Coverage can be a great comfort, even in youth.
The transition to adulthood is an exciting new stage that marks true independence. You may have graduated from college, taken your first job, and even, rented your first apartment. With this new freedom comes real responsibilities, including protecting yourself from the financial risks that life presents.
Auto. Once you are no longer covered on your parents’ policy, you will need to find insurance coverage in your name. It can be expensive for a young driver, so consider shopping around for the best rates and learn the myriad of ways to reduce this cost, such as coverage and deductible elections, the type of car you own, and available discounts.
Renters. If you are moving into an apartment, you should consider renters insurance. You may not think you’ve accumulated much in value, but when you calculate the cost of replacing your computer, electronic equipment, HDTV, clothes, etc., it can total thousands of dollars. Renters insurance can be inexpensive. When shopping for a policy, ask about whether it includes liability coverage, which can protect you in the event you are sued by someone who is injured while in your apartment.1
Health. Health care coverage is frequently obtained through your employer. However, if your employer does not offer a health insurance program, you have two choices for obtaining coverage.
The first is to maintain coverage through your parents’ health insurance plan. Federal law permits parents to keep adult children on their plan up to age 26. This choice may be relatively inexpensive, so you may want to ask your parents to inquire what the monthly premium is to add you to their plan.
The second option is to purchase a policy, directly, either through a private insurer, the federal health insurance exchange (HealthCare.gov), or through a state exchange, if available in your state of residence.2
Disability. Your single most valuable asset is your future earning power. Your ability to work and earn an income is essential when it comes to your financial survival. Incurring a disability, even for a short period of time, can have substantial economic consequences, making disability insurance one of the most important insurance needs at this stage of life.
Life. Since a young, single adult typically does not have other people depending upon their ability to earn a living (e.g., children, dependent parents), some believe the need for life insurance is minimal.
However, due to a long life expectancy at this young age, life insurance coverage can be very inexpensive. You may want to consider obtaining some coverage to take advantage of low rates and good health, in advance of a time when you will have dependents.
Extended Care. Given limited financial resources, extended care insurance may be a low priority. Nevertheless, you may want to have a conversation with your parents about how extended-care insurance may protect their financial security in retirement.
Making these decisions signals that a young adult has achieved a new level of maturity and responsibility. While it may seem overwhelming at first, conversations with a trusted financial professional may assist you in finding coverage that both meets your needs and fits within your budget. It may turn out to be a decision that means a great deal to you in the years to come.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
1 - thebalance.com/best-rental-insurance-4158701 [9/20/2018]
2 - transamericacenterforhealthstudies.org/affordable-care-act/consumer-categories[12/13/2018]
Three common misconceptions to think about.
1 – Assuming retirement will last 10-15 years.
When Social Security was created in the 1930s, the average American could anticipate living to age 58 as a man or 62 as a woman. By 2014, life expectancy for the average American had increased to 78.6. That said, an average like may bely the fact that many retirees could live well into their nineties or beyond.1,2
Assuming you will only need 10- or 15-years’ worth of retirement money could be a big mistake.
2 – Assuming too little risk.
Holding onto your retirement money is certainly important, but so is your retirement income and quality of life. While overall inflation has been below 3% for most of the past 10 years, your personal inflation rate may be higher. In that situation, your dollar gradually buys less and less. If your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.
For this reason, a flexible retirement strategy will likely factor in many situations and scenarios; you cannot plan for every single scenario, but considering many possibilities may give you and your financial professional numerous options down the road.
3 – Assuming you will be in excellent health. While it’s true that we lead healthier lives than our ancestors and that medical science and awareness of fitness and nutrition have improved and extended many American lives, that improvement doesn’t cover every issue that comes with advanced age. Extended-care issues can sap away retirement funds.3
Recent findings by the U.S. Department of Health and Human Services offer some perspective: over a quarter of all people who have turned 65 between 2015-2019 are probably going to need $100,000 of extended care, while 15% of that same group is looking at $250,000.3
For these reasons, a retirement strategy should include some thinking about paying for extended care of this sort. Yes, Medicare can help you with the basics, but an insurance strategy that can accommodate longer hospital stays and care should also be a part of your thinking.3
Remember that good strategies also change over time, and you will probably want some help along the way. Make time to discuss these common assumptions, and how to avoid them, with your retirement professional.
