Three Social Security Traps

What you don’t know about Social Security benefits can hurt you and your spouse for the rest of your lives. Here are three traps to avoid when taking your benefits.

The Key Takeaways:

• The longer you can postpone taking your Social Security benefits, the larger the amount you and your spouse will receive over your lifetimes.

• Continuing to work after you start receiving benefits early can temporarily reduce the amount of your benefits.

• It is important to seek the advice of a retirement specialist who can help you navigate the rules of Social Security to your best benefit.

 Three Traps to Avoid:

1. Taking Money Too Early. It can be tempting to start taking your benefits as soon as you become eligible at age 62. But the longer you can wait, the higher your monthly benefit will be—and the more you will receive over your lifetime. Also, cost of living adjustments (COLA) are calculated on the amount of your monthly benefit, so if you take benefits at age 62, your COLA adjustments will be calculated on a lower amount.

2. Working Income. If you elect to take benefits early and you keep working, the amount of your benefit can be reduced. This reduction will continue until the year you reach full retirement age (66).

3. Spousal Benefits. Your decision when to start taking your benefit affects your spouse too. After you die, your spouse is eligible to receive your monthly benefit if his/her own benefit is less than yours. If you elect to receive your benefit earlier rather than later, your spouse’s benefit will also be lower. If you wait until you reach full retirement age (66), you can claim your Social Security benefits but delay taking them. This lets your spouse draw spousal benefits immediately, while you continue working and increasing the value of your future benefits.

What You Need to Know:

Ideally, you will want to evaluate when to take your benefits based on your retirement savings and other sources of retirement income, your and your spouse’s health, your family’s history of longevity, and if you plan to continue working. While most people would benefit from waiting until a later age to start their retirement benefits, some may risk running out of money and will need to take their benefits as soon as they are eligible. A retirement planning specialist can help you decide what is best for you.

Actions to Consider:

• If you are concerned about the future of Social Security, you could take your benefits at 62 and invest them. By the time you need to start taking the money, you may be able to make up any loss you incur by taking them early. But, of course, this is dependent on your portfolio allocation and market performance.

• If you keep working beyond age 62, your Social Security benefit will increase each year up to age 70.

• While you are eligible for Social Security at age 62, you are not eligible for Medicare until age 65. If you stop working, you will have to pay for private insurance with your own money.

• If you wait until your full retirement age (66), another spousal benefit option is available. If you both want to retire at the same time and your spouse will receive a lower benefit, you can claim spousal benefits now from your spouse, let your benefits continue to grow and then switch to your (higher) benefit later.

If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Five Tips to Remove Financial Hassle from Your Life

Everyone faces hassles in life. We can’t escape them completely, but if we can minimize them, our quality of life improves. There are hassles in managing your finances and wealth, too. Here are five tips that will help you get financial aggravation under control.

The Key Takeaways:

• Minimizing hassles helps reduce stress and improves the quality of your life.

• Managing your finances and wealth in a simpler way can alleviate unnecessary annoyance.

The Five Tips:

1. Consolidate banking, debt, investment and insurance providers. The fewer people and institutions you have to deal with, the more productive you will be.

2. Instead of working with individual professionals, work with a group that operates as a team. Individual professionals have to make recommendations without knowing what others are advising you to do, so you are likely to have either inadequate or overlapping planning. A team approach—where members bring their own areas of expertise and resources and work together on the “big picture”—is more efficient (fewer meetings, reports and explanations), saves time and money, and provides more complete solutions.

3. Organize your financial documents in a logical way, especially your life-planning documents. Think about the information your family will need if something happens to you. Obvious documents include your will or trust, health care power of attorney, health and long-term care insurance policies, life insurance policies, bank and investment accounts, loan documents, titles and safe deposit box. Organizing this information, and showing your family where to find it, will greatly reduce their hassle when the time comes to implement the plan.

4. Evaluate new investment opportunities once each quarter. This is often enough to stay current without getting distracted. If you read or hear about something that interests you, make a note to discuss it with your investment advisor at the next quarterly meeting.

5. Use just one or two research sources. While I realize that we all live in the information age, where we are constantly bombarded by a plethora of stimuli almost constantly, it is hard to tune out the noise. However, this author believes that multitasking is a great way to get a large amount of tasks started, which results in nothing getting done—at least not well. I do not know about you, but when I turn on the TV and there are ticker tapes and flashing messages running across the screen, I find it hard to focus on anything I am being shown. Because of these factors, we recommend finding a couple of reputable research sources and stick with them. You do not want to waste hours researching sources that may be contradictory and, worse, are not reliable.

