuing years.

I don’t take it lightly, my friend.

So thank you. For everything.

Question for parents: “Should you ‘trust’ your children?”

“The first step to getting the things you want out of life is this: Decide what you want.”

- Ben Stein

Well, right away you’ll have to forgive my pun in the subject line. This note isn’t about issues of whether or not your children have integrity, of course.

No, I’m delving into my primary area of expertise here, and laying out a simple template for parents to use as they consider how they would like their children to handle the gift of inherited wealth.

After all–I’ve seen families *thrive* in this process … and I’ve seen families fall apart.

So I’ve put together a primer on these issues, which you can use to determine how to make this decision.

We really do love to help you! Don’t let our relationship go to waste .

A Will or a Trust?

Quite obviously, parenting is more than reading to your children or getting them to eat their vegetables. It’s also about securing their financial future.

But, many parents are confused about exactly how to decide whether they should do this. They hear the “trust fund baby” conversation, and they assume it’s only for the uber-wealthy.

Not true. In fact, for some “uber-wealthy” it may be the WRONG tool! And, alternatively, for some in the “middle class”, it’s still quite a useful legal instrument.

So, I’m going to put the kibosh on all of the confusion out there, and lay this out, real simple-like. Here are the questions to consider:

Do you foresee leaving your children more than just a modest amount of money?

A trust may not be worth the effort if you think you’ll only be leaving a child (or children) $100,000 or less. But don’t write yourself off too fast! Because if you’re leaving life insurance money to cover four years of school and you own a home, there’s a good chance a trust would make sense for you.

Do you want to have control over *exactly* how the money is spent?

A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can’t be done with a custodial account. If the custodian has a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large “support” checks to help cover his other expenses.

Would you prefer that your children not inherit the money when they turn 18 or 21?

If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance is the main draw for couples who decide that their children should be eased into significant financial decisions.

Do you want the money to be only used for a certain purpose?

Like many parents, if you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you’ll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma, or some such.

Would you like your children to have recourse if their money is mismanaged?

One more benefit of a trust that you don’t get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.

So, start thinking about your answers…and make them happen.

What the next Congress may bring

“You will get all you want in life if you help enough other people get what they want.”

- Zig Ziglar

Our political landscape is very different this week. And it *does* have implications for your wallet (I believe).

I mentioned last week that I’d keep my powder dry, so to speak, and wait a few days after the mid-term elections to deliver my prognosis about what it all means for you and your situation. So, here I am today…having gathered the expert analyses, spoken to a few wise hands, and having spent some days “sitting on it” (and enjoying my family over the weekend, of course!).

Let me know if you have any comments, or questions.

2010 Election Results … and Your Finances

Change came back to Washington last week, and, depending on your politics, you may still be basking in the afterglow–or fighting back depression.

But based on pre- and post-election statements, we can make a few educated guesses about what it all means for the taxes YOU will be paying starting next year, as well as other financial implications.

I hasten to add that this is (educated) prediction-making, and that I certainly don’t have the time (nor do you) to provide a fully-exhaustive list of how you may be affected. But that said, I have been watching these sort of policy fluctuations for a while…

The “Bush Tax Cuts”

This is going to be the battle to watch, but with the political winds at their back, the Republicans seem to be indicating that they’ll be pushing hard to extend these tax reductions (from 2001 and 2003), at least for another year.

What makes this most likely is that President Obama seems to agree with them (http://news.yahoo.com/s/ap/20101105/ap_on_bi_ge/us_obama_taxes).

What does this all mean? A few things come to mind…

Capital Gains & Dividends Taxes Likely To Stay Lower

If the “Bush tax cuts” are indeed extended, the tax rate on profits from the sale of long-term assets should stay at 15 percent, even for folks in the upper income tax brackets. And investors whose income is in the 10 percent or 15 percent bracket won’t owe any capital gains taxes.

And, as for dividends, under the current tax law, qualified dividend income is taxed the same as long-term capital gains (that is, at a maximum tax rate of 15 percent). Similarly, those in the two lower income tax brackets received certain dividends tax-free.

Without special treatment, dividends would be treated as ordinary income, meaning they could be taxed at the top marginal tax rate, currently 35 percent (or as high as 39.6 percent in 2011 if the tax cuts expire).

But again, that doesn’t seem to be what will happen.

