Last week we discussed why a current proposal in Washington, D.C. to implement a so-called “Payroll Tax Holiday” is not a good form of Economic Stimulus. It seems only fair, having been critical of one concept, to present an alternative, given the wretched state of our current post-COVID-19 economy.
One worthy topic, previously mentioned by President Trump, is a proposal to cut the Capital Gains Tax. Capital Gains are realized when certain items are sold for more than the Seller paid for those same items. These include stocks and bonds, real estate, and several other categories. Capital Gains are taxed at varying rates, based on total taxable income of the taxpayer.
Van Wie Financial believes that Capital Gains Taxation needs at least two reforms. First, Capital Gains should carry a single, low, flat tax rate (preferably zero, but that is politically unrealistic). Low Capital Gains rates encourage needed economic activity. When Capital Gains rates were reduced in the 1990s by President Clinton, revenues to the government soared (as some economists predicted).
Another primary problem with our Capital Gains Tax system is taxing inflation. Many assets, especially real estate, are owned for a long period of time prior to selling. Depending on the holding period, some or all of the Capital Gain is due to simple inflation, and yet the Gain is taxed as if it were 100% profit. Indexing Capital Gains to inflation has been widely discussed, including in the current Administration, but it never sees the light of day because it is so easy to demagogue the issue as “favoring the rich.” In reality, many Middle-Class Americans also report Capital Gains and Capital Losses.
For extra measure, we could also propose a third change to taxation of Capital Gains and Capital Losses. Currently, all Capital Gains and Capital Losses within a single tax year offset each other. In addition, Losses in excess of Gains can be deducted from Gross Income, up to $3,000 annually. The $3,000 annual limit has been in effect since most people can remember, with (ironically) no adjustment for inflation over time. Van Wie Financial believes that the $3,000 limit should be repealed, allowing 100% of Capital Losses in excess of Capital Gains to reduce taxable income each year. We live in a risk-based economy, one in which tax policy can be used to stimulate economy activity.
We are at a period in time when Congress and the American People must be made to understand that our current approach to Economic Recovery is killing the patient. Spending our way to prosperity is not the answer, as it is impossible. De-taxing and de-regulating the Economy and the American People will regain the path to our recent, and not forgotten, prosperity.
Governments can print money, but they cannot print wealth.
Van Wie Financial is fee-only. For a reason.
During economically stressed times, the subject of “economic stimulus” plays a prominent role among inevitable political arguments. Whether the general public agrees with Washington’s elected officials is of little consequence, as Washington will inevitably do what Washington does – print money (electronically) and throw it around. This time it is in the name of Economic Stimulus.
Americans recently witnessed the first rounds of Congressional “Stimulus Spending,” as Trillions (12 zeros) of previously non-existent dollars were created out of thin air, then distributed to a variety of individuals and organizations. Ongoing Stimulus Spending suggestions include a so-called “Payroll Tax Holiday,” such as that implemented by the Obama Administration in 2011 and 2012. In those years, the “Payroll Tax” was reduced by 2% of gross pay (up to the Social Security contribution limit) in order to leave more cash in workers’ paychecks.
Most serious Payroll Tax Holiday proposals today call for suspension of all Payroll Taxes for a period of time, such as the remainder of 2020. Philosophically, Van Wie Financial is against any Payroll Tax Holiday. FICA (Social Security) and Medicare withholding dollars are not Federal taxes, per se. Rather, they are insurance premiums paid by individuals and matched by employers. These premiums are used to calculate individual eligibility and individual lifetime benefits under Social Security and Medicare. When insurance premiums are either not paid or reduced, lifetime benefits are adversely affected.
Also, Social Security and Medicare would themselves be degraded by hastening their estimated upcoming insolvency dates. The resultant dilemma is obvious; either General Revenue tax collections will have to be used to bail out social insurance benefit programs, or tax rates will have to skyrocket. Or both.