What You Need to Know:

Simplifying your financial life may take some time and concentrated effort. Every six months, take the time to assess how you’re doing in making your financial life more efficient and consider areas that could be improved. For example, if you are working with different professionals, schedule the various update meetings close together so your attention will be focused for a known amount of time. If you are working with a coordinated team, set your update meetings ahead of time so you can know the schedule and not worry about finding dates at the last minute.

Other Actions to Consider:

• When organizing information for your family, remember to provide access to computer files and online accounts. Clean off your computer desktop and make it easy for someone you trust to find your accounting files and other important records.

• Make a list of your professional advisors, friends and associates who should be contacted in the event of your illness, injury or death. A list of your doctors and any medications you take can also be helpful.

 If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Taking Care of a Valuable Asset (You)

The combination of your talents, experience and skills represents an asset. Like any asset, it should be managed and protected. This includes keeping staying healthy, having sufficient insurance, planning for both the near term and the future, investing in you, and having contingency plans if a sudden turn occurs.

The Key Takeaways

• You—your talents, experience and skills—are your most valuable asset.

• Properly managing and protecting this asset can make you more valuable and prepare you for future changes and opportunities.

Caring for Yourself as an Asset

Too often, we let ourselves slip to the bottom of the priority list. But when you start to think of yourself as your most valuable asset and begin to nourish and protect this asset, you will perform at your best and increase your value. For example:

Keep yourself healthy. You can’t perform at your best if you don’t take care of yourself. Start with the simple things you already know you should do: eat the right foods, drink water, exercise regularly, get enough restful sleep, etc. See your doctor and take care of small issues before they become big problems. In addition to keeping your body healthy, it is equally important to keep your mind healthy. Since we live in a digital age, we are inundated with stimulants. Most likely, you work all day in front of a computer screen. When you get home, you may watch TV, get on a home computer or iPad and surf the Internet or watch a movie, etc.

With this barrage of stimulating content constantly around, our minds can easily get overwhelmed. Anthropologically, this was never the case. In this author’s opinion, this does not lead to a healthy mind. To counteract this overstimulation, which is now prevalent in our society in which we all live, it is important to get some mental space. This can be achieved in a variety of ways, depending on your preferences. Some suggested ways to give your mind that space are to go out into nature, read a book, meditate, or engage in some other spiritual or creative endeavor. While technology helps us achieve more in a shorter amount of time, it seems as if we are busier than ever before. While I am not sure what precisely causes this phenomena, it is clear that we must find a way to give our mind some rest from this never ending doing.

Have sufficient insurance to manage risk. Coverage usually includes health insurance; long-term care insurance; life insurance; property and casualty insurance; liability insurance; and professional insurance.

Invest in yourself to stay valuable, both for the short and long term. Work on ways to be consistently productive in your work. Learn new skills or take training that will help in your current job/career or that will prepare you for a future one. Consider additional education or an advanced degree to help expand your abilities and potential.

Have contingency plans. Plan for the unexpected. Start paying off debts and building an emergency fund. Keep your resume updated. Expand your professional contacts in your current industry or one you would like to pursue by attending networking functions and using social media like LinkedIn.

What You Need to Know

When you take care of yourself, protect yourself and invest in yourself, you will perform better, become more valuable, and will be more prepared if your future takes an unexpected turn or a golden opportunity comes your way.

Other Actions to Consider

1. Stress can affect you physically, mentally and emotionally. Having a comprehensive plan, and a team of professionals looking after its execution, brings far greater value in financial benefits, peace of mind, and confidence in the future than the upfront costs. 

2. Don’t expect to make all the changes at one time. Take small but consistent steps. Set some goals and start working toward them.

3. Everyone has different talents and abilities. Consider what you do well and work on being as good as you can be in those areas. At the same time, be conscious of things you could do better and work on some improvement in those areas.

If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Aligning Insurance Products within a Planning Structure

Aligning Insurance Products within a Planning Structure:

We use a variety of insurance products to manage risk in different areas of our lives in order to protect our wealth from losses that can come from property damage, businesses we own, disability, retirement and death. Instead of considering these products as separate items, make them part of an integrated, overall risk management plan.

The Key Takeaways:

• A variety of insurance products can be utilized to help manage risk and protect wealth.

• The best results occur when separate insurance products are part of an integrated plan.

 Different Kinds of Insurance for Different Risks:

Most insurance can be grouped in these general categories.

Property:

This would include insurance on automobiles and other vehicles, home, furnishings, jewelry and artwork, and personal liability insurance.

Business:

Business owners need insurance on a building they own, office equipment and computers, as well as liability, worker compensation, errors and omissions insurance, and so on.

