The new tax law signed by President Obama prompted a sigh of relief from a lot of people because it increased the estate tax deduction to $5 million, instead of lowering it to $1 million as many feared, which is where it would have gone had Congress not acted before December 31. Now many people are predicting the end of testamentary trusts because there is no need to create a Family Trust to take advantage of marital deductions. Some are going so far as to say that testamentary trusts will disappear altogether.
This is probably a short-sighted view. While testamentary trusts may no longer be useful as estate TAX planning tools, they remain invaluable estate planning devices, especially where minor children or incapacitated individuals are involved. Where such individuals are among those to whom bequests would be left, use of a trust provides flexibility, professional management and peace of mind to the maker of the trust.
Don't assume that a trust has no place in your estate planning toolbox simply because the estate is under $5 million and no tax consequences will attach.
Monday, December 27, 2010
Wednesday, December 22, 2010
Credit Scores and Bankruptcy
When you file bankruptcy of any kind, your credit score (sometimes called a FICO score) will immediately take a nosedive. Even if it was low to begin with, it will go lower. A credit score is supposed to be a prediction of whether or not you will pay back debt in the future. However, since no one, not even the big three credit reporting agencies, can predict the future, what a credit score really measures is the likelihood you will pay back existing debts. Since, once you file bankruptcy, you will most likely NEVER repay any existing debt, your credit score drops to reflect that.
If you think about it, someone filing bankruptcy is probably a better credit risk than another person with the same income and the same amount of debt, but who didn't file. That's because the person who filed has (1) gotten rid of a bunch of debt; and (2) now cannot file bankruptcy for several years (eight years if you filed Chapter 7 and receive a discharge). Car loan companies know this. That's why they have people who do nothing but see who has filed bankruptcy and then send them offers of credit if they buy a new car. The lenders are so sophisticated that they tailor their solicitations based on your ZIP code. If you live in an affluent ZIP code, you might get offers for a Lexus or a Corvette. If you live in a lower-income ZIP code, the offers might be for lower-end Fords or Hyundais. But one thing you can count on, besides the hit your credit score will take, is that you will get solicited to buy a new car. Three words about that: DON'T DO IT. More on that topic later.
If you think about it, someone filing bankruptcy is probably a better credit risk than another person with the same income and the same amount of debt, but who didn't file. That's because the person who filed has (1) gotten rid of a bunch of debt; and (2) now cannot file bankruptcy for several years (eight years if you filed Chapter 7 and receive a discharge). Car loan companies know this. That's why they have people who do nothing but see who has filed bankruptcy and then send them offers of credit if they buy a new car. The lenders are so sophisticated that they tailor their solicitations based on your ZIP code. If you live in an affluent ZIP code, you might get offers for a Lexus or a Corvette. If you live in a lower-income ZIP code, the offers might be for lower-end Fords or Hyundais. But one thing you can count on, besides the hit your credit score will take, is that you will get solicited to buy a new car. Three words about that: DON'T DO IT. More on that topic later.
Wednesday, December 15, 2010
Simple Wills and Living Wills
Do you need a simple will or a living will?
Probably you need both. One is effective before you die, the other after death. A "simple willl" is a generic name given to a will that has only a few dispositive provisions. The typical simple will leaves everything to the surviving spouse, or, if the spouse does not survive, to certain specified beneficiaries, such as children. It's called a simple will because it is simple, meaning it isn't a complicated document. A simple will takes effect upon death.
A "living will," on the other hand, becomes effective during life; hence the word "living." A living will is designed to set forth your wishes and desires about certain end-of-life matters, such as the extent to which your family and medical personnel should go to keep you alive. Many people do not want to remain alive if they are in a permanent vegetative state, unresponsive, comatose and unable to care for themselves in any way. A living will directs that if you are in such a state, you want life support (such as food or breathing assistance) to be removed, and you want to be allowed to die. In Utah a living will has a formal name: Advance Medical Directive, and state law specifies exactly what needs to be in the Directive to make it legal.
Regardless of whether you have a simple (or other) will or a living will, both need to be executed with certain formalities, and either can be changed at any time before death.