There are cogent and valid arguments on both sides of the Payroll Tax Holiday argument. On balance, this short-term “solution” becomes a long-term pariah, as our most popular Social Programs accelerate their paths to bankruptcy. Using General Revenues for Social Security and Medicare bailouts would increase our annual Budget Deficit, thereby adding to our accumulated National Debt. “We the People” quite literally can’t win. A classic dilemma, to be sure.
Whatever happens, there will be ample time and opportunity for finger-pointing as the U.S. economic recovery rebuilds and resumes generating government revenue in large quantities. Prior to the COVID-19 reaction, government revenues for the first half of fiscal 2020 (Oct. 1, 2019 through March 31, 2020) set an all-time record, even after accounting for inflation.
Economically, we need to get back to where we were such a few short weeks ago. Will a Payroll Tax Holiday be implemented, and if so, will it prove effective?” Stay tuned.
We should remember the negative reaction of Americans in January of 2013, when the full Payroll Tax was restored following the 2011/2012 Payroll Tax Holiday. When it ended, workers everywhere were astonished to see a reduction in their own “take-home pay.” Who could reasonably blame them, when keeping food on the table is paramount in life?
Very few Americans understand the true nature of so-called Payroll Taxes. This was recently made evident by Senator Rick Scott (R-FL), in response to Governor Cuomo (D-NY), who claimed that $30 Billion (9 zeros) of New Yorkers’ tax money were sent annually to Washington, only to be forwarded to Florida. Scott pointed out that the funds in question did not belong to New York. Rather, they were individuals’ Payroll Taxes paid in while people were stuck working in New York. When New Yorkers eventually escape by retiring to Florida, Washington returns their premiums in the form of Social Security benefits, which are then taxed at Florida rates, rather than being confiscated by New York’s high tax rates.
As Sen. Scott remarked, “It is not your money.” Refreshing, yet also another stark reminder that Truth in Labeling has never applied to Washington jargon. Were these Payroll Taxes to be called Involuntary Insurance Premiums, perhaps the Payroll Tax Holiday would be a tougher sell to the public. After all, it is their collective futures being put on the line.
Van Wie Financial is fee-only. For a reason.
Investors love dividends and interest, right? Receiving a “guaranteed” dividend flow means that we can feel better in bad times, knowing that at least our investments continue to send us money. After all, things will get better in the market; we all understand that.
Many studies over several decades have concluded that investors’ long-term returns were at least 90% due to their asset mix, or diversification (the other diminutive factors are securities selection and market timing). In no way can diversification of a portfolio limit the holdings to dividend-paying stocks and interest-bearing bonds. A long-term successful portfolio needs a component of growth, exposure to other asset classes and geographic areas, and likely some alternative assets.
All asset classes (and the investment options within them) have variable year-to-year returns. That variability defines risk in investing. Volatility is measured by standard deviation, which is amathematical calculation of changing returns over time. Portfolio construction is the process of mixing asset classes together such that individual asset’s performance differ from one another over time. Ideally, they should have low or negative correlations with one another.
Investors seek to maximize investment return for any risk level at which they are comfortable. Diversification among asset classes accomplishes this objective, unlike holding two or more types of assets that move in tandem. A classic example of how this can be misunderstood is within our memories. During the “dot-com” boom of the 1990s, many investors claimed that they were diversified because owned 30 or 40 Internet stocks. Unfortunately, in the ensuing crash, those stocks all fell as a group, leaving behind a puddle of heartache like the aftermath of a Florida rainstorm.
During uncertain times, the laser focus of some investors narrows to historical dividends. That can be problematic when the economy is troublesome, because dividends are generally declared quarterly by the Boards of Directors of public companies. Directors have fiduciary responsibility to the companies to ensure survival and long-term success to the extent possible. That sometimes involves cutting or suspending dividends. A recent Bing search on “corporate dividend cuts” produced 104,000 hits in the past month, throughout dozens of industries and companies.
