Thursday, February 28, 2013
Tuesday, October 5, 2010
Get rid of Your Interest-Bearing Checking Accounts
My husband signed up for an interest-bearing checking account ages ago. Whatever pittance it paid then is nonetheless huge compared to what it pays now. I think it yielded 24 cents last year.
These types of accounts require a minimum balance. If you go below the balance, the bank will hit you with a fee. B of A charged us $11 when we dipped below. This is super-crappy and and has now sucked up any interest we would have made over a decades-long span.
Fortunately, it's easy to convert the account to a regular checking account that doesn't bear interest and doesn't require a minimum balance. Often, all the bank requires is that you have automatic deposits in your account -- something most folks have signed up for, at this point.
It was easy to ask for the conversion -- I did it through the B of A website, through their message feature. They switched it without complaint or pushback. Try it.
These types of accounts require a minimum balance. If you go below the balance, the bank will hit you with a fee. B of A charged us $11 when we dipped below. This is super-crappy and and has now sucked up any interest we would have made over a decades-long span.
Fortunately, it's easy to convert the account to a regular checking account that doesn't bear interest and doesn't require a minimum balance. Often, all the bank requires is that you have automatic deposits in your account -- something most folks have signed up for, at this point.
It was easy to ask for the conversion -- I did it through the B of A website, through their message feature. They switched it without complaint or pushback. Try it.
Friday, April 16, 2010
Gay and Lesbian Patients and Their Partners Gain More Control in the Hospital Room
President Obama directed the Department of Health and Human Services to order hospitals that receive Medicare or Medicaid funding to allow partners of gay and lesbian patients to visit those patients. Before, a hospital could refuse such visitation because the partner would not be related by blood or by traditional marriage.
And, regarding a matter that speaks more directly to the purpose of this blog, the gay and lesbian patients will not be prevented from designating their partners as the person who can serve as a health care proxy.
And, regarding a matter that speaks more directly to the purpose of this blog, the gay and lesbian patients will not be prevented from designating their partners as the person who can serve as a health care proxy.
Tuesday, March 23, 2010
Basic Estate Tax Considerations
Historically, when someone dies, their estate (property, money, life insurance policies, IRAs, etc.) must be studied to see if federal tax is owed. The death is the triggering event.
However, as part of a frankly mystifying Congressional scheme, there is absolutely no federal estate tax in 2010. Wealthy, unhealthy folk are undoubtedly mulling this over. (Some of these estate planning issues can be quite morbid. Yet practical.) The federal estate tax is scheduled to return in 2011. A $1 million exemption will be provided, but everything over that amount will be taxed -- at 55%. Phew! Now you see why folks try to reduce the size of their estates before they die. For instance, a person can give gifts up to $13,000 each year without reporting it to the IRS.
The first member of a couple who dies can pass everything he or she owns to the remaining spouse tax-free. This is a policy choice, because we think it's bad policy to saddle a grieving, vulnerable widow/er with a tax bill. But, when the widow/er dies, all the couple's property is scrutinized in order to determine if tax is owed. Tax planning will help mitigate and control situations like these.
However, as part of a frankly mystifying Congressional scheme, there is absolutely no federal estate tax in 2010. Wealthy, unhealthy folk are undoubtedly mulling this over. (Some of these estate planning issues can be quite morbid. Yet practical.) The federal estate tax is scheduled to return in 2011. A $1 million exemption will be provided, but everything over that amount will be taxed -- at 55%. Phew! Now you see why folks try to reduce the size of their estates before they die. For instance, a person can give gifts up to $13,000 each year without reporting it to the IRS.
The first member of a couple who dies can pass everything he or she owns to the remaining spouse tax-free. This is a policy choice, because we think it's bad policy to saddle a grieving, vulnerable widow/er with a tax bill. But, when the widow/er dies, all the couple's property is scrutinized in order to determine if tax is owed. Tax planning will help mitigate and control situations like these.
Tuesday, March 9, 2010
Mantras Will Ease and Simplify Planning Discussions
Estate planning is about death and taxes. Can you imagine having a discussion that's more fraught with the great "yucks" of life?
However, those two "yucks" are certain to happen, as the saying goes. Since we well know that death can arrive much sooner than we'd like, plan for it so you or those you love the most can better handle it when it gets here.
