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To protect your financial future, hand over the keys to your kingdom today

To protect your financial future, hand over the keys to your kingdom today

Money. Depending on your family dynamics, it can be a blessing or a curse—no matter how much or how little you have to call your own. That’s especially true when it comes time to hand over the keys to your kingdom to the next generation. When that transition is managed carefully over time, it can be a natural, stress-free evolution. If there’s limited communication, secrecy, or just no plan at all, it can cause upset, bitterness, and unwanted financial consequences for Mom, Dad, and their adult children.

I spent yesterday afternoon working with Sarah. In her early 50s, Sarah is every aging parent’s dream financial trustee. She’s smart and educated, and she’s thoughtful and diligent about “dotting the i’s and crossing the t’s” when it comes to her mother’s finances. That thrills me because her mother Marion is one of my dearest clients. Sarah and my mission yesterday was to get all of her mother’s accounts connected to our eMoney platform so we can seamlessly work together to monitor and manage cash flow, bills, and investments. In less than an hour, we linked the accounts, agreed to a 6-month plan, and had our next meeting scheduled.

It’s not always so simple. First, not every parent is fortunate enough to have a “wise child” like Sarah to help. Second, not every parent is ready and willing to hand over the keys—even when the transition is long overdue.

Vicky and Rich are perfect examples of what not to do. Now in their 80s, the couple’s three adult children are all clueless about whether Mom and Dad have enough money to fund the remainder of their retirement—or not. They’ve named their son Josh as the executor of their estate, but they’re keeping the numbers a secret even from him. Josh is stressed because he has no idea where they stand financially or if he and his siblings may need to help them in the future. Vicky and Rich are stressed because they feel like Josh is invading their privacy every time he asks about money. My question to them is always the same: “If you don’t trust him with the keys to your kingdom when you’re alive and well, why should you trust him when you’re in a coma?”

Variations on the theme are endless. Melinda puts up appearances of being financially flush, but suddenly she’s out of assets and is ashamed of having to turn to her kids to help fund her remaining (and less-than-flush) “golden years.” Elizabeth notices that her dad, who has dementia, is suddenly writing large checks to his live-in caregiver (thank goodness she has that visibility!). Luci keeps urging her parents to “spend more and enjoy life,” but they (and I, as their advisor) know they’re wisely spending what they can afford.

Handing over the keys to your kingdom can be scary and humbling, and it’s hardly ever easy. But the process is better for everyone when the truth and the facts are out on the table. Take these three steps to ease everyone’s mind in the future—and the sooner, the better!

  1. Name a financial trustee.
    If you have adult children, begin by doing an honest, thorough assessment to determine who should act as your fiduciary. Can you trust them with your money? Do they have the character, the skills, and the time to work in your best financial interest as you age? A child is usually the ideal fiduciary, but you may find that a sister, best friend, or other relative is more suited to the task. Choose intentionally and begin the transition long before it seems mandatory.

     
  2. Communicate and educate.
    Once you’ve identified your “person,” communicate your values, so they have a deep understanding of what matters to you. Knowledge and insight are vital if and when they need to step in to make financial decisions in your place. Discuss how to recognize any red flags that mean you're not acting in your own best interest. Be clear about the details with your trustee and with your financial advisor to be sure everyone is on the same page.

    Next, educate your trustee on the technical aspects of your financial life. Create an inventory of your assets, including bank, investment, and credit card accounts; passwords; insurance policies; safe deposit box information (note that you must visit the bank in person together to add your trustee to your account and ensure access); contact information for your financial advisor and estate attorney; and estate planning documents, including your Healthcare Power of Attorney and Durable Power of Attorney (if these aren’t already in place, make this a top priority). And work with your financial advisor to make your personal documents available in a secure vault like our eMoney platform.

     
  3. Coordinate your team.
    With your trusted person on board, it’s time to arrange a meeting with your entire team, including your trustee, your financial advisor, and all stakeholders involved. Your adult children are a given, but it’s important to include any other beneficiaries of your estate as well. Taking the time to be sure everyone understands your wishes and is clear on who is in charge of what will make things easier for everyone—today and in the future.

The great news is that trusting the right person with the future of your finances can be tremendously freeing. When Marion appointed her daughter as her trustee, she told me how relieved she was. “If I’m forgetting words, I’m sure I’m forgetting to pay some bill or another. I worry about it all the time!” she said. “Now, Sarah is making sure I don’t make mistakes—big or little. What a relief!” Whether you’re 60 or 102, now is the time to hand over those keys and get on track toward an easier, less stressful tomorrow.