Perhaps contrary to popular opinion, dividend stocks can be very volatile. This bodes poorly for narrowly concentrated dividend investors. Adding insult to injury is the return of ZIRP, the “zero interest rate policy” recently re-adopted by the Federal Reserve (FED). With vastly reduced dividends and nearly vanishing interest payments, investors must turn toward Total Return. Along with dividends and interest, Total Return investors also seek capital gains, both short-term and long-term, often supplemented by tax savings using judicious tax loss selling.
For the time being, attempting to live off dividends and income will stress a portfolio that is under-diversified and under-performing. If your portfolio is causing you concern, we can help. Until our office physically reopens, we are available via GoToMeeting, telephone, and several other platforms. Visit our website, strivuswealth.comfor more information.
Van Wie Financial is fee-only. For a reason.
Market downturns of the magnitude we have experienced lately elicit a wide range of emotions from investors; some are happy smiles (mostly from young investors), but others include fear and anxiety. Most long-term investors are aware that time heals bad markets, but it is difficult to fault anyone who is feeling distressed over swiftly falling account balances.
Fear of death has been shown to be less scary to most people than fear of outliving their money. Occasional market routs illustrate to us that only a handful of Americans are so financially well-off that they have virtually no risk of going broke. Reacting to downturns in a positive manner may be difficult without good advisors. Seeking excessive safety often results in making poor financial decisions.
The term annuity refers to any financial asset that provides lifetime income to the owner. Lifetime income is among the goals set forth in any comprehensive financial plan. Very few lifetime income vehicles exist, and all have some drawbacks. Many, such as work-provided pensions, both public and private, are simply unavailable to most people. Social Security is widely available, but inadequate for complete retirement funding. Further, most lifetime income streams lose purchasing power over time, due to inflationary influences on our daily cost of living. In many cases, Social Security and pensions need to be individually supplemented.
Social Security is the most common lifetime annuity in the U.S. Most people do not think of Social Security as an annuity, but it is. Other lifetime income streams are provided by private and public pensions. Social Security is not to be confused with a public pension, which is earned over years of employment by the government.
Throughout our years in the financial planning business, we have come to describe Social Security as “the world’s greatest annuity.” Imagine a financial product that can tax citizens to fund the Plan, rather than to depend solely on the individual annuity owner!
Unfortunately, Social Security was never designed to be the sole source of retirement income for any participant. Making matters worse is the loss of purchasing power experienced by recipients due to insufficient Social Security Cost of Living Adjustments, or COLAs. In the past ten years alone, Social Security benefits have lost 18% of their purchasing power. Many private pensions have no COLA whatsoever, and lose purchasing power even faster than Social Security.
Obviously, depending only on Social Security for retirement income is a losing strategy, and most of us will have no pensions. That leaves private annuities as the only fallback products to supplement needed lifetime income.
Annuities are misunderstood (and often maligned) by most people, a situation exacerbated by unscrupulous insurance salespeople using misleading sales pitches. Unfortunately, the result is that too many inappropriate annuities are sold to unsuspecting customers, leaving gaps in their lifetime needs and/or nest egg values. Most often this situation arises from an unscrupulous quest for large commissions by the salespeople.
Solving for lifetime income is a central concept of Comprehensive Financial Panning. Annuities play a role in the process, and good advisors (preferably fee-only fiduciaries who have earned the CFP® designation) understand how annuities fit into a lifetime income plan. We understand the specific and limited role annuities play when assisting clients to not outlive their money. Annuities occupy an important role in financial planning, but their judicious use is critical to success.
Van Wie Financial does not sell insurance products, and we never receive compensation from people who do sell annuities and other insurance products.
Van Wie Financial is a fee-only fiduciary firm. For a reason.
Most Medicare participants receive Part A (Hospital) with no monthly premium. Medicare B (Medical) charges a standard base premium to all participants, currently $144.60/month. Some Social Security benefit recipients have an additional monthly premium deducted for Medicare Part D, the optional prescription drug coverage available to Medicare recipients.