Health and Disability:

Disability income insurance replaces part of your income for a certain length of time if you should become ill or injured and unable to work. Health insurance helps to pay for medical services received. Long-term care insurance helps to pay for extended care that is not covered by most health insurance or Medicare.

Retirement:

Annuities and other insurance products can help replace income after retirement.

Estate Planning:

Life insurance is often used to replace an earner’s income; to pay funeral expenses, debts and taxes; to fund family and charitable trusts; to fund a business buyout and compensate the surviving owner’s family; and to provide an inheritance to family members who do not work in a family business.

What You Need to Know:

Remember, insurance is for risk management—to protect your wealth from potential areas of loss. If a risk is no longer there (the exposure ends or you are able to self-insure and cover the risk yourself), then the insurance coverage for that risk can be eliminated.

Actions to Consider:

1. Trying to coordinate your insurance and manage your risk yourself is a daunting task. Instead, work with a team of advisors who have the knowledge and experience to help you make sure your risks are covered at the appropriate levels, without duplication and unnecessary costs.

2. An advisory team will usually include your financial investment advisor, estate planning attorney, and life, health and property/casualty insurance agent(s). Other members may be added to this team as needed. You will probably find that your advisors will welcome the opportunity to work on your team, because they want to provide you and your family with the best possible service and solutions.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Understanding Losses: Liability Exposure

We live in a litigious society. Lawsuits abound, whether deserved or not. If you own property or stock that was purchased at a low price and has had high appreciation, it is at risk to litigation and creditors—even if you are not in a high-risk profession. Others may be in a private business such as medicine or law that bring with it additional exposures to monitor. 

The Key Takeaways:

• Assets that have high appreciation are at risk of litigation and creditors.

• There are steps you can and should take now to protect your assets, especially if you have considerable wealth in these assets.

We Are All at Risk:

The wealthy, celebrities and sports figures are easy targets for lawsuits, as are those in high-risk professions, such as the medical field (doctors, dentists, other health care professionals), lawyers, accountants, architects and those in construction (builders, developers).

Note: As a general rule, you can’t limit your professional liability through legal means. If you are concerned about a professional claim, the best first step is to have adequate malpractice insurance. However, additional protective steps should still be taken to secure your private practice or business from creditors and non-malpractice litigants.

But, really, we are all at risk of liability claims. These can include business deals that have gone wrong, car accidents, sexual harassment claims and slip-and-fall claims. Even the behavior of children, their spouses and ex-spouses can lead to loss of family wealth.

What You Need to Know:

The best time to do asset protection planning is before a claim arises, when there are only unknown potential future creditors. While there are some options even with an existing claim (such as an ERISA qualified plan), it is highly important to avoid fraudulent transfers. (A fraudulent transfer, also known as fraudulent conveyance, is a transfer of wealth to another person or company to swindle, delay or hinder a creditor, or to put the wealth beyond the creditor’s reach.)

Actions to Consider:

1. Asset protection planning must be accomplished under the guidance and planning of qualified professionals. A misstep or unintended error can negate the entire process and fully expose your assets.

2. Everyone should have personal liability insurance, which is quite inexpensive.

3. Existing state and federal exemptions should be maximized. State exemptions can include personal property, life insurance, annuities, IRAs, homestead and joint tenancy. Federal exemptions include ERISA, which covers 401(k) plans, pensions and profit sharing plans.

4. Sometimes it is possible to convert non-exempt assets into exempt assets. For example, cash can be invested to pay down a mortgage to increase home equity, or an unprotected IRA can be transferred into an ERISA plan.

5. Sometimes assets can be transferred to the spouse who is not at risk. However, should a divorce occur, these assets would be owned by that spouse.

6. Limited liability companies (LLCs) can be formed to remove expensive equipment from a business or practice, which is then leased back to the business or practice.

7. Family limited partnerships (FLPs) can be formed to own non-practice assets (personal and investment real estate, investment accounts, bank accounts, collectibles), which can be leased back to the individual.

8. Domestic asset protection trusts (formed in certain states) and offshore asset protection trusts are also options that can be used.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Wealth Protection: Avoiding Losses

Wealth Protection: Avoiding Losses:

You can’t create wealth until you preserve it first. Each dollar lost unnecessarily isn’t just a single dollar lost, but a compounded dollar lost. A dollar not lost allows wealth to compound from a higher floor. Losses can occur from many places beyond investments: property, income, taxes and fees. It is well worth paying for the expertise of professional advisors who are able to prevent or reduce losses in all of these areas.

The Key Takeaways:

1. Protecting your wealth from losses allows you to build more wealth, as compounding growth is able to build on a larger base.