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From technology hell to financial nirvana, connecting the dots is the key

From technology hell to financial nirvana, connecting the dots is the key

I confess, I’ve been in technology hell for months. It’s not the first time. As a woman of a certain age, I wasn’t born into a tech-driven world like the Millennials. I don’t speak this language well— at best, I can converse with a thick accent, and I’m by no means fluent. Yes, I own an Alexa (Amazon’s allegedly life-changing device that can, according to my son Adam and my tech guy Jason, do just about anything I could ask). To date I’ve asked “her” to do two things for me: tell me the weather forecast, and set a timer for 10 minutes.I’m clearly missing the boat! But I just don’t get it.

I suppose that’s why I listened with a bit of guilty satisfaction when my friend Lily recently told me her saga of buying and installing a fancy new video doorbell and her own hell trying to get it installed. Long story short: it took 4 or 5 different people to help before Lily was able to see the person on the other side of her door. At least I know I’m not alone in my suffering and frustration! It does help, but it also has me wishing there were professional “technology planners” out there—someone to help me, Lily, and everyone else who doesn’t speak the language of technology get all of these potentially great tools to work together so we can, finally, use them to our advantage. That would be pure technology nirvana!

It makes me happy to realize that the role we play in most of our clients’ lives is to help connect the dots of their financial lives to create at least some level of financial nirvana. If you’re not yet there (or at least on your way), asking yourself these three questions may nudge you in the right direction:

  • Are you holding on to solutions that were great 5 years ago, but that aren’t adding value today?
    I have a box of “old technology” at home that I can’t get myself to throw away (that 5- pound laptop was wonderful in its day!), but deep down I know there’s no reason to keep it. In just a few years, everything in technology has changed. The same is often true in your financial life. Transitions—marriage, divorce, job change, retirement, losing a spouse, relocating—all of these things and more can have a dramatic impact on how you should be saving, spending, and investing. New financial products may be available today that didn’t exist five years ago. Are you using a Health Savings Account (HSA) to save for future medical expenses tax-free? Is your investment strategy aligned with your current goals and time horizon? Has your tax strategy changed to address the new tax law? Now is the time to let go of the old and bring in the new to connect all the right dots.

     
  • Do you understand the language of money?
    When we moved our office systems to the cloud, I wasn’t even sure what “cloud” meant. All I really knew was that it could protect client data and keep our software up to date with the latest versions. I drove our technology provider crazy. I asked a lot of questions so I could communicate in their language: the language of technology. Like technology, money has its own specialized vocabulary. Do you speak the language? Do you know the difference between good debt and bad debt? Do you understand compounding? Do you know what a CD is and its role in your portfolio? (If not, start by reading my blog When did it become ok to be financially illiterate?) The more you understand the language of money, the easier it will be to connect every aspect of your financial life.
  • Are you reaping the rewards of a fully connected financial life?
    Alexa can be used to manage your music, your thermostat, the lights in your house, and more—but only if the device is properly connected to everything else (or so they tell me!). Connecting all the pieces of your financial life is just as vital. Your investments, taxes, savings, budget, estate plan, and insurance are all interrelated. A “connected” strategy is the key to growing and protecting your assets over the long term. A great first step is to start connecting your financial life using an online app like eMoney. It’s a great tool that gives you a birds-eye-view of what you own and what you owe so you can both manage your finances and collaborate even better with your advisor.

I’m a firm believer in the importance of “knowing what I don’t know” and doing everything I can to learn more. To get there, I get help wherever I can find it. That includes hiring a professional to help me find a way out of my current technology hell. We may have moved everything to the cloud, but there are still some disconnects. Suddenly my scanner button isn’t working, two of my apps won’t open, and Skype thinks I don’t have a camera on my computer. Ugh! But I have a tech team coming to the office today, and I’m counting on them to fix what’s broken and to help me understand how to keep everything connected moving forward. We’ll be one step closer to technology nirvana.

I urge you to do the same when it comes to your finances. Ask questions. Get answers. And get the help you need to create a fully connected financial life that takes you one step closer to your financial nirvana—however you define it. That’s one thing I’m pretty certain Alexa can’t do for you… yet!

 

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When Breath Becomes Air: Building a values-based life

When Breath Becomes Air: Building a values-based life

I recently finished reading Paul Kalanithi’s posthumous memoir, When Breath Becomes AirIn it, he shares his personal journey of how, in an instant, he went from life as a highly acclaimed neurosurgeon to life as a terminally ill cancer patient. Perhaps one of the biggest lessons I learned from his tragic but beautifully shared experience is this: every decision we make should be based on our values. Not on statistics. Not on someone else’s expectations. And sometimes not even on our own expectations of ourselves.

As an avid reader, I’m sheepish to admit that I was a little late to the party on this one—the book was released in January 2016, became an instant bestseller, and was a finalist for the Pulitzer Prize (what was I waiting for?!).Now that I’ve finally read it, I find myself thinking about Kalanithi’s story constantly, and I am trying more than ever to view my life through the lens of my own values. It’s an idea that certainly makes me think—and rethink—about precisely what my values are and how they are reflected in my decisions every day.