Higher-income recipients must also pay a surcharge for Part B. Dubbed the Income-Related Monthly Adjustment Amount (IRMAA), the additional premium requires involuntary extra “contributions” from some Social Security recipients. There is no added benefit attached to IRMAA charges, and it is not voluntary. Further, the participant does not have to be wealthy to be charged more than the base rate under IRMAA.
It gets worse. There is also a surcharge for higher-income Medicare recipients to cover Medicare Part D, the prescription drug coverage. This charge is particularly egregious, as it is applied regardless of whether they choose to be covered by Part D. Many Social Security recipients purchase independent drug coverage from private providers. They pay their private premiums and use only the private system, never relying on Medicare Part D.
Pay attention here if your income has dropped. IRMAA is applied to a Social Security recipient’s account based on an income tax return that is over a year old. Every year, many people of Medicare age experience a dramatic drop in income. Without taking action, they will have to pay the surcharges during a period that could strain their reduced cash flow. These people are not without recourse.
Social Security Form SSA-44 is used by people who have had a life-changing event resulting in a decrease in income to make a formal written appeal to the Social Security Administration for relief under IRMAA. Form SSA-44 is easy to find online, easy to complete, and can save Social Security recipients a significant amount of money. Some reasons for decreased income include:
- Marriage or Divorce
- Death of a spouse
- Work stoppage (retirement, layoff, etc.)
- Loss of income-producing property
- Loss of pension income
- Employee settlement payment was non-recurring
If you experience a substantial decline in income and are paying IRMAA surcharges, it is up to you to take action. After a year, Social Security will find you and make the reduction, but you will have paid the IRMAA adjustment for a year, with no recourse but to wait. Excess payments will not be refunded to you. There is a limited time to file the SSA-44 and receive any repayment.
In our financial planning practice, we meet many people who have no idea what they are actually receiving from, and paying to, Social Security, on a monthly basis. They are only aware of their monthly deposit amount (the net income). Please check your benefits at ssa.gov, even if you have not previously established an account. There you can get a comprehensive earning record, an explanation of your Social Security Benefits and Medicare costs, and a link to the SSA-44 if needed.
Knowing what to do can save you a lot of money.
Van Wie Financial is fee-only. For a reason.
Since 1997, the U.S. Government has been issuing Treasury Inflation-Protected Bonds (“TIPs”) to investors and savers who are interested in protection against a persistently rising cost of living. Originally, there were short maturity (5-year), medium maturity (10-year) and longer maturity (20-year) TIP issues. In 2009, 20-year TIPs were replaced by 30-year maturity TIPs.
By 1997, many savers had become disenchanted with low-return U.S. Savings Bonds, and TIPs presented an extra “kicker.” Not only Inflation-Protected Treasury Bonds have a coupon yield, their principle values are also adjusted for reported inflation. The inflation adjustment is made by raising or lowering the principle value of the bond by the rate of inflation for the prior year (again, reported inflation, meaning the inflation rate which the government announces to the public via the Consumer Price Index, or “CPI”).
Investors with inflationary concerns have long held TIPs as a portion of their portfolio bond allocation. While savers can invest in individual TIPs at treasurydirect.gov, most investors prefer the flexibility of TIP mutual funds and ETFs. Van Wie Financial prefers to use ETFs for their flexibility and low operating costs.
Risk in investments involves variability of returns, and TIPs are no different. Both their underlying coupon interest rates and their inflation adjustment vary over time. Obviously, total investment returns from TIPs change with time and conditions, and some time periods are more profitable than others. Considering when to own, and when to sell, TIPs, is a decision based primarily on expectations regarding inflation and interest rates.
For years we have complained about inflation under-reporting by the government. That will likely never change, as the government has too much at stake. Cost-of-Living Adjustments (“COLAs”) are paid to employees, Social Security recipients, members of the military, etc., and are based on increases in CPI. Large inflationary increases mean increased government expenditures, requiring increased Federal deficits and National Debt.