2. Losses can occur from many sources you may not have considered.

3. Experts can help you identify where these risks are hiding and provide solutions to protect you.

Prevent/Reduce Losses to Grow Wealth:

Any time you can prevent or reduce a loss, you preserve wealth. Here are five areas in which losses may occur.

1. Investments: Choose your investment manager carefully. Ask how losses can be avoided. Look at past performance history of each investment, but be aware that one with the highest returns may also have the highest losses and a volatile historical record. Take the time to review your asset allocations, investment manager’s performance, and level of risk, and make changes when necessary.

2. Property: If you have a loss on property that is not insured for its full replacement value, you will pay for the uninsured part of that loss out of your own wealth. Periodically review the full replacement values of your property and maintain adequate insurance.

3. Income: You may lose income due to a layoff, illness or injury. Having adequate health insurance, disability income insurance and an emergency fund that will cover at least six months of lost income will help to preserve the rest of your wealth until you recover or find other income.

4. Taxes: Most people think about income taxes when considering tax management.  However, other taxes are also important to manage, like capital gains taxes or matching gains and losses when selling investments or property. An experienced estate planner can help you with estate tax planning and income tax planning for wealth transfers during your lifetime and after death, including the sale or transfer of a business.

5. Fees: Many fees, such as investment product fees, trading expenses, and insurance product surrender charges, can be avoided or lessened with a comprehensive financial plan.

What You Need to Know:

An experienced estate planning attorney can also help you shield your family and your assets from probate court interference at incapacity and death, unintended heirs, unnecessary legal fees and taxes, and lawsuits.

Additional Actions to Consider:

• If you need an advisor who specializes in a certain area, ask for referrals from other advisors, your banker, friends and business acquaintances. If you start hearing the same name several times, you’re probably on the right track.

• Take the time to research and understand any strategies that are being recommended to you. An educated consumer is a smart consumer.

 If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Understanding Losses: Compounding Interest

Most investors are familiar with the magic of compounding interest but they often fail to realize that when the portfolio loses money, the math of compounding works against them. That’s because when a dollar is lost, it is not just a dollar but a compounded dollar that is lost, so the investor must regain more just to break even.

The Key Takeaways:

1. Compounding interest works for the investor when the portfolio is making gains, but works against the investor when losses occur.

2. When minimizing losses in your investment and trust portfolios, your wealth compounds from a higher floor and this is the key to long-term wealth creation.

How Compounding Works For You:

Compound interest is calculated on the principal and accumulated interest. Here’s a simple example of how compound interest works:

                 Investment          Interest Rate        Interest Earned              Total

Year 1         $10,000                   7%                       $700                   $10,700

Year 2         $10,700                   7%                       $749                   $11,449

Year 3         $11,449                   7%                       $801                   $12,250

The benefit of compounding interest makes it important (and attractive) to invest for the long term. For example, if you continue to earn 7% interest each year, at the end of 20 years your $10,000 investment would grow to $38,697.

How Compounding Works Against You:

If you have a loss, compounding interest makes it difficult to catch up. For example, say you lose 7% the first year. To recover the loss and get back to the original investment of $10,000, it would take you until sometime in Year 3 at 7%.

                 Investment          Interest Rate        Interest Earned              Total

Year 1         $10,000                  -7%                      -$700                    $9,300

Year 2          $9,300                    7%                       $651                    $9,951

Year 3          $9,951                    7%                       $697                   $10,648

But that is not really break-even. To recover the 7% loss and catch back up to the benefit of compounding interest, you would have to have a 23% return in Year 2 to reach $11,449. It’s a basic algebra formula: $9,300 x N = $11,449. Divide both sides by $9,300 to solve for N. Answer is 1.23…or 23%.

This is why it’s critical to minimize losses.

What You Need to Know:

As losses become greater, so does the reverse compounding. With a 10% loss, the investor must gain back 12% to break even. With a 20% loss, the gain must be 25%. With a 50% loss, the investor needs to earn back 100% just to break even.

Actions to Consider:

1. Work with your investment advisor and trustee to minimize losses in your taxable portfolios and any trusts you’ve set up.

2. Examine other ways you may be exposing your wealth to unnecessary risk. For example, having adequate insurance will prevent you from having to use your wealth to cover any uninsured losses.

3. Work with an estate planning attorney to minimize losses from court interference at incapacity and death, unintended heirs, unnecessary taxes and fees, and to protect your assets from lawsuits.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Understanding Losses: Property

Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. However, if property has appreciated and there isn’t sufficient insurance for replacement value, any losses must be paid out of pocket. To protect your wealth from these kinds of losses, it is important to determine replacement values so you will have adequate insurance.

 The Key Takeaways:

 Insuring for replacement value prevents having to use personal wealth to cover losses.

