Estate Tax Planning Question

Last Tuesday I attended a networking group for women at Zin on the lake in Westlake Village. Since we have been having mild summer weather it was a wonderful choice of locations to have a drink and mingle with the other ladies who attended.

I was listening to a conversation between one of the ladies who announced to the Estate Planning Attorney that she had recently learned there is a death tax. I like to think of it as an Estate tax as it is usually paid by very large estates. She wanted to know if there was a way around it. The Attorney explained that this year (2010) the tax on estates is nil and until Congress does something it may be based on assets over $1 million in 2011. She could reduce her estate by gifting $13,000 to whomever she wanted to.

The conversation came to mind over the weekend.

The Attorney never mentioned that one of the options available to cover the tax is having an Irrevocable Life Insurance Trust that would purchase life insurance to cover the amount of estate tax that might be owed at her death. If the premiums are large she can set up the trust with gifts to her kids or grandkids that would go to pay the premium.

An attorney knowledgeable in Irrevocable Life Insurance Trusts would need to be consulted along with a CPA and a knowledgeable insurance agent.

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SandraCherry, August 9th 2010 | Tags: , ,
Posted in Estate Planning, Financial Planning, Insurance

HOW TO DECIDE IF YOU WANT TO RETAIN A MORTGAGE–CASH FLOW ANALYSIS

Last week my client, LM, and I met for the second time with my associate Michael Hunter of MJHunter in Thousand Oaks. LM is 62, has $1 million in CDs, no credit card debt and no car payments. One of her concerns is whether or not she should maintain the mortgage she refinanced about 6 years ago or pay it off.

First, we prepared a cash flow analysis to calculate how long LM’s $1 million in savings will last based on her lifestyle, current expenses and an estimated life span of another 30 years. Then we made adjustments to the analysis to determine if it makes sense for LM to pay off her mortgage.

While the mortgage rate is adjustable over the next 23 years, the actual cost of the mortgage is 10%. This rate is determined by taking the actual mortgage balance of $141,000 divided by the amount of annual payments ($14,000). The question we have to ask is: if LM pays off the mortgage, how much will it actually cost her in loss of income? The answer is very little, because the money she would use to pay off the mortgage is earning less than 1%.

Our second cash flow analysis, which had the mortgage paid off and an estimated return on investments averaging 5%, showed that LM’s principal would last beyond 30 years and leave a small sum for her heirs.

Because LM doesn’t have any income other than what her CDs are earning in interest, we need to reconfigure her investments to earn a higher return so she won’t run out of money. Michael and I will meet again this week to brainstorm about investments that would generate this target income of 5%, as well as be appropriate for LM’s risk tolerance and time horizon.

In the meantime, LM is very happy about the idea of turning $141,000 of debt into equity in her home.

Until next time……………………Sandra

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SandraCherry, October 29th 2009 | Tags: , , ,
Posted in Financial Planning

How to Educate yourself about what financial planning is and Trust the person whom you decide to work with

So many times when I’ve told people I’m a Financial Planner (FP) their comments would be about what investments they have or they’d ask what investments I’d make for them.

You may not know that our job is to provide options for you to choose from so you can make an informed decision. I know I have an obligation to you to collect all your financial data in order to make recommendations that make sense for you.

When I took the program at UCLA that incorporated 36 units of coursework the thing that I enjoyed the most was the last course where I actually put to use all the stuff we had learned about insurance, taxes, legal issues, and investments.

I remember a couple I met with that was in over their heads in debt because they were continuing to spend money like it was still coming in like it had when he was making big bucks. She wanted to know if I did a plan for them and they didn’t like it would they still have to pay for it. I think so.

When you meet with a FP be prepared to give the FP all your information; insurance’s you have, tax return, investment statements including 401(k) or 403(b), annuities, retirement documents including pension plans, estate planning documents, i.e. Wills or Trusts.

I’m planning to discuss these things in more detail as I continue and will have some free documents that I think you’ll find useful. They’ll be sent out every couple of weeks and all you need to do is take your mouse and click Subscribe RSS and complete the information requested.

By the way, feel free to comment on any of the things I discuss.

Until next time……… Sandra

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SandraCherry, October 13th 2009 | Tags: , , , ,
Posted in Uncategorized