1 - ssa.gov/history/lifeexpect.html [2/19/19] 2 - pbs.org/newshour/health/american-life-expectancy-has-dropped-again-heres-why [11/29/18] 3 - kiplinger.com/article/insurance/T036-C000-S002-how-to-afford-long-term-care.html [1/31/19]
There are those who favor value and those who favor growth.
You might be initially confused by these terms or even suspect they aren’t that different in terms of what each model offers you as an investor, but they are very distinct approaches, and it’s good to understand these two schools of thought as you invest. This understanding could help you make important investment decisions, both now and in the future.1
At first glance, some of the advantages to each approach may not be immediately obvious, depending on what sort of market you are facing. There is an element of timing to both value and growth investing, and that concept may be helpful in understanding the differences between the two.1
Investing for Value. Value investors look for bargains. That is, they attempt to find stocks that are trading below the value of the companies they represent. If they consider a stock to be underpriced, it’s an opportunity to buy; if they consider it overpriced, it’s an opportunity to sell. Once they purchase a stock, value investors seek to ride the price upward as the security returns to its “fair market” price – selling it when this price objective is reached.
Most value investors use detailed analysis to identify stocks that may be undervalued. They’ll examine the company’s balance sheet, financial statements, and cash flow statements to get a clear picture of its assets, liabilities, revenues, and expenses.
One of the key tools value investors use is financial ratios. For example, to determine a company’s book value, a value analyst would subtract the company’s liabilities from its assets. This book value can then be divided by the number of shares outstanding to determine the book-value-per-share – a ratio that would then be compared to the book-value-per-share ratios of other companies in the same industry or to the market overall.
Investing for Growth. Growth investors use today’s information to identify tomorrow’s strongest stocks. They’re looking for “winners” – stocks of companies within industries expected to experience substantial growth. They seek companies positioned to generate revenues or earnings that exceed market expectations. When growth investors find a promising stock, they buy it – even if it has already experienced rapid price appreciation – in the hope that its price will continue to rise as the company grows and attracts more investors.
Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow’s leaders; they are less focused on the value of the underlying company.
For example, growth investors may favor companies with a sustainable competitive advantage that are expected to experience rapid revenue growth, effective at containing cost, and staffed with an experienced management team.
Value and growth investing are opposing strategies. A stock prized by a value investor might be considered worthless by a growth investor and vice versa. So, which is right? A close review of your personal situation can help determine which strategy may be right for you.
1 - https://kiplinger.com/article/investing/T052-C000-S002-value-vs-growth-stocks-which-will-come-out-on-top.html [8/2/2018]
Perhaps both traditional and Roth IRAs can play a part in your retirement plans.
IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.
IRAs, or Individual Retirement Accounts, are investment vehicles used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.1
Both kinds of IRAs share many similarities, and yet, each is quite different. Let's take a closer look.
Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers.2,3
Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers.2,3
In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.4
Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catch-up” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000.4
If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.
1 - https://www.ici.org/pdf/per23-10.pdf [12/17] 2 - https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14 [6/14/18] 3 - https://money.usnews.com/money/retirement/articles/new-401-k-and-ira-limits [11/12/18] 4 - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [11/2/18]
Watch out for crooks impersonating I.R.S. agents (and financial industry professionals).
Do you know how the Internal Revenue Service contacts taxpayers to resolve a problem? The first step is almost always to send a letter through the U.S. Postal Service to the taxpayer.1
It is very rare for the I.R.S. to make the first contact through a call or a personal visit. This happens in two circumstances: when taxes are notably delinquent or overdue or when the agency feels an audit or criminal investigation is necessary. Furthermore, the I.R.S. does not send initial requests for taxpayer information via email or social media.1
Now that you know all of this, you should also know about some of the phone scams being perpetrated by criminals claiming to be the I.R.S. (or representatives of investment firms).
Scam #1: “You owe back taxes. Pay them immediately, or you will be arrested.” Here, someone calls you posing as an I.R.S. agent, claiming that you owe thousands of dollars in federal taxes. If the caller does not reach you in person, a voice mail message conveys the same threat, urging you to call back quickly.1
Can this terrible (fake) problem be solved? Yes, perhaps with the help of your Social Security number. Or, maybe with some specific information about your checking account, maybe even your online banking password. Or, they may tell you that this will all go away if you wire the money to an account or buy a pre-paid debit card. These are all efforts to steal your money.
This is over-the-phone extortion, plain and simple. The demand for immediate payment gives it away. The I.R.S. does not call up taxpayers and threaten them with arrest if they cannot pay back taxes by midnight. The preferred method of notification is to send a bill, with instructions to pay the amount owed to the U.S. Treasury (never some third party).1
Sometimes the phone number on your caller I.D. may appear to be legitimate because more sophisticated crooks have found ways to manipulate caller I.D. systems. Asking for a callback number is not enough. The crook may readily supply you with a number to call, and when you dial it someone may pick up immediately and claim to be a representative of the I.R.S., but it’s likely a co-conspirator – someone else assisting in the scam. For reference, the I.R.S. tax help line for individuals is 1-800-829-1040. Another telltale sign; if you ever call the real I.R.S., you probably wouldn’t speak to a live person so quickly – hold times can be long.1
Scam #2: “This is a special offer to help seniors manage their investments.” Yes, a special offer to become your investment advisor, made by a total stranger over the phone. Of course, this offer of help is under the condition that you provide your user I.D. and password for your brokerage account or your IRA.2
No matter how polite and sweet the caller seems, this is criminal activity. Licensed financial services industry professionals do not randomly call senior citizens and ask them for financial account information and passwords – unless they want to go to jail or end their careers.
Scam #3: “I made a terrible mistake; you must help me.” In this scam, a caller politely informs you that the U.S. government is issuing supplemental Social Security payments to seniors next year. Do you have a bank account? You could enroll in this program by providing your account information and your Social Security number.
Oh no, wait! The caller now tells you that they’ve made a huge mistake while inputting your account information – and your account was accidentally credited with a full payment even though you were not enrolled. The distraught caller will now attempt to convince you that they will lose their job unless you send over an amount equal to the lump sum they claim was mistakenly deposited. If you refuse, the caller may have a conversation with a “boss” who demands that money be withdrawn from your account.
Scam #4: “The I.R.S. accidentally gave you a refund.” In this sophisticated double-cross, thieves steal your data, then file a phony federal tax return with your information and deposit a false refund in your bank account. Then, they attempt to convince you to pay them the money, claiming they are debt collectors working for the I.R.S. or I.R.S. agents.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - irs.gov/newsroom/irs-continues-warning-on-impersonation-scams-reminds-people-to-remain-alert-to-other-scams-schemes-this-summer [5/31/18]
2 - money.usnews.com/money/retirement/aging/articles/2018-05-09/10-financial-scams-to-avoid-in-retirement [5/9/18]
3 - forbes.com/sites/kellyphillipserb/2018/02/13/irs-issues-urgent-warning-on-new-tax-refund-scam-and-its-not-what-youd-expect [2/13/18
How global returns and proper diversification are affecting overall returns.
“Why is my portfolio underperforming the market?” This question may be on your mind. It is a question that investors sometimes ask after stocks shatter records or return exceptionally well in a quarter.
The short answer is that while the U.S. equities market has realized significant gains in 2018, international markets and intermediate and long-term bonds have underperformed and exerted a drag on overall portfolio performance. A little elaboration will help explain things further.
A diversified portfolio necessarily includes a range of asset classes. This will always be the case, and while investors may wish for an all-equities portfolio when stocks are surging, a 100% stock allocation is obviously fraught with risk.
Because of this long bull market, some investors now have larger positions in equities than they originally planned. A portfolio once evenly held in equities and fixed income may now have a majority of its assets held in stocks, with the performance of stock markets influencing its return more than in the past.1
Yes, stock markets – as in stock markets worldwide. Today, investors have more global exposure than they once did. In the 1990s, international holdings represented about 5% of an individual investor’s typical portfolio. Today, that has risen to about 15%. When overseas markets struggle, it does impact the return for many U.S. investors – and struggle they have. A strong dollar, the appearance of tariffs – these are considerable headwinds.2,3
In addition, a sudden change in sector performance can have an impact. At one point in 2018, tech stocks accounted for 25% of the weight of the S&P 500. While the recent restructuring of S&P sectors lowered that by a few percentage points, portfolios can still be greatly affected when tech shares slide, as investors witnessed in fall 2018.4
How about the fixed-income market? Well, this has been a weak year for bonds, and bonds are not known for generating huge annual returns to start with.3
This year, U.S. stocks have been out in front. A portfolio 100% invested in the U.S. stock market would have a 2018 return like that of the S&P 500. But who invests entirely in stocks, let alone without any exposure to international and emerging markets?3
Just as an illustration, assume there is a hypothetical investor this year who is actually 100% invested in equities, as follows: 50% domestic, 35% international, 15% emerging markets. In the first two-thirds of 2018, that hypothetical portfolio would have advanced just 3.6%.3
Your portfolio is not the market – and vice versa. Your investments might be returning 3% or less so far this year. Yes – this year. Will the financial markets behave in this exact fashion next year? Will the sector returns or emerging market returns of 2018 be replicated year after year for the next 10 or 15 years? The chances are remote.
The investment markets are ever-changing. In some years, you may get a double-digit return. In other years, your return is much smaller. When your portfolio is diversified across asset classes, the highs may not be so high – but the lows may not be so low, either. When things turn volatile, diversification may help insulate you from some of the ups and downs you go through as an investor.
1 - seattletimes.com/business/5-steps-to-take-if-the-bull-market-run-has-you-thinking-of-unloading-stocks/ [8/25/18]
2 - forbes.com/sites/simonmoore/2018/08/05/how-most-investors-get-their-international-stock-exposure-wrong/ [8/5/18]
3 - thestreet.com/investing/stocks/dear-financial-advisor-why-is-my-portfolio-performing-so-14712955 [9/15/18]
4 - cnbc.com/2018/04/20/tech-dominates-the-sp-500-but-thats-not-always-a-bad-omen.html [4/20/18]
As you start a family, consider these ideas.
Being a parent means being responsible to a degree you never have been before. That elevated responsibility also impacts your financial decisions. You are now a provider and a protector, and that reality may make the following financial moves necessary.
Think about a budget. As a couple, you may have lived for years without budgeting. As parents, this may change. You will face new recurring costs: clothes, toys, diapers, food. Keeping track of weekly or monthly expenses will be handy. (The Department of Agriculture has an online calculator where you can estimate the total cost of raising a child to adulthood. The math may surprise you: the U.S.D.A. puts the average cost at $233,610 for a middle-income family.)1,2
Take care of health and life insurance. Your child should be added to your health insurance plan quickly. Most insurance providers require you to notify them of a child’s birth within 30 days. You can get started before then; be aware that a Social Security number and birth certificate can take weeks to arrive in the mail. If you are in a group health plan, talk with the human resources officer or benefits administrator at work, and let them know that you want to add a dependent to your health care plan. (If you have coverage through a private plan, your premiums may go up after you notify the carrier.) Under the Affordable Care Act, a parent or legal guardian who has health coverage arranged through the federal or state Marketplace has 60 days from the date of birth or adoption to enroll a child as a dependent on their plan; once that is done, health care coverage for the child will apply, retroactively.3
Term life insurance provides an affordable way for new parents to have some financial insulation against a worst-case scenario, and disability insurance (which may be available where you work) provides coverage in the event of an extended illness or injury that stops you from doing your job. If you have a Health Savings Account (HSA), you can contribute more per year when you have a child. The maximum annual contribution for a family is currently set at $6,850 (and for the record, the I.R.S. is allowing families to contribute up to $6,900 in 2018).4
Draft a will and review beneficiary designations. A will can do more than declare who receives your assets when you die. It can also name a legal guardian for your child in the event both parents pass away. Additionally, you can specify a guardian of your estate in your will, to manage the assets left to a minor child. While you may have named your spouse or partner as the primary beneficiary of your IRA or investment account, you may decide to change that or at least add your child as a contingent beneficiary.5
See if you can save a little for college. The estimated cost of four years at a public university starting in 2036? $184,000, CNBC reports. That may convince you to open a 529 plan or have some other kind of dedicated college savings account with investment options. Most 529 plans require a Social Security number for a beneficiary, so they are commonly started after a child is born, rather than before.2,6
Review your withholding status and tax forms. An addition to your family means changes. You may also become eligible for some federal tax breaks, like the Earned Income Tax Credit, the Adoption Tax Credit, the Child Tax Credit, and the Child & Dependent Care Credit.7
Keep the big picture in mind. You still need to build retirement savings; you still need to have an emergency fund. Becoming a family might make accomplishing those tasks harder, yet they remain just as important.
After reading all this, you may feel like you need to be a millionaire to raise a child. The fact is, most parents are not millionaires, and they manage. Whether you are wealthy or not, you will want to take care of many or all of these financial and insurance essentials before or after you bring your newborn home.
1 - cnpp.usda.gov/tools/CRC_Calculator/default.aspx [9/20/18]
2 - tinyurl.com/y8rlmm7w [2/26/18]
3 - healthcare.com/info/health-insurance/baby-health-insurance-newborn [10/18/17]
4 - tinyurl.com/ya5g75ez [5/1/18]
5 - everplans.com/articles/what-does-a-guardian-of-the-estate-do [9/20/18]
6 - cnbc.com/2018/05/07/this-is-how-much-parents-need-to-save-to-cover-college-bills-in-2036.html [5/7/18]
7 - efile.com/tax-deductions-credits-for-parents-with-children-dependents/ [9/20/18]
For millennials, today is the right time.
If you are under 30, you have likely heard that now is the ideal time to save and invest. You know that the power of compound interest is on your side; you recognize the potential advantages of an early start.
There is only one problem: you do not earn enough money to invest. You are barely getting by as it is.
Regardless, the saving and investing effort can still be made. Even a minimal effort could have a meaningful impact later.
Can you invest $20 a week? There are 52 weeks in a year. What would saving and investing $1,040 a year do for you at age 25? Suppose the invested assets earn 7% a year, an assumption that is not unreasonable. (The average yearly return of the S&P 500 through history is roughly 10%; during 2013-17, its average return was +13.4%.) At a 7% return and annual compounding, you end up with $14,876 after a decade in this scenario, according to Bankrate’s compound interest calculator. By year 10, your investment account is earning nearly as much annually ($939) as you are putting into it ($1,040).1,2
You certainly cannot retire on $14,876, but the early start really matters. Extending the scenario out, say you keep investing $20 a week under the same conditions for 40 years, until age 65. As you started at age 25, you are projected to have $214,946 after 40 years, off just $41,600 in total contributions.2
This scenario needs adjustment considering a strong probability: the probability that your account contributions will grow over time. So, assume that you have $14,876 after ten years, and then you start contributing $175 a week to the account earning 7% annually starting at age 35. By age 65, you are projected to have $1,003,159.2
Even if you stop your $20-per-week saving and investing effort entirely after 10 years at age 35, the $14,876 generated in that first decade keeps growing to $113,240 at age 65 thanks to 7% annual compounded interest.2
How do you find the money to do this? It is not so much a matter of finding it as assigning it. A budgeting app can help: you can look at your monthly cash flow and designate a small part of it for saving and investing.
Should you start an emergency savings fund first, then invest? One school of thought says that is the way to go – but rather than think either/or, think both. Put a ten or twenty (or a fifty) toward each cause, if your budget allows. As ValuePenguin notes, many deposit accounts are yielding 0.01% interest.3
It does not take much to start saving and investing for retirement. Get the ball rolling with anything, any amount, today, for the power of compounding is there for you to harness. If you delay the effort for a decade or two, building adequate retirement savings could prove difficult.
1 - nerdwallet.com/blog/investing/average-stock-market-return/ [2/28/18]
2 - bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx [7/26/18]
3 - valuepenguin.com/average-savings-account-interest-rates [7/26/18]
Now is the time to explore the possibilities.
Grandparents Day provides a reminder of the bond between grandparents and grandchildren and the importance of family legacies.
A family legacy can have multiple aspects. It can include much more than heirlooms and appreciated assets. It may also include guidance, even instructions, about what to do with the gifts that are given. It should reflect the values of the giver.
What are your legacy assets? Financially speaking, a legacy asset is something that will outlast you, something capable of producing income or wealth for your descendants. A legacy asset might be a company you have built. It might be a trust that you create. It might be a form of intellectual property or a portfolio of real property. A legacy asset should never be sold – not so long as it generates revenue that could benefit your heirs.
To help these financial legacy assets endure, you need an appropriate legal structure. It could be a trust structure; it could be an LLC or corporate structure. You want a structure that allows for reasonable management of the legacy assets in the future – not just five years from now, but 50 or 75 years from now.1
Think far ahead for a moment. Imagine that forty years from now, you have 12 heirs to the company you founded, the valuable intellectual property you created, or the real estate holdings you amassed. Would you want all 12 of your heirs to manage these assets together?
Probably not. Some of those heirs may not be old enough to handle such responsibility. Others may be reluctant or ill-prepared to take on the role. At some point, your grandkids may decide that only one of them should oversee your legacy assets. They may even ask a trust officer or an investment professional to take on that responsibility. This can be a good thing because sometimes the beneficiaries of legacy assets are not necessarily the best candidates to manage them.
Values are also crucial legacy assets. Early on, you can communicate the importance of honesty, humility, responsibility, compassion, and self-discipline to your grandkids. These virtues can help young adults do the right things in life and guide their financial decisions. Your estate plan can articulate and reinforce these values, and perhaps, link your grandchildren’s inheritance to the expression of these qualities.
You may also make gifts with a grandchild’s education or retirement in mind. For example, you could fully fund a Roth IRA for a grandchild who has earned income or help an adult grandchild fund their Roth 401(k) or Roth IRA with a small outright gift. Custodial accounts represent another option: a grandparent (or parent) can control assets in a 529 plan or UTMA account until the grandchild reaches legal age.3
Make sure to address the basics. Is your will up to date with regard to your grandchildren? How about the beneficiary designations on your IRA or your life insurance policy? Creating a trust may be a smart move. In fact, you can set up a living irrevocable trust fund for your grandkids, which can actually begin distributing assets to them while you are alive. While you no longer own assets you place into an irrevocable trust (which is overseen by a trustee), you may be shielded from estate, gift, and even income taxes related to those assets with appropriate planning.4
This Grandparents Day, think about the legacy you are planning to leave. Your thoughtful actions and guidance could help your grandchildren enter adulthood with good values and a promising financial start.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - forbes.com/sites/danielscott1/2017/09/04/three-common-goals-every-legacy-plan-should-have/ [9/4/17]
2 - wealthmanagement.com/high-net-worth/key-considerations-preparing-family-legacy-plan [3/27/17]
3 - marketwatch.com/story/whats-next-after-planning-your-retirement-help-your-children-and-grandchildren-plan-for-theirs-2017-10-17 [10/17/17]
4 - investopedia.com/articles/pf/12/set-up-a-trust-fund.asp [1/23/18]
This vital investment account question should be answered sooner rather than later.
Investment firms have a new client service requirement. They must now ask you if you want to provide the name and information of a trusted contact.1
You do not have to supply this information, but it is certainly welcomed. The request is being made, with your best interest in mind, to lower the risk that someone crooked might someday make investment decisions on your behalf.1
Financial scams rob U.S. seniors of more than $36 billion per year. As a CNBC article notes, 27% of these frauds represent abuse or exploitation committed by third parties; 23% are wrongdoings committed by family members or trustees.1
The trusted contact request is a response to this reality. The Financial Industry Regulatory Authority (FINRA) now demands that investment firms “make reasonable efforts” to acquire the name and contact info of a “trusted person,” who they can get in touch with if they feel fraud or financial exploitation is occurring or if they suspect the investor is suffering notable cognitive decline.2
Investment firms may now put a hold on disbursements of cash or securities from accounts if they suspect the withdrawals or transactions amount to financial exploitation. In such circumstances, they are asked to get in touch with the investor, the trusted contact, and adult protective services agencies or law enforcement agencies if necessary.2
Who should your trusted contact be? At first thought, the answer seems obvious: the person you trust the most. Yes, that individual is probably the best choice – but keep some factors in mind.
Ideally, your trusted contact is financially savvy, or at least financially literate. You may trust your spouse, your sibling, or one of your children more than you trust anyone else; how much does that person know about investing and financial matters?
The trusted contact should behave ethically and respect your privacy. This person could be given confidential information about your investments. Is there any chance that, in receipt of such information, they might behave in an unprincipled way?
Your family members should know who the trusted contact is. That way, any family member who might be tempted to take financial advantage of you knows another family member is looking out for you, which may be an effective deterrent to elder financial abuse. The trusted contact can optionally be an attorney, a financial advisor, or a CPA.1
Your trusted contact is your ally. If you are being exploited financially, or seem at risk of such exploitation, that person will be alerted and called to action.
An old saying states that money never builds character, it only reveals it. The character and morality of your trusted contact should not waver upon assuming this responsibility. If given sensitive information about your brokerage accounts, that person should not sense an opportunity.
Now is the perfect time to name your trusted contact. You want to make this decision while you are still of sound body and mind. Choose your contact wisely.
1 - cnbc.com/2018/05/15/advisors-are-asking-their-clients-for-a-trusted-contact-choose-wisely.html [5/15/18]
2 - finra.org/newsroom/2018/new-finra-rules-take-effect-protect-seniors-financial-exploitation [2/5/18]