Tax Brackets on Ordinary Income

Without Congressional action and presidential approval, the current tax rate brackets of 10, 15, 25, 28, 33, and 35 percent would be replaced in 2011 by the “pre-Bush” brackets of 15, 28, 31, 36, and 39.6 percent. Which, of course, would mean across-the-board rate hikes for American taxpayers.

And though I could be wrong, it’s looking good that these lower rates would be retained.

The Estate Tax

You’d think that this issue would have become easier to predict, but I regret to say that the outlook remains chaotic.  It is unclear what a fix would be (if any), and whether it would happen as part of an income-tax compromise. There is sentiment, apparently, on the Hill for providing estates of people who died this year a retroactive choice of which tax rules to use.

If you are the heir or executor of someone who died in 2010, we can help you determine whether using 2010 rules is best. It may not be for those with assets between about $1.3 million and $4 million, because of complex rules levying taxes on heirs when assets are sold.

All This Being Said…

There is nothing better than sitting down with someone who will look at YOUR specific situation. Because no matter what Congress does, your estate must be handled with the sensitivity and competency to weather the storm of any future tax changes. Which, of course, is what we’ve been doing all year.

Your mid-life financial assessment

“Beware of undertaking too much at the start. Be content with quite a little. Allow for accidents. Allow for human nature, especially your own.”

- Arnold Bennett

Planning your estate strategy before it’s too late is more important this year than any year since I’ve been in practice. I cannot emphasize enough how different the landscape looks to be on January 1, 2011!

So today, I thought I’d “step back” and speak to the situation in which many of our clients find themselves, and give you some benchmarks to consider. While I’m not a financial planner per se, I do happen to deal with these issues on a regular basis…enough that I know what I don’t know, at least. And, of course, I know what I know…

Your Mid-Life Financial Checkup

Generally speaking, many wise adults see a doctor when they hit 50. And the great thing about (most) doctors, is that they’re not financially-incentivized to advise you towards a specific course of action.

Would that were true about financial advisers.

So, I thought I would take the time this week to give you an objective, “incentive-free” look at what your finances should look like when you hit the half-century mark. If you are close to that mark, I thought it might be useful for me to lay out the “perfect” scenario.

And look–if you’re not perfect, at least let it be a benchmark…

We should have been saving and investing 15% of our income regularly. Even if we don’t want to retire until age 70, by 50 we should be well on our way toward securing our retirement. We have managed to save about eight times our annual lifestyle spending. With a $100,000 per year lifestyle, that means we should have saved about $800,000 toward our retirement.

We are probably at the point where our children are in college or have recently graduated. When college funding is complete, it’s time to reevaluate and perhaps drop term life insurance coverage depending on our individual circumstances. We purchased the insurance to make sure our children would have enough money to complete their education. When term premiums rise and college accounts are fully funded, we should probably drop our coverage.

[In this point, I am, perhaps, speaking non-objectively. But this is simply an objective truth.] Our estate plan should be in place and fully implemented. And, of course, various assets are handled differently. This is the time to make a complete review of how our plan is put together, to ensure that EVERY asset (not just the tangible ones) are still handled properly.

And, for you “imperfect” savers, we have one last chance after children and before retirement to catch up. Age 50 is the first year we are allowed to take advantage of increased savings and catch-up provisions. Maximum savings in a 401(k) or 403(b) account increases from $16,500 to $22,000 at age 50. Roth contributions also increase from $5,000 a year to $6,000. If we don’t have eight times our lifestyle spending saved, now is the time to press these limits.

Of course, saving well is half the battle; investing well is the other half.

That’s a subject about which I’ll have to point you in different directions. If you’d like a good recommendation for a competent financial planner, let me know!

Of course life is too short to ignore meaning at any age. But for many people 50 is a milestone that reminds us to stop and reevaluate. There is still time for a whole new life of significance.

Financial independence can open exciting possibilities that were otherwise out of the question. If we don’t need the money, we are free to do anything with our lives. People of purpose usually don’t choose 28 years of recreation. Not when we finally have the time and the wisdom to make a difference in the world.

And counting retirement as a new career is a perspective I’d encourage. When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time and talent to our nation’s most pressing challenges, imagine the progress we could make.

Although you can have that attitude at any age, it is especially powerful when redefining the second half of your life!

Here’s to meaningful evenings.