Probably you need both. One is effective before you die, the other after death. A "simple willl" is a generic name given to a will that has only a few dispositive provisions. The typical simple will leaves everything to the surviving spouse, or, if the spouse does not survive, to certain specified beneficiaries, such as children. It's called a simple will because it is simple, meaning it isn't a complicated document. A simple will takes effect upon death.
A "living will," on the other hand, becomes effective during life; hence the word "living." A living will is designed to set forth your wishes and desires about certain end-of-life matters, such as the extent to which your family and medical personnel should go to keep you alive. Many people do not want to remain alive if they are in a permanent vegetative state, unresponsive, comatose and unable to care for themselves in any way. A living will directs that if you are in such a state, you want life support (such as food or breathing assistance) to be removed, and you want to be allowed to die. In Utah a living will has a formal name: Advance Medical Directive, and state law specifies exactly what needs to be in the Directive to make it legal.
Regardless of whether you have a simple (or other) will or a living will, both need to be executed with certain formalities, and either can be changed at any time before death.
Wednesday, December 8, 2010
Having Your Cake and Eating It Too
No, you really can't have your cake and eat it too, but that's exactly what a lot of people want and even expect from bankruptcy. They look on bankruptcy as a magic potion that will solve all of their financial problems and let them live the lifestyle they dream of (and were probably living in the first place). Bankruptcy is a serious step and requires serious effort. It is possible, even likely, that when someone files bankruptcy they will lose their house, their car, their boat, and a lot of other things that they financed. The reason is, if they can't make the payments before filing, they won't be able to make the payments after filing.
Instead of focusing on what they lose by filing bankruptcy, they should look at what they gain: Freedom from debt collectors. Freedom from robbing Peter to pay Paul. Freedom from working two or three jobs to make ends meet. Freedom to spend more time with family and friends. The chance to start over.
Bankruptcy is intended as a second chance. The "fresh start" concept is central to bankruptcy. But a fresh start doesn't mean going back and doing the same things over again, making the same mistakes, incurring the same debt. It means starting over and doing it better this time. This probably means living within your means, absolutely, positively not buying anything you don't need and setting priorities among what you do buy. It's hard, but bankruptcy wasn't meant to be a simple solution. And in the end, it's worth it.
Instead of focusing on what they lose by filing bankruptcy, they should look at what they gain: Freedom from debt collectors. Freedom from robbing Peter to pay Paul. Freedom from working two or three jobs to make ends meet. Freedom to spend more time with family and friends. The chance to start over.
Bankruptcy is intended as a second chance. The "fresh start" concept is central to bankruptcy. But a fresh start doesn't mean going back and doing the same things over again, making the same mistakes, incurring the same debt. It means starting over and doing it better this time. This probably means living within your means, absolutely, positively not buying anything you don't need and setting priorities among what you do buy. It's hard, but bankruptcy wasn't meant to be a simple solution. And in the end, it's worth it.
Friday, December 3, 2010
Deficit Commission Report Fails
My Facebook page has been alive with comments from Realtors and those in the real estate profession about the Deficit Commission Report that proposes, among other things, to eliminate the mortgage interest deduction (MID) for taxpayers. As the tax code now reads, interest paid on mortgage loans is deductible from income in calculating income tax. Real estate professionals are afraid that, if the MID is eliminated, the real estate industry will crumble.
Fears that the sky is falling are premature. The report failed to gain enough votes from the Congressional committee to advance to Congress as a whole. It received 11 votes, three shy of the 14 needed for advancement. While any of the proposals in the report could be considered piecemeal, its rejection assures that the entire report will not be voted on.
In addition to eliminating the MID, the report also called for changes to Medicare, freezes on federal salaries, an increase in the federal gas tax and raising the retirement age for Social Security. If France is any indication, the last will be wildly unpopular.
Fears that the sky is falling are premature. The report failed to gain enough votes from the Congressional committee to advance to Congress as a whole. It received 11 votes, three shy of the 14 needed for advancement. While any of the proposals in the report could be considered piecemeal, its rejection assures that the entire report will not be voted on.
In addition to eliminating the MID, the report also called for changes to Medicare, freezes on federal salaries, an increase in the federal gas tax and raising the retirement age for Social Security. If France is any indication, the last will be wildly unpopular.
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