The 52-week price range for the iShare TIP is between $107.37 and $123.16, and it closed Thursday at $121.85. With the current inflation report being negative and interest rates being close to zero, we cannot justify buying TIPs right now. According to a concept dubbed the “overnight test,” an advisor considers a simple test when determining when an asset should be bought or sold. The “overnight test” presumes that all portfolio assets were sold yesterday. In the morning, each asset is then subjected to the question, “Would you buy this today?” If the answer is yes, the asset is retained, but if the answer is no, it is a candidate to be sold.
TIP does not pass our “overnight test” right now. We would not be buyers in the current economy. For those holding TIPs in other mutual funds or ETFs, the logic is the same.
Long-term total returns on TIP (the iShare) have averaged 4% over the life of the ETF (2003 – present). Year-to-date, TIP has returned 4.41%, and this is only April. The TIP market price is up about 13% from its low of the past 52 weeks. It is not a stretch to think that realizing gains (by selling shares) would be a commonsense move, especially in tax-deferred Retirement Accounts. For taxable accounts, tax implications would enter into the equation. For our clients, we know their cost basis for those holdings, and can easily evaluate the impact of selling in terms of profit and loss.
In the near term, returns on TIPs are likely to be virtually nonexistent. The reason for this is the inflation adjustment, which can reduce the face value of the bonds. TIP (the iShare) pays a monthly dividend if and when the combination of underlying yield and the inflation adjustment are positive. However, if that total is negative due to inflation, no dividend is paid out until the value of the bond once again becomes positive with upward inflation.
Over the life of the ETF, TIP has occasionally paid a monthly dividend over $1.00/share. There have also been extended periods of time when the monthly dividend has been zero. At least for now, it appears that we are in for a zero (or very low) monthly dividend.
For current clients with TIPs, please consider what we have presented and let us know if you have questions or instructions as to how to handle your transactions. For people who are interested, we continue to meet with potential clients, although not yet face-to-face. Phone meetings can be scheduled on our website strivuswealth.com. Let’s stay safe out there, but let’s also keep communicating.
Last week we introduced basic financial planning topics presented by the 2020 Families First Coronavirus Response Act, or the “Cares” for short. Cares will impact most Americans to some degree, and today we are focusing on investors. Primary Cares provisions include suspension of Required Minimum Distributions, or RMDs, for the calendar year 2020.
About 80% of Americans with Retirement Accounts withdraw more than their RMD requirement every year for living expenses. This Blog is written especially for the other 20%, but everyone can learn from these concepts and suggestions.
Under the current U.S. Tax Code, taxpayers in the lowest two income tax brackets pay zero tax on Capital Gains and Qualified Dividends. For 2020, that applies to taxpayers reporting Taxable Income under $80,250 (married filing jointly). For these people, the marginal tax rate is only 12%, meaning that every extra dollar they earn (up to that limit) is taxed at a very low 12%.
Many taxpayers exceed the 12% income tax bracket only because of their requirement to take their annual RMDs, which are included in Taxable Income. In 2020, any of these people can simply curtail or limit the amount taken from Retirement Accounts, and some will fall back into the 12% bracket. That is “slam-dunk” short-term Income Planning.
Longer-term financial planning is more complex, and other opportunities exist due to Cares. This is especially true due to recent stock market stress, which has caused many asset values to fall sharply. Beaten-down assets in Traditional IRAs and 401(k)s can be converted directly to Roth Account assets, simply by paying ordinary income tax on the amount converted.
Note that RMD withdrawals cannot be converted to Roth IRA deposits. Also, Roth contributions can only be made from earned income, and are subject to upper income limits. Neither applies to Roth conversions, which are always allowable. Conversions may be in cash or in kind, meaning actual stocks, bonds, mutual fund shares, and ETF shares.
Benefits of carefully planned Roth Conversions are numerous, including:
- If the assets to be converted are highly depreciated, the (taxable) value of the conversion is only the current market value, regardless of original purchase price.
- If the taxpayer is in a low tax bracket, which is especially likely this year in the absence of a 2020 RMD, the effective tax rate is historically low.
- Future market appreciation and dividends while in the Roth remain forever tax-free.
- Whatever funds are eventually withdrawn from the Roth Account will not be taxed.
