Wednesday, June 23, 2010

Why Every Adult Needs a Complete Estate Plan

Nearly eighty percent of Americans own a home and over fifty-five percent of American citizens have minor children living at home; yet less than half of the population of the United States has ever executed a will, much less the other necessary documents making up a complete estate plan.   Some of us may need long-term health care now or in the future, but clearly, since both death and taxes are certainties for all of us, finding ways to limit the amount of taxes your heirs or beneficiaries will have to pay after you are gone should be a priority, whether married or not, a parent or not, wealthy or not.  The estate tax threshold may be as low as $1 million in 2011 and the estate tax could be as high as 55%.  $1 million may seem like a lot of money but bear in mind that the amount of life insurance you have is added to your estate immediately upon death, so that $1million can quickly sneak up on you.  Also, it is not the net value of your assets that apply to the threshhold, but the gross, so if you have a mortgage worth even as much as your house, your estate will still include the fair market value of the property. 

The government taxes wages each year at somewhere between 20 and 35 percent.  After your death, the government will tax an additional 45 to 55 percent of what you managed to preserve in your estate.  Almost 80 percent of what you earn in your lifetime will go directly to pay your taxes unless you take the time and spend the money to work with an attorney and draft your estate plan.

There are five components to a basic estate plan.  A Will is a legal declaration by which a person names one or more other persons to execute or perform the duties required of him or her pursuant to the terms of the Will.  It provides for the transfer of his or her property at death as well as instructions for appointment of a guardian of children and even of pets.   An Advance Health Care Directive, sometimes known as a "Living Will," is a written document that states a person's wishes regarding healthcare decisions for you when you become unable to make them for yourself, as well as life-support or other medical treatment in certain circumstances, usually when death is imminent.  It also allows a person to direct  his or her agent as to burial wishes, autopsies, and anatomical gifts.  Finally, it should include your HIPAA designation, which allows certain designated individuals to have access to your medical records.  A General or Special Durable or Limited Power of Attorney is a written authorization to an agent to perform specified acts on behalf of his/her principal.  This estate planning tool makes it easier in transition to have a close friend or relative handle financial affairs without having to obtain a court order first in the form of a conservatorship.  Another time I will discuss ways in which a trust, of which there are many types, may help control your estate beyond your death as well as limit your tax exposure. If you have a spouse, a child, particular charities that you support, own a home, or want to leave behind a legacy of any kind, you need to talk to an attorney about getting your will and other estate planning documents in order. If you have one, but it is older than five years, you should wait no longer to have it reviewed.  It is so important that this task is not put off any longer. None of us can control how much time we have left but we can control how our loved ones are left behind.

Thursday, June 17, 2010

Wit and Wisdom from a Wise Financial Planner

Aspirations Realized       By Colin S. Mackenzie, CFP ®

There are moments that stick with you for a lifetime. I’d like to share one such moment among many that I have been blessed with over the years. During the years I spent working in the Home Office of Financial Network, there were a wide variety of assignments that caused me to call offices around the country to research various issues. One of these projects put me in touch with several very good people who support advisors.

One lady, Sandy had been selected because she runs interference for one of the most successful financial advisors in the country. During our conversation she revealed that this advisor is a very smart man and rewards productive people who help him leverage his time. What really got me though was Sandy saying that by saving her bonuses it allowed her “to buy much more of a Harley than I ever thought I would be able to buy!”.

Good for You!

Though I was a little surprised, it was the deep sense of satisfaction that she could realize her dream…..and it was within her means….. that impressed me most. Her “Dream/Big Purchases Bucket” had been filled high enough that these funds could be poured out to acquire something that brings her the joy of the open road, something very meaningful to her.

Ever notice that the things that seem to provide the deepest and greatest satisfaction are things that require focus, determination, patience, sacrifice and follow through? Only the things that stir people deeply can inspire that type of prolonged effort. Each reader has done this to one extent or another for something important to them. As friends from New Zealand or Australia might say: “Good on ya mate!”


In client meetings I will often see where conversation and thought takes us. In one meeting with a very dear client I was led to ask the question: “What is all the money for?”. After lightly complaining that I ask very difficult questions, she said that the money was there to share experiences with people she loves. It was an interesting moment of clarity for her and also of honesty with what is most important to her.

Once you have that jewel of what is most important (or what couple of things are most important), then you can proceed to develop specific dreams to honor what is important to you. Specific dreams are things of beauty and are most compelling when you visualize them coming true as vividly as possible.

While we are on honesty and dreams at the same time, we need to keep balance in mind too. At some dollar figure a specific dream may not be wise. The wisdom comes in when creativity takes over and modifies the specific so that it is attainable. If owning a Lear Jet was a dream, then perhaps renting one on occasion might be a way to satisfy the dream, in a way that is more attainable.

Get Inspired

Some of the most inspirational dreams I hear from people have very little to do with travel or possessions, rather they can involve making the world a better place and caring for others. A client of mine will become a grandmother this year and her current number one dream is a college education for her grandchildren.

At church, my wife and I heard an interesting story from Rick Warren the minister at Saddleback Church and the author of “The Purpose Drive Life”. Rick’s dream years ago was to lead off the capital campaign to build their Lake Forest campus with a quarter of a million dollar donation of his own. Only one problem, his salary wouldn’t come close and he hadn’t written the book yet. Interestingly enough, the book was finished just before the campaign began and the initial payments he received allowed him to realize the dream of that contribution. Faith can truly be a powerful thing.

It Doesn’t Take a Windfall

Most of us (even those who write newsletters) may not receive windfalls that allow us to realize our dreams quickly. The time frame is less important than identifying what your dream is and beginning a systematic way to save and invest for it. For instance, one of my dreams is to provide a good amount of funds for my daughter (age 28) to get married, if she meets the right man one day. The equivalent of the cost for about 2 guests is being invested in her name each month for the next 4 years to help realize that dream.

What specific dreams do you have? How much will need to go into your “Dream/Big Purchases Bucket” to have enough to realize that dream when the time comes? How much needs to be set aside each month for that dream to come true.

Bottom Line - In this and the two previous issues we covered three of “The Four Buckets”. (If you would like me to send you those issues again just let me know.) Where the other two dealt with life’s every day and emergency costs, this issue goes well beyond those mundane requirements to “pay the bills”. This “Bucket” truly is ours to use to express what we love and want most. To get the most from your “Dream/Large Purchase Bucket” you will want to:

• Be clear about what is most important to you

• Use that clarity to develop a mental picture of a specific dream you would like to realize

• Identify what resources are necessary to realize the dream

• Begin a systematic way to develop the necessary resources

Life doesn’t always allow us to realize all of our dreams, still your life will be a little more full as you aspire to the fulfillment of certain dreams.

Your Feedback

I would love feedback on this newsletter. Future issues may include a host of good ideas, insights, specific steps to take financially, life insights and of course "Wit and Wisdom". Most importantly, I’d like it to be of value to you and to encourage an exchange of great ideas and insights. Please send your feedback to:

Colin S. Mackenzie, CFP ®
Financial Network
301 E. Colorado Blvd, #400
Pasadena, CA 91101
(626) 795-8896