Monday offered a perfect example. After decades of planning and working toward my goal, I was able to give myself a long-wished-for (and somewhat belated) birthday gift: I paid off my mortgage. Owning my home outright was a goal I’d had ever since my late husband, Ed, and I purchased it decades ago. Why? Because being able to stand on my own two feet was—and is—a deep-held personal value. Like many women, I think I’ve always had a hidden fear of becoming a bag lady. It’s a fear that’s so common there’s even a term for it: “bag lady syndrome.” No matter how irrational that scenario may be, owning my home gives me a much-needed sense of security. It’s what drove me to pay off my mortgage even when life threw me a long series of curveballs. Ed’s stroke. Getting laid off from my “stable” corporate job. Breast cancer. Widowhood. Life happens! And yet, because my goal was driven by my values, I kept my eyes on the ball. When I received a small inheritance from my uncle, I put it all toward the mortgage. Every month I paid a little bit extra to stay on track. Finally, my diligence paid off. The result: it feels amazing! I did it! I own my home, I won’t be a bag lady after all, and I did it all because I was clear about what I valued.

Being aware of that value helped me defend my decision to pay off my mortgage to colleagues who reacted with surprise. “Why would you do that? Interest rates are so low! Couldn’t you have made more by investing in the market?” “You have so much equity in your house! Why worry about paying it off?” While it’s true that paying off a mortgage may not always give the maximum return on investment, because it mattered to me, it was the optimal solution. That’s true whether you’re deciding to pay off your mortgage, leave a legacy for your kids, pay for college for your grandchildren, or start a new business. Yes, you want to be smart about your decisions, but knowing that your choices are values-based is the key to success.

Of course, as we grow and evolve, our values will change, which means aligning decisions with values is a dynamic process. Here’s how Kalanithi explains it:

“The tricky part of illness is that, as you go through it, your values are constantly changing. You try to figure out what matters to you, and then you keep figuring it out. It felt like someone had taken away my credit card and I was having to learn how to budget…. You may decide you want to spend your time working as a neurosurgeon, but two months later, you may feel differently. Death may be a one-time event, but living with terminal illness is a process.”

Life itself is dynamic. Even without a terminal diagnosis, our values are always changing. We are evolving. While our core values are likely to remain constant, we need to stay self-aware and continue to make decisions based on what matters most—today.

My core value of being able to stand on my own drove my decision to pay off my mortgage. It also steered me toward my career as an advisor. Helping others achieve that sense of security is my mission. Kalanithi writes, “The physician's duty is not to stave off death or return patients to their old lives, but to take into our arms a patient and family whose lives have disintegrated and work until they can stand back up and face—and make sense of—their own existence.” While my duty as an advisor may not be as weighty as a physician’s, I strive to do something very similar: to help each client to stand back up, identify what matters most today, and plan for a better tomorrow.

No matter where you are in life, I hope you, too, can take time to explore your core values and be sure you’re building a plan based on that strong foundation. If you do, your path is bound to be the right one for you—even when life throws those inevitable curveballs.


Want to read more on how to move forward when life happens? Read my blog Life happens. Plan today to make every transition easier.

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In Your Best Interest: Our Spring 2018 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q1 2018

2018 hasn’t been an easy ride so far. Market volatility began to rear its ugly head almostfrom the start, and then stocks went on sale again when the S&P 500 dropped 5.9% over five days—its worst week since January 2016. On the heels of a particularly celebratory 2017 (at least from an investment perspective), the stock market proved it is anything but predictable. For the quarter, the S&P index was down -1.22% and the Dow Jones was down -2.49%. And though the techheavy NASDAQ was up slightly at +2.32%, it was down for the month by -2.88% after gaining an impressive +7.4% in January. Market volatility is back, and it’s likely to be with us for a while. 

Why the change in sentiment? Investors seem to be falling into a familiar pattern: the Trump Administration announces tariffs—this time on Chinese imports— but is not specific on the details. Wary of retaliation against American products sold abroad, traders put a lower value on the large, multinational companies that make up most of the major indexes. 

The last time this happened, the tariffs involved steel and aluminum. This time, the U.S. announced plans to impose tariffs on about $50 Billion worth of Chinese goods, which prompted China to retaliate, slapping its own tariffs on $3 Billion worth of US exports, including fruit, pork, and steel pipes. The threats from both countries have fueled fears of a global trade war.