- No RMDs will be required from the Roth Account (including the conversion amount )during the life of the Account Owner, reducing lifetime tax liability.
An old saying goes, “Opportunity only knocks once.” While we don’t necessarily agree with the singularity of the event, we think we are hearing noise at the front door.
Van Wie Financial is fee-only. For a reason.
Technically called the Families First Coronavirus Response Act, the shorter acronym for the Bill that was signed into law on Friday, March 27, 2020, is the Cares Act. Cares will impact most Americans to some degree, but what it will mean to you depends on your individual circumstances. For some, it will mean being able to pay the mortgage or rent next month. For others, enhanced unemployment benefits are important.
For investors, Cares opens a window for Financial Planning opportunities not before seen in our lifetimes. Perhaps the item that will affect investors most is a one-year hiatus on Required Minimum Distributions, or RMDs. The entire RMD obligation for most Retirement Plans and IRAs has been waived for 2020. While final details have yet to be ironed out, here is a look at what it could mean.
People born in 1950 or later already received a delay on their RMDs from the Secure Act in 2019, which raised the RMD effective age from 70-1/2 to 72. Now, people born before 1950 have a similar, but one-time opportunity.
Many people withdraw more than their annual RMD, as they need the money to live. These people will not be affected by Cares provisions. However, many others withdraw RMDs from Retirement Accounts only because they would otherwise be penalized. These folks have been presented a one-time financial planning opportunity in 2020.
However, before anyone assumes that proper planning is as simple as skipping their 2020 RMD, an individual analysis may prove more complex. Income Planning in the absence of RMDs allows taxpayers to take advantage of today’s relatively low tax rates, including the potential of a zero tax rate on Capital Gains and Qualified Dividends.
Under the current Tax Code, taxpayers in the lowest two brackets pay no tax on Capital Gains and Qualified Dividends. For 2020, that applies to taxpayers reporting Taxable Income under $80,250 (married filing jointly). This amount includes earnings from employment, taxable Social Security benefits, pensions, and it also includes interest income, dividends, and Capital Gains.
For people who do not need their RMDs, in whole or in part, and may have multiple sources of potential cash flow, planning how much to receive from what source can make a vast difference. Reporting taxable Social Security income is a must, as is pension income. Retirement Account withdrawals are, for this year, optional.
By carefully planning income sources, one might reduce his or her 2020 Taxable Income under the break point, rendering Capital Gains and Qualified Dividends untaxable this year. This may be assisted by cutting back or eliminating RMDs from taxable accounts. If more income is needed, Roth withdrawals could substitute for one year. Brokerage accounts may substitute for other income sources.
People who have already been drawing RMDs in early 2020 are able to repay all or some of those funds, erasing the taxability. This is done by classifying repayments as 60-day Rollovers. As the name implies, only funds withdrawn with the past 60 days are eligible. Further, no other 60-day Rollovers will be allowed for an entire year after repayment of the funds.
Taxes are generally withheld from RMDs, usually at 20% of the RMD value. IRS will not give you that money back in the current year, though it will be credited to your next tax return, the same as all your other withholding. You may reimburse (from other funds) your Retirement Account for the taxes withheld.
Investors with assets in multiple forms should pay particular attention to the year 2020, while they have an opportunity that is unlikely to happen again. If you have reason to believe that Income Planning could serve your needs, we can help.Van Wie Financial is fee-only. For a reason.
The word dilemma has 3 meanings, according to Dictionary.com. One is “a situation requiring a choice between equally undesirable alternatives.” This definition is perfect for what is happening today across the fruited plain. Option 1 is to risk further spreading the COVID-19 Virus (coronavirus), and equally distasteful is Option 2, curtailing of individual liberties.
Ronald Reagan famously quipped that the most dangerous words in the English language were, “I’m from the government, and I’m here to help.” Unfortunately, the recent coronavirus scare has elicited a giant wave of government actions, at all levels of governance.
Understanding and accepting that coronavirus is dangerous, we are adamantly opposed to the degree of power usurpation being exercised by some state governors, including those in California (a Democrat) and Ohio (a Republican). There are several others. Ordering arbitrary and blanket closings of schools may be acceptable due to public health risks, but blanket shutdown of restaurants, bars, beaches, and other socially-oriented establishments appears to cross the line.
As Americans, we are guaranteed certain freedoms by our Constitution including the incorporated Bill of Rights. Among those rights are life, liberty, and the pursuit of happiness. These encompass our right to patronize public establishments that we enjoy. Usurping those freedoms cannot be taken lightly, as once governments assume new and dangerous powers, if left unopposed, those governments will utilize their newfound powers again and again. Each exercise of ill-gotten powers will require less justification, all in the name of “keeping us safe,” and doing it “for the children.”
As freedoms are being eroded, while our federal government creates massive “bailout” plans, we should be reminded that governments can print money, but they can’t print wealth. People, individually and in groups, create wealth. When governmental printing presses replace individual efforts, the country suffers irreplaceable long-term losses.
Yet, reasonably expected economic losses for Americans are so large that only government is large enough to provide needed liquidity immediately.
Reagan also warned that “Freedom is never more than one generation away from extinction.” Evidence of freedom’s erosion is everywhere; from rising popularity of socialism, to most of the “politically correct” movement. College campuses now have “free speech zones” for those who have differing opinions, as well as “safe speech zones,” where students are not required to hear ideas with which they disagree. Guess which zones are larger? The trend is both impractical and dangerous.
America needs a prescription for our ailment. Suggestions abound, but solutions are highly subjective. Individual freedom vs. pandemic truly poses a dilemma. Government actions being taken today will be judged in history as to their effects on the coronavirus, but also on individual freedom.
Van Wie Financial is fee-only. For a reason.
In study after study, over many decades, Americans have been shown to fear two things more than they fear death itself; public speaking, and running out of money. Most people suffer from one or the other, we suspect, and many are likely afflicted by both.
Van Wie Financial is not prepared to train people to speak confidently in front of crowds. We are equipped, however, to assist people with preparing comprehensive financial plans that have at their core the goal of financial independence. Integral to that is the exercise of Estate Planning.
Assets left behind at death comprise estates, and preparing for the disposition of estate assets is called Estate Planning. There is no estate too small for Estate Planning. Everyone has some combination of family, friends, real estate, financial assets, and digital presence. We should all care what will happen to our “stuff” when we are gone, regardless of how long we live. In actuality, Estate Planning should begin when people are young.
Most people know about the basic Will, which is technically called a Last Will and Testament. This fundamental document directs the disposition of assets, generally through a judicial process called Probate. The purpose of Probate is to determine subsequent ownership of your remaining assets, and to effect the disposition of those assets. A Living Revocable Trust (“LRT”) is a slightly more complicated form of asset distribution. Essentially, it works like a complex Will, but avoids the lengthy and costly Probate process. Further, it is a private, rather than a public, process. Making a Will should be a priority for newly-married people, and especially as they start families.
60% of Americans are intestate, meaning that they have neither a Will nor a Living Revocable Trust. When intestate people pass on, the governments of their states of residence determine final distribution of remaining assets. To us, this possibility is far more distasteful than actually discussing mortality and planning asset distribution. Would you be comfortable leaving your minor children’s care to the whim of a court if you pass away before they reach the age of majority in your state?
Proper preparation for life’s contingencies requires certain other documents to be legally prepared and executed. Privacy laws dictate that we put our wishes in writing as to our health care, incapacitation, and anything else that may impair our ability to act independently and rationally as we age. We all need to choose other people to assist us if we become incapable of doing everything alone.
While planning and implementing investments is flashier and more exciting than discussing mortality and asset distribution, the other aspects of Comprehensive Personal Financial Planning (insurance, taxes, etc.) are also vital to a financially successful life. We can help by working with you and your other chosen professionals to guide the comprehensive process.
Van Wie Financial is fee-only. For a reason.