Create a mission statement that guides you through this planning. My mom and I had a mission statement while we were planning my wedding. It was: "we're not doing anything that isn't fun." We dropped some ideas and contractors who didn't fit the mantra. It simplified everything.
Take the common worry that two parents could die together. It happens. If you're talking to your spouse or S.O. about who would take care of the kids in this scenario, repeat this mantra: "We will give our children the best shot at a happy life". The mantra will keep emotions tamped down. What type of emotions? Hurt --like when you're explaining to your wife that, while her brother is a good guy, he is not the best person to select. Or perceived insult -- when you pick one person to love and care for the children but place the management of their (your) assets into another person's hands. But if it's the best thing for the kids, do it. After the would-be guardians and trustees agree to their roles, memorialize them in your will and be happy that you've sent up the best situation possible.
Another scenario is that of a middle-aged person trying to convince his elderly parents of the importance of planning. Here, too, a mantra is needed: "Our goal is to control this process so that laws, doctors, judges, and taxes don't control it." Yeah, talking about the merits of a respirator or feeding tube is depressing. Yeah, assets may seem too small to protect. Yes, siblings disagree over who should get certain possessions. But only those same elderly folks are entitled to make those decisions. After permanent incapacitation or death, in the absence of such decisions, a bunch of strangers can make them. "Our goal is to control this process as a family." Tell that to your parents. If they categorically refuse to discuss such things, get them to sign a financial and medical power of attorney that allows you to make these decisions. At least they'll be alive, and you can consult with them (if you want to).
Organizing principles work.
However, those two "yucks" are certain to happen, as the saying goes. Since we well know that death can arrive much sooner than we'd like, plan for it so you or those you love the most can better handle it when it gets here.
Create a mission statement that guides you through this planning. My mom and I had a mission statement while we were planning my wedding. It was: "we're not doing anything that isn't fun." We dropped some ideas and contractors who didn't fit the mantra. It simplified everything.
Take the common worry that two parents could die together. It happens. If you're talking to your spouse or S.O. about who would take care of the kids in this scenario, repeat this mantra: "We will give our children the best shot at a happy life". The mantra will keep emotions tamped down. What type of emotions? Hurt --like when you're explaining to your wife that, while her brother is a good guy, he is not the best person to select. Or perceived insult -- when you pick one person to love and care for the children but place the management of their (your) assets into another person's hands. But if it's the best thing for the kids, do it. After the would-be guardians and trustees agree to their roles, memorialize them in your will and be happy that you've sent up the best situation possible.
Another scenario is that of a middle-aged person trying to convince his elderly parents of the importance of planning. Here, too, a mantra is needed: "Our goal is to control this process so that laws, doctors, judges, and taxes don't control it." Yeah, talking about the merits of a respirator or feeding tube is depressing. Yeah, assets may seem too small to protect. Yes, siblings disagree over who should get certain possessions. But only those same elderly folks are entitled to make those decisions. After permanent incapacitation or death, in the absence of such decisions, a bunch of strangers can make them. "Our goal is to control this process as a family." Tell that to your parents. If they categorically refuse to discuss such things, get them to sign a financial and medical power of attorney that allows you to make these decisions. At least they'll be alive, and you can consult with them (if you want to).
Organizing principles work.
Wednesday, February 24, 2010
Paying Extra Principal On Your Mortgage
This topic may not qualify as news for many people, but I met someone recently who had no idea that a home buyer had this option.
Background: Anyone who has a mortgage pays a certain amount towards principal (the loan amount) and a certain amount towards interest. Over the life of the mortgage, the interest amount can end up equalling or surpassing the principal amount. For instance, a $240,000 loan at a 30-year fixed rate of 5% means that you'd be paying $223,000 in interest on top of the $240,000 amount of the loan. Yes, $463,000, not including insurance and taxes. You can plug in your own numbers here: http://www.mortgagecalculator.org/
And banks are smart -- during the first few years of the mortgage, the payments are allocated mainly to interest and not principal. So a strategy of "hey, it's ok, I'll sell the house in a few years to avoid paying all that interest" won't work.
This is why I hate borrowing money, but it usually can't be avoided if you want to buy a house.
However, one way to grow equity in your house and at the same time reduce the amount you pay towards interest is to make occasional payments towards the principal. If you have an extra $1000 here and there, and your checking and savings accounts are adequately funded for a few months, it's a possibility. Call your lender and inquire if there's a pre-payment penalty (and make sure you don't work with anyone who imposes such penalties whenever you buy a house), and if not, look into making the payments online. My lender allows me to do this with no additional costs or fees. And each time I do it, I reduce the amount of interest I'll have to pay the lender -- which I love.
Background: Anyone who has a mortgage pays a certain amount towards principal (the loan amount) and a certain amount towards interest. Over the life of the mortgage, the interest amount can end up equalling or surpassing the principal amount. For instance, a $240,000 loan at a 30-year fixed rate of 5% means that you'd be paying $223,000 in interest on top of the $240,000 amount of the loan. Yes, $463,000, not including insurance and taxes. You can plug in your own numbers here: http://www.mortgagecalculator.org/
And banks are smart -- during the first few years of the mortgage, the payments are allocated mainly to interest and not principal. So a strategy of "hey, it's ok, I'll sell the house in a few years to avoid paying all that interest" won't work.
This is why I hate borrowing money, but it usually can't be avoided if you want to buy a house.
However, one way to grow equity in your house and at the same time reduce the amount you pay towards interest is to make occasional payments towards the principal. If you have an extra $1000 here and there, and your checking and savings accounts are adequately funded for a few months, it's a possibility. Call your lender and inquire if there's a pre-payment penalty (and make sure you don't work with anyone who imposes such penalties whenever you buy a house), and if not, look into making the payments online. My lender allows me to do this with no additional costs or fees. And each time I do it, I reduce the amount of interest I'll have to pay the lender -- which I love.
Wednesday, February 3, 2010
Guardianship provisions: picking a money manager
Tami Cupit Threet was kind enough to comment upon the entry about selecting guardians for one's kids should the parents pass away. She noted that the person who serves as guardian need not serve as financial custodian for them.
If both parents were to pass away, the assets in their estates will pass to their children, but minor children cannot manage this money. Generally, the person who serves as guardian will also serve as trustee for these assets until the children reach the age of majority, which is 18 in nearly every state.
A trustee has a broad range of powers regarding these assets; this person can buy the kids' clothes and books, fund a private school education, invest money in a college fund, start a small stock portfolio in their names, and so on. Or, the trustee could purchase only the most expensive gadgets for the kids, neglect to sock money away for college, or -- in the sad case of a dear friend -- raid the assets in order to buy illegal drugs.
If you know that your pick as guardian will do a bang-up job caring for them, but you also suspect that he will not make sound financial decisions, you can still name this guardian while naming an additional person to be the trustee of the assets. You can also provide directions for the use of the assets: for example, the guardian can only make unapproved purchases under a certain amount; the trustee must use the assets to send the children to a certain school; the trustee must make regular deposits from the estate assets into a college 529 plan; and so on.
Make no mistake, this arrangement could cause some debates between the guardian and the trustee. But it's preferable to allowing someone to squander your children's assets. You can prepare an arrangement that gives you maximum peace of mind.
If both parents were to pass away, the assets in their estates will pass to their children, but minor children cannot manage this money. Generally, the person who serves as guardian will also serve as trustee for these assets until the children reach the age of majority, which is 18 in nearly every state.
A trustee has a broad range of powers regarding these assets; this person can buy the kids' clothes and books, fund a private school education, invest money in a college fund, start a small stock portfolio in their names, and so on. Or, the trustee could purchase only the most expensive gadgets for the kids, neglect to sock money away for college, or -- in the sad case of a dear friend -- raid the assets in order to buy illegal drugs.
If you know that your pick as guardian will do a bang-up job caring for them, but you also suspect that he will not make sound financial decisions, you can still name this guardian while naming an additional person to be the trustee of the assets. You can also provide directions for the use of the assets: for example, the guardian can only make unapproved purchases under a certain amount; the trustee must use the assets to send the children to a certain school; the trustee must make regular deposits from the estate assets into a college 529 plan; and so on.
Make no mistake, this arrangement could cause some debates between the guardian and the trustee. But it's preferable to allowing someone to squander your children's assets. You can prepare an arrangement that gives you maximum peace of mind.
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