Meanwhile, in the wake of the Cambridge Analytica scandal, Facebook shares fell almost 10%, from 176.83 down to 159.39. This took the social media giant down from the 5th largestcapitalization company in the S&P 500 index to the 6th (behind Berkshire Hathaway) and dragged the index down even further. And yet there is some good news. What’s remarkable about the selloff over things that may or may not happen is that it came amid some very good news about the U.S. economy. Durable-goods orders jumped 3.1% in February, sales of newly-constructed homes were solid, and Atlanta Fed president Raphael Bostic announced that there were “upside risks” in GDP and employment. Translated, that means that the economy is looking too good to keep interest rates as low as they have been—which means this is a curious time to be selling out and heading for the investment sidelines.

If none of that helps you feel less rattled, I recommend re-reading my blog Wall Street has gone wild! for some additional perspective. And if you’re still not at peace with the market and your place in it, give us a call. As always, we’re here to help. 

 

Click here to read the full newsletter.

 

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3 tax-smart ways to make charitable gifts in 2018 and beyond

3 tax-smart ways to make charitable gifts in 2018 and beyond

Before TCJA (the new tax law), charitable deductions were a pretty easy piece of the financial puzzle. You chose your charity, donated a certain amount, and deducted that amount from your taxable income. Sure, giving pre-tax dollars was better, but even if you simply wrote a check to your charity of choice, you got a tax deduction. Oh, how times have changed! And those changes have me worried not only about the much-needed cash flow to charities, but also about the impact on our clients—especially those who give $1,000 or more over the course of the year. The good news: careful planning now can save you money on taxes in the coming years, and it can also help ensure your gifts are making a real financial difference to the organizations that rely on your help year after year.

The change that is likely to impact charities most is the increase in the standard deduction. The deduction for married couples filing jointly has nearly doubled, from $13,000 to $24,000. For single taxpayers and those who are married and file separately, the deduction will rise from $6,500 to $12,000. This increase presents a challenge when it comes to charitable giving. Because most taxpayers won’t exceed the standard deduction, they will no longer need to itemize. And without a direct tax benefit, charitable gifts may be much less attractive—at least from a tax perspective.

Luckily, there are strategies to help charitable donors maintain a tax advantage while continuing to support the good work of the organizations they support. Here are three options to consider today:

  • “Bunch” your gifts to deduct years of gifts in a single calendar year.
    If you have the cash on hand, you can bunch multiple years of gifts into one tax year. If you’re single, your standard deduction is now $12,000. Let’s assume your property taxes are $6,000 and your state income tax is $5,000, equaling $11,000 in deductions. If you then give $1,000 to charity, even though you max out your standard deduction, you receive no tax benefit. However, if you plan to give $1,000 each year for the next five years, opting to give a lump sum of $5,000 in 2018 will result in a taxable deduction of $4,000 beyond the standard deduction. Your charity of choice will benefit from the lump-sum donation, and so will your wallet come tax time next year. The only limit is that you can only deduct cash donations of up to 60% of your Adjusted Gross Income (AGI) in a single year. (And you can still use appreciated securities to fundthe donation.)

     
  • Create your own “charitable foundation” using a Donor Advised Fund.
    If your contributions to a particular charity are large, it may make sense to set up a DAF, or Donor Advised Fund (it’s easy, and yes, we can help!). A DAF allows you to make a lump-sum donation to take advantage of the up-front charitable tax deduction in the current year. But unlike bunching contributions in a single year, the DAF gives you the flexibility to spread your gift out over time. You can even name your children as “successor grantors” for the fund to effectively pass down the assets of the fund tax-free and help support their own gifting in the future. (And you can supercharge the contribution to your DAF by gifting appreciated securities.)

     
  • Give via a Qualified Charitable Distribution.
    If you’re over 70½, a Qualified Charitable Distribution (QCD) allows you to give to your charity of choice with pre-tax money, while also reducing your taxable income. It is a method of giving that saves you taxes twice. For example, let’s say you have an IRA with Charles Schwab and your RMD (Required Minimum Distribution) from your IRA is $20,000. Using a QCD to make your annual $1,000 pledge, Charles Schwab writes two checks: one for $1,000 that goes directly to your charity for it to use tax-free, and another for $19,000 that goes directly to you as taxable income. The QCD amount (up to $100,000 annually to any qualified charity) is excluded from your adjusted gross income, and you benefit from a full $12,000 standard deduction. It’s a great way to optimize tax savings compared to using a typical after-tax IRA distribution. You can use a QCD to give up to $100,000 annually—even if that amount exceeds your RMD. Note: you can’t request a QCD until you hit that magic age of 70½. It’s one of the perks that comes with age!

One last note: If charitable giving is part of your legacy planning, donating assets from your IRA is often a smart option—the charity can use the gift tax-free, and your heirs won’t pay a dime in taxes on your gift.

In the face of the new tax laws, careful, multi-year planning is more important than ever. That’s especially true when giving to charity. But by making ‘doing good’ an intentional piece of your overall financial plan, you can use tax law to your advantage to make every dollar count and, most importantly, continue to support the charitable organizations that are making a real and positive difference in our world today.

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >