The 3 must haves of estate planning

Financial-Estate-Planner-Raleigh-NC-300x300Everyone needs an estate plan. I don’t care how old you are, how young you are, how rich or how poor you are. You need to protect yourself and your family. Do you want your family to be on the news like Terry Schiavo? Without some form of protection, decisions made after you’re gone or incapacitated can tear families apart.

Each of the following documents protect you in some form or another. Each one can be as equally as important. You do not have to have $10 million to find value in a couple pieces of paper. Ask yourself this, “what happens when I die or become incapacitated?” Where do your children go? Who decides whether you should remain on life support or not? Who gets the house or that prized base ball collection? Do you want your private life made public by the state?

Lets examine the 3 must haves:

Last Will and Testament
A last will and testament is a document that directs where you want your assets to go and who gets to oversee the disposition of assets. A will can be as simple as a “I leave everything to so and so” to as complex as setting up various trusts.

Wills help you avoid making your private life public. If you die without a will, you are considered intestate. This means that the things you own or control at the time of death are examined and distributed by the probate court. Which also means that everything you own is made public for the world to see. There are those out there who will prey on people who just inherited a lot of money. They just look up the latest probate cases. Lets me also mention that probate court can be expensive and time consuming.< Do you want your heirs fighting over who gets what? I’ve seen it destroy families.

Living Will
A living will is a will that you use when you are living. Simple enough, right? The living will issues orders to doctors or caregivers in the event that you become incapacitated. For example, you get in a car accident and go into a coma. Now, what if you’re brain dead? Doctors have an obligation to keep you alive, do you want to live and suffer or die quickly?

The living will details specifically what doctors should do in a situation like this. Instead of letting your family quarrel over whether or not you should live, you made the decision already. It is a touchy subject, especially asking yourself if you want to live or die, but it is necessary.

Health Care Power of Attorney
The HCPOA for short appoints someone to make decisions for you in the event that you become incapacitated. This person can decide the level of health care as well as, depending on the provisions, take care of your obligations such as bills. The person you appoint can make the decision whether you should live or die based on what you have in your living will or have said in the past. If Terry Schiavo’s husband had a HCPOA, he could have stopped all that legal fiasco, he would have had the power to remove her feeding tube.

There you have 3 simple documents that will protect you and your family. There are a lot of issues to consider when developing your estate plan, there are a lot of hard questions that must be answered. In the end, do you want to control your fate, or do you want the state or doctors decide it for you?

Congress did something good?

I did something I haven’t ever done before – I went to the house of representatives’ website… Yes, it is a slow and boring day today, forgive me. I did find one interesting tidbit of information that I’d like to share with you, especially those of you who are going to enter college.

A bill was recently passed by the Committee on Education and Labor called the College Cost Reduction Act. This new act has many cool features (as if laws can be cool) that will help countless number of Americans (I hope I can get some use out of it) with college loan expenses. Some notable facts from the bill and my comments:

  • Cutting interest rates in half on subsidized student loans over the next five years.

I hope this applies to those of us with outstanding loans. I could really use the interest rate help.

  • Making student loan payments more manageable for borrowers by guaranteeing that borrowers will not have to pay more than 15 percent of their discretionary income in loan repayments, and allowing borrowers to have their loans forgiven after 20 years.

This is a mixed blessing in that it can lower the monthly payment, but also increases the amount of interest paid. Students may make the minimum payments, but it may not be enough to pay off the entire loan in a reasonable amount of time. However, if rates are low, the interest accrued won’t be so bad compared to what you could get with the money invested.

  • Increasing federal loan limits to provide borrowers with additional assistance in paying for college and to help them rely less on costlier private loans.

Ah yes, the most important provision. I wish I had this when I started. Private loans are indeed costlier. If I had been able to get more out of the federal loans, I would be in much better shape today. Expect to see falling rates from private loans as well – they’ll be competing against the federal government now for your business.

  • Containing college costs.

Leave it to congress to be as vague as possible. Your guess is as good as mine.

  • Providing upfront tuition assistance to qualified undergraduate students who commit to teaching in public schools in high-poverty communities or high-need subject areas.

This seems to be always an issue. Unfortunately all it does is put new, inexperienced teachers, in the inner city schools. Thus, they fail according to the no child left behind act, and thus don’t get anymore money. See a trend?

  • Providing loan forgiveness for first responders, law enforcement officers, firefighters, nurses, public defenders, prosecutors, early childhood educators, librarians and others.

The tax system is designed to promote and deter certain activities as is the case here.

  • Revising policies to allow public servants to have their loans forgiven after 10 years.

I’m not sure if I understand this correctly, you pay down the loan for 10 years and then get the rest paid off? If you had a 10 year payment schedule, what help is this provision? Maybe if you had a 20 year schedule it’d help.

Those are some of the provisions that the bill had, I hope it gets passed and lasts longer than the 5 years they put it in effect for. If they can spend $300 billion on a war, what’s $20 billion to education going to hurt?

Coverdell ESA vs. 529 Plan?

My niece is turing one very soon and I was thinking of setting up an account for her for future education expenses.Here are the facts:1) I live in a different state than she does
2) My sister does not have the same last name as her (she has not changed yet, but she will eventually)
3) I do not have a lot to put down right now to open the accountThanks for your help!

This can be a common question for people wishing to save for their child’s or another child’s education. There are many similarities between the two plans as well as a few key differences.

529 plans and Coverdale ESA’s are tax-sheltered education plans that allow you to invest money and let it grow tax free. However, you must use the funds for qualified education expenses. An advantage of both include the fact that come college time, the money in these accounts do not affect the student’s financial aid.

529 plans offer a wide range of opportunities to save. Every state has them and every state is different. Some states will allow people from another state to invest, some won’t. Some have minimum startups or minimum monthly investments and various other fees. 529 plans usually do not have a maximum contribution limit, whereas Coverdell plans do ($2,000 per year per child). 529 plans allow investment in certain select investment options, ESA’s let you invest in stocks, bonds, etc. 529 plans pay for college expenses only, ESA’s let you use the money for primary and secondary school as well.

To answer your concerns:

  1. You do not have to be in the same state as the beneficiary. However, it is sometimes advantageous to invest in a 529 plan from your own state. Many states offer tax advantages (Ohio’s 529 plan lets you deduct up to $2,000 in contributions) that offer even greater savings. You can change the beneficiary at any time and you still have full control over the account as long as you are custodian.
  2. Your sister has nothing to do with the 529 plan you set up other than to say, “thanks.” You are the owner of the plan, her daughter is the beneficiary. She does not come into the equation at all.
  3. You do not need a lot to start up a plan. Ohio’s 529 plan lets you contribute as little as $15 at a time. There are a lot of investment options to help it grow for differing time periods. Since she is so young, aggressive growth is good, when she gets closer to 18, there are options to scale back growth in favor of asset protection.

Another concern I think should be answered is that your niece can go to any college in the country and still receive distributions from the plan. Some plans also are FDIC insured and can offer extremely low annual fees. The best thing to do would be to contact a financial advisor or tax professional to help you better understand the benefits that come along with each plan.

The dirty little secrets of Universities

If you’ve ever gone to buy a car or a house you never paid the sticker price, right? If you did, perhaps you should subscribe to my feed and learn more about personal finances, please. When you make big purchases you usually negotiate the price lower than what the sticker price is. This goes for things such as buying a car, buying a house, that big screen tv or those new cell phones. So today when I was attending a meeting at work about 529 plans and education planning, an interesting tidbit of knowledge was brought up – colleges can and do negotiate tuition.

This revelation was provided by my boss who happens to be on the board of trustees of a local university. She details how her college will in fact give you a tuition discount because you’re male. Her reason behind this was because the college is 60% female, 40% male – therefore they want to balance their demographics. This is not a grant, scholarship or some other gift – rather, the actual price of tuition is decreased.

My other boss (it’s starting to sound like Office Space here) gave an anecdote about my alma matter – Ohio State. The story could be the same for any major university. Big public schools like OSU will end up paying you to go to school there. He detailed how students who’ve been accepted to Harvard or Yale or any other well known institutions will be given major discounts and even, as is the case with some OSU students, stipends to attend their school. Regardless if your parents are billionaires and could afford it, they want you and the prestige you bring along with you.

So the moral of this post is, why pay sticker price on tuition? If you have or someone you know has the grades and is going to attend college soon, let them know to ask about tuition discounts. Here’s how you do it – go to the admissions office (get an appointment with someone first), present yourself and say, “now, about this tuition, what can you do on it?” If you’re someone the school wants, they will work with you. Of course this isn’t widely advertised as is evident of a lack of google search results on the subject but it is out there and you can get it.