• Determining replacement values, and keeping them current, can guard against being over- and under-insured.

Replacement Value vs. Actual Value:

 Replacement value is the amount it would cost to replace an item or structure at its condition before the loss occurred. When an item is covered by a replacement value policy, the cost of a similar item when purchased today determines the compensation amount for that item, regardless of depreciation. For example, say an item purchased eight years ago for $2,000 was destroyed in a fire and a similar item today would cost $4,000. After being reimbursed the full replacement value of $4,000 by the insurer, the owner would pay nothing to replace the item.

Actual cash value coverage provides for replacement minus depreciation. For example, consider the same item purchased eight years ago for $2,000 and a similar item costs $4,000 today. The insurance company determines all such items have a useful life of ten years; the destroyed item had 20% of its life expectancy left. The actual cash value is equal to: $4,000 (replacement value) times 20% (useful life remaining)—or $800. After being reimbursed $800 from the insurer, the owner would have to pay an additional $3,200 to replace the item.

What You Need to Know:

Replacement value for your home is the building cost to repair or replace the entire structure; it does not include the cost of the land or the amount of any mortgage loans. A building contractor or professional replacement cost appraiser can give you estimated replacement costs. (Your insurance agent probably can give you some referrals.) Be sure to include the costs to rebuild any architectural details or unique features like upgraded bathrooms or kitchen, basement improvements, room additions, built-in cabinetry and so on.

 Actions to Consider:

1. Aim for comprehensive coverage equal to at least 100% of your home’s estimated replacement cost.

2. Be sure to increase your home’s estimated replacement cost when you remodel or improve your home.

3. Some insurance policies include an inflation provision that automatically adjusts each year for increases in construction costs in your area. Check with your insurance agent to see if you have this automatic increase or if you need to update your coverage amount each year.

4. Replacement coverage for household contents usually is calculated as a percentage of the value of the home. Items of exceptional value may need to be insured separately.

5. Consider scheduling an overall insurance review. At the Law Office of Matthew J. Tuller, we offer our client’s a comprehensive insurance review, when we create the client’s estate plan, and annually, during our estate plan maintenance meeting.

• Because our office does not sell insurance or any other financial products, we work with a select team of professional advisors who we work in conjunction with where appropriate and in the best interest of the client. 

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

How to Stop Worrying About Running Out of Money in Retirement

Many retirees today worry about having enough money for their retirement. Of special concern is if there will be enough money to provide for the surviving spouse. This is called “shortfall risk,” and it is a valid concern. People are living longer and health care costs continue rising, especially long-term care, which many seniors will need. In addition, the recent recession has given us setbacks in investments and record low interest rates. When combined, these issues can have a serious effect on retirement savings and projected income. Nevertheless, there are some things you can do now to help manage your shortfall risk and protect your assets.

The Key Takeaways: 

• The fear of running out of money in retirement is a valid concern due to increased longevity, increasing health care costs, low interest rates and the recent recession.

• Using experienced advisors who specialize in certain areas can help you increase your retirement income as well as preserve, grow and protect your assets.

The Role of Specialists:

A retirement specialist can help you determine the best strategy for taking distributions from an IRA, 401(k) and other retirement accounts; the tax implications involved; how to continue to grow your savings; when to start taking Social Security benefits; and how to plan for out-of-pocket medical and long-term care costs. An estate planning attorney can help you shield your family and your assets from probate court interference at incapacity and death, unintended heirs, unnecessary taxes and lawsuits. Other specialists can be brought in, as needed, for example, when life insurance is used to provide an inheritance for a child who does not work in the family business.

What You Need to Know:

The financial advisor who helped you grow your retirement nest egg may not be the best choice to help you determine how to utilize that money. Likewise, your business attorney is probably not the best choice to do your estate plan. An innocent error by a well-meaning but inexperienced advisor can result in a costly and often irreversible mistake.

Actions to Consider:

1. Be open to new products and strategies that you may not have considered in the past. For example, consider trusts combined with investments and property to manage the conflicting demands of income, spending, taxes, distributions and transfers.

2.  Explore new long-term care options from insurance companies. These include: 1) Asset-based long-term care (a single deposit premium; if not needed for long-term care, the benefit amount is paid tax-free to your beneficiary); 2) Life insurance accelerated death benefit (allows you to access the death benefit before you die for long-term care expenses); and 3) Home health care doublers (a guaranteed lifetime income contract that doubles your income for up to five years if you need long-term care).

3. Delay taking Social Security benefits. If you delay benefits until age 70 and live past age 79, your lifetime income will be more than if you start taking benefits at Full Retirement Age (66-67).

4. A revocable living trust will avoid court interference at both incapacity and death. This is why more people prefer a living trust to a will.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Recovering Emotionally from Past Financial Errors

Most of us will admit to having made some financial mistakes we regret—running up credit card debt, impulse buying, or making a bad investment or business decision. While there can be significant devastation, the key is to move beyond regret into productive action. What, then, are some strategies that can restore a person’s self-confidence and avoid financial failures in the future?

The Key Takeaways:

• It’s important to know that others make financial mistakes, including the most experienced investors and successful business people.

• Recognizing and learning from our mistakes can help us to avoid repeating them in the future.

Recognize and Learn from Past Mistakes:

Sometimes a financial setback is not our fault; for example, the recent recession that resulted in losses for many in the stock market, housing and even jobs. Some of the losses were on paper, but some were realized. Even when financial setbacks like these are out of our control, we can look back and see how we might have been better prepared or reacted in a different way that would have produced better results. For example, having a bigger nest egg or emergency fund might have prevented having to dip into retirement savings or sell real estate in a down market.

Most of the time, however, we make our own mistakes. Learning from these mistakes so we don’t continually repeat them takes some introspective examination. Do you make impulse purchases? Are you wasting money because you don’t comparison shop or you buy items you don’t need or use? Are you trying to make a quick fortune in the stock market or other investments?

What You Need to Know:

You probably will make more financial mistakes in the future. (Hopefully, they will be small ones and not big ones.) Instead of dwelling on your mistakes as personal failures, learn from them, accept them as part of growing and maturing, and determine not to make the same ones again.

Actions to Consider:

1. 1. The best way to avoid financial failures in the future is to become educated. Learn about basic principles of personal finance and investing, and invest for long-term growth instead of an instant fortune. Use your professional advisors as a sounding board to guide your thinking. Evaluate why you made financial mistakes in the past and think of ways to keep yourself from those situations. For example, if you overspend when you are bored or feeling low, find other ways to lift your spirits and occupy your time.

2. When you do make a mistake, don’t panic or get depressed. Take some time to think about what you did and why, and if you can correct it. If you can’t undo your error, think about how you can live with it; you may have to cut back in other areas. Don’t beat yourself up; just try to do better the next time.

3. 3. You can also gain by learning from others’ mistakes as well as giving back by sharing your own.

4. 4. Keep focused on your long-term financial goals. Periodically evaluate where you are and encourage yourself. While you may continue to make some mistakes, recognize how much you are learning and the improvements you are making.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Recovering Emotionally from Past Financial Errors

Most of us will admit to having made some financial mistakes we regret—running up credit card debt, impulse buying, or making a bad investment or business decision. While there can be significant devastation, the key is to move beyond regret into productive action. What, then, are some strategies that can restore a person’s self-confidence and avoid financial failures in the future?

The Key Takeaways:

• It’s important to know that others make financial mistakes, including the most experienced investors and successful business people.

• Recognizing and learning from our mistakes can help us to avoid repeating them in the future.

Recognize and Learn from Past Mistakes:

Sometimes a financial setback is not our fault; for example, the recent recession that resulted in losses for many in the stock market, housing and even jobs. Some of the losses were on paper, but some were realized. Even when financial setbacks like these are out of our control, we can look back and see how we might have been better prepared or reacted in a different way that would have produced better results. For example, having a bigger nest egg or emergency fund might have prevented having to dip into retirement savings or sell real estate in a down market.

Most of the time, however, we make our own mistakes. Learning from these mistakes so we don’t continually repeat them takes some introspective examination. Do you make impulse purchases? Are you wasting money because you don’t comparison shop or you buy items you don’t need or use? Are you trying to make a quick fortune in the stock market or other investments?

What You Need to Know:

You probably will make more financial mistakes in the future. (Hopefully, they will be small ones and not big ones.) Instead of dwelling on your mistakes as personal failures, learn from them, accept them as part of growing and maturing, and determine not to make the same ones again.

Actions to Consider:

1. 1. The best way to avoid financial failures in the future is to become educated. Learn about basic principles of personal finance and investing, and invest for long-term growth instead of an instant fortune. Use your professional advisors as a sounding board to guide your thinking. Evaluate why you made financial mistakes in the past and think of ways to keep yourself from those situations. For example, if you overspend when you are bored or feeling low, find other ways to lift your spirits and occupy your time.

2. When you do make a mistake, don’t panic or get depressed. Take some time to think about what you did and why, and if you can correct it. If you can’t undo your error, think about how you can live with it; you may have to cut back in other areas. Don’t beat yourself up; just try to do better the next time.

3. 3. You can also gain by learning from others’ mistakes as well as giving back by sharing your own.

4. 4. Keep focused on your long-term financial goals. Periodically evaluate where you are and encourage yourself. While you may continue to make some mistakes, recognize how much you are learning and the improvements you are making.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Passion Investing as a Spark to Your Life

Bill Gates, Warren Buffet and over 50% of the Fortune 400’s The Richest People in America list have decided to give away their wealth for charitable pursuits. Of course, not many of us have that kind of money or are inclined to give away all we own. However, giving to charitable organizations is something that anyone can do, and we can all derive a similar satisfaction by investing in causes that light our passion.

The Key Takeaways:

• Investing in a cause that we feel passionate about can give our lives new purpose.

• Even if we have limited finances, we can still find ways to contribute by giving of our time and/or talents.

• Our giving can influence subsequent generations and others around us by setting an example and communicating our values.

Finding Your Passion and Renewing Your Life:

Americans like helping people and giving back to our communities. You may have already found your passion and are doing what you can to help. But if you are still searching for a way to make a difference, give some thought to what inspires you or what you care about deeply. It could be the arts, reading, the elderly, our military, disadvantaged children, teen mothers, or a clean planet. There are many organizations that need volunteers and financial help to do their good works. And, of course, most churches and religious organizations offer numerous ways to volunteer in your community and around the world. 

What You Need to Know:

One traditional way to benefit a charity is to leave a donation through a will or trust. This is good, of course, but if you contribute while you are living, there is the additional benefit of seeing the results of your contributions. You can also network with others who share your passion, which often results in greater contributions.

Actions to Consider:

1. 1. If you have children at home, include them in your volunteer work. If you make a donation, deliver the check in person and take your children with you.

2. 2. If you are retired or nearing retirement, you have the benefit of extra time to donate to your favorite causes. Some people choose to work part time in retirement so they will have extra money for living expenses and for donations.

3. 3. Include all cash donations in your spending plan so they are part of your monthly expenses. Otherwise, you risk being an emotional or impulsive giver, which can have a negative impact on your finances.

4. 4. If you aren’t sure how to contribute, ask the organization you want to help. They are sure to have a number of suggestions with different time and money commitments.

5. 5. Whenever possible, work with local organizations that benefit your community. Get to know the people running the organization so you will know if they can be trusted with your contributions. This will also allow you to see the progress firsthand.

6. 6. If you have more substantial means, a charitable trust is an excellent way to give, and such a trust gives you many financial and non-financial benefits.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

How to Leave Assets to Minor Children

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum. 

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs. 

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in a will. This would let you name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

How to Leave Assets to Adult Children

When considering how to leave assets to adult children, the first step is to decide how much each one should receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of the estate. For example, it may be desirable to give more to a child who is a teacher than to one who has a successful business, or to compensate a child who has been a primary caregiver.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. Therefore, instead of giving everything to their children, some parents leave more to grandchildren and future generations through a trust, and/or make a generous charitable contribution.

When deciding how or when adult children are to receive their inheritances, consider these options.

Option 1: Give Some Now:

Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results. Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college—milestones that may not have happened without this help. It also provides insight into how a child might handle a larger inheritance.

Option 2: Lump Sum:

If the children are responsible adults, a lump sum distribution may seem like a good choice—especially if they are older and may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner. For parents who are concerned that a son-or daughter-in law could end up with their assets, that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments:

Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35). In either case, it is important to review the instructions from time to time and make changes as needed. For example, if the parent lives a very long time, the children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, will receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust:

Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. The trust can provide for special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits. If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Estate Planning in 2014 and Beyond under the New Tax Law

The recent tax legislation dealing with the “fiscal cliff”, which went into effect on January 1, 2013, included significant revisions to the estate tax law that will affect estate planning for the foreseeable future. While you may have previously read about these changes, the following serves as a summary of the exemption amounts for decedents passing away in 2014. These revisions include:

The federal gift, estate and generation-skipping transfer tax provisions were made permanent as of December 31, 2012. This is great news because, for more than ten years, we have been planning with uncertainty under legislation that contained expiration dates. Moreover, while “permanent” in Washington only means that this is the law until Congress decides to change it, at least we now have some certainty with which to plan.

Estate & Gift Tax Exemption:

The federal gift and estate tax exemption will remain at $5 million per person, adjusted annually for inflation. In 2012, the exemption (with the adjustment) was $5,120,000. The amount for decedent’s passing away in 2013 is $5,250,000. For those passing away in 2014, the exemption amount is $5,340,000. From a practical perspective, this means that individuals can make gifts during life or transfers at death up to this higher exclusion amount, and pay no federal estate tax. In addition, for married spouses, a surviving spouse can combine the deceased spouses unused credit amounts, and pass assets free of estate  tax on an estate up to $10.68 million at the death of the second spouse. This is true assuming that none  these credits or tax coupons were not used during either spouses lifetime. However, to utilize a deceased  spouses credit amount, a comprehensive estate plan must be in place to ensure these tax coupons are  preserved. Accordingly, it is crucial to have a properly drafted comprehensive estate plan in place so that you  do not pay more estate tax upon your passing.

Generation-Skipping Transfer Tax ("GST") Exemption:

The generation-skipping transfer (GST) tax exemption also remains at the same level as the gift and  estate tax exemption ($5 million, adjusted for inflation). This tax, which is in addition to the federal estate  tax, is imposed on amounts that are transferred (by gift or at death) to grandchildren and others who are  more than 37.5 years younger than you; in other words, transfers that “skip” a generation. Having this  exemption now be “permanent” allows for planning that will greatly benefit future generations. Accordingly,  for individuals with a properly drafted estate plan that includes GST planning, $5.34 million can be  transferred free from the GST tax. For married couples with estate plans where GST planning is utilized,  $10.68 million can be sheltered from the GST tax.

Annual Gifting Program:

Married couples can take advantage of these higher exemptions and, with proper planning, transfer up to $10.68 million through lifetime gifting and at death. Thus, implementing a well planned lifetime gifting programs offer a simple estate planning technique that can result in significant tax savings.

Prevailing Tax Rates:

The tax rate on estates larger than the exempt amounts increased from 35% to 40%.

Portability:

The “portability” provision was also made permanent. This allows the unused exemption of the first  spouse to die to transfer to the surviving spouse, without having to set up trust planning specifically for this purpose. However, there are still many benefits to using trusts, especially for those who want to ensure that their estate tax exemption will be fully utilized by the surviving spouse.

Annual Gift Tax Exclusion Amount:

Separate from the new tax law, the amount for annual tax-free gifts increased in 2013 to $14,000. This amount can be gifted annually, free from gift tax, to a single person or child each year. Moreover, parents can utilize an estate planning technique known as “gift splitting”, which allows parents to combine annual gifts that are free from gift taxes. Accordingly, with a properly drafted estate plan, a married couple can gift $28,000 to each child each year free from gift tax inclusion.

Annual Exclusion For Gifts To Non-U.S. Spouse:

For gifts made to a non-U.S. citizen spouse, the exclusion amount for annual gifts was $143,000 in  2014. In 2014, the annual exclusion amount for gifts made to a non-U.S. citizen spouse was increased to  $145,000.

Foreign Earned Income Exclusion:

The foreign earned income exclusion amount was increased from $97,600 in 2013, to $99,200 in 2014.

Therefore, for most Americans the 2012 Tax Act has removed the emphasis on estate tax planning and put it back on the real reasons to do estate planning: taking care of ourselves and our families the way we want. Those who might be tempted to skip estate planning because their estates are less than the $5 million range should remember that proper estate planning provides peace of mind by allowing Americans to:

1. Avoid state inheritance/death taxes that have lower exemptions than federal taxes;

2. Avoid probate, which can be quite expensive and time-consuming in some states;

3. Ensure their assets are distributed the way they want;

4. Protect an inheritance from irresponsible spending, “creditor’s and predator’s” which includes a child’s creditors, and from being part of a child’s divorce proceedings;

5. Provide for a loved one with special needs without losing valuable government benefits;

6. See that control of their assets remains in the hands of a trusted person;

7. Provide for minor children or grandchildren;

8. Help protect assets from creditors and frivolous lawsuits (especially important for professionals);

9. Protect themselves, their family and their assets in the event of incapacity; and

10. Help create meaningful charitable gifts.

For those with larger estates, ample opportunities remain to transfer large amounts tax-free to future generations. Nevertheless, with the increase in estate and income tax rates, it is critical that professional planning begins as soon as possible. In addition, with Congress looking for more ways to increase revenue, many reliable estate planning strategies may soon be restricted or eliminated. Thus, it is best to put these strategies into place now so that they are more likely to be grandfathered from future law changes.

For those who have been sitting on the sidelines, waiting to see what Congress would do, the wait is over. Now that we have some certainty with “permanent” laws, there is no excuse to postpone planning any longer. Finally, if you are taking the time to read this article, getting your affairs in order by executing a properly drafted estate plan is on your mind. Therefore, instead of making excuses as to why you are not creating your estate plan (i.e. not enough time, etc.) contact a competent estate planning attorney and unburden yourself from this concern—create a comprehensive estate plan—and obtain the piece of mind that you and your family will be taken care of even after you are no longer around. 

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.