The Most Important Love Letters You’ll Ever Write

Originally in ForbesYou don’t want to write estate planning documents because you don’t love meditating on the prospect of your own death.  Sure, you might think you’re mature enough to face that eventuality and plan responsibly to care for anyone or anything you might leave behind.  But even if you’re perfectly cognizant of your own mortality and confident of a secured eternity north of the border, you may not rank a discussion on splitting up your worldly assets and responsibilities with an attorney particularly high.

But your estate planning documents aren’t for you.  Think of them as the most important love letters you’ll ever write.  Find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.

The most important recommendation in every financial plan is successful completion of thoughtfully prepared estate planning documents.  So, no matter your age (unless you’re still a minor), marital status or net worth, you need to be considering how to write your WILL, DURABLE POWER OF ATTORNEY and ADVANCE DIRECTIVES.

Here is an estate planning crash course in the form of three videos addressing each primary document in under 90 seconds.  Enjoy!  (Then, act.)

 How to Create a Will in 90 Seconds or Less


How to Create a Durable Power of Attorney in 90 Seconds or Less


How to Create Advance Directives in 90 Seconds or Less

The Economic Bias of Home and Auto Insurance Agents

Most of the time, we expect those in the financial sales realm to sell us MORE of something than we may need, because the more they sell, the more money they make, right?  But in one very interesting example—home and auto insurance agents—they may actually have an Economic Bias to sell us LESS than we need.  Please take 90 seconds to learn why:

The Economic Bias of Life Insurance Agents

In our second 90 Second Finance installment on the topic of Economic Bias—a conflict of interest where money is involved—we tackle the bias in the financial realm most often stereotyped: the life insurance agent. There are many great, trustworthy agents out there, but there’s no denying their Economic Bias is a big one. Of course, it might not be what you think it is…

(Click HERE if you missed the introductory 90 Second Finance video on Economic Bias.)

The Most Important Financial Planning Recommendation for Young Parents

Young-family-portraits If you queried a score of financial planners and hit them with the question, “What is the most important financial planning recommendation for young parents?” I bet 19 of them would mention something about investing, retirement planning, insurance, education planning or tax planning.  But the most important financial planning recommendation for young parents isn’t even completed by a financial planner, but instead, an attorney.

If you’re a parent with minor children, the most important planning strategy you can employ is to have a will written and a guardian established for your children in the will.  The guardian is the person charged with the day-to-day care of your children, effectively becoming their new parent.  If you fail to designate who should hold that penultimate office, your state of residence will decide for you.  Do you trust them to make the right decision?

There are at least two other officers you should appoint in your will—the personal representative (AKA executor) and the trustee.  The personal representative (PR) has the relatively short-term job of walking your estate through the probate process.  You want to choose an anal retentive (for lack of a better term) person who will follow the steps necessary to complete the detailed checklist to close your estate.

The trustee is the designee second in importance only to the guardian.  While the guardian is responsible to raise your children, the trustee is responsible to fund their upbringing.  Before you mistake the need for a trustee in your will as an optional estate planning feature reserved solely for the silver spoon crowd, let me assure you the vast majority of youngish households should be seriously considering the creation of a trust in their will and a trustee to manage it.  I’m not talking about a “trust fund” here but a testamentary trust, a vehicle not birthed until you and your spouse are no more.

The testamentary trust may not exist until you don’t, but you write the rules for it in your will.  It is likely to receive the bulk of your estate—your home and life insurance proceeds—and since most families with a proper level of life insurance will have a testamentary trust with over a million dollars in it, it is important to deliberate over the instructions you give for the trust’s use.  Many wisely give the trustee broad “HEMS” provisions, allowing for distributions supporting health, education, maintenance and support. Additionally, consider scheduling principal distributions over several years—for example, you may distribute one third of the principal at age 25, half at age 30 and the remainder at age 35.  You’re protecting the money both for and from the child.  After all, what would you have done with a million bucks at the age of 21?

A logical question many pose is, “Shouldn’t I just name one person for the personal representative, guardian and trustee?”  After I disclaim that I’m not an attorney and don’t wish to be misconstrued as one offering “legal advice” (an offense punishable by law) I may respond that I prefer to see the person best suited for each office named.  For most of us, it is not one person alone who is an optimal fit for each of the important designations in your will.  Is the person you trust most to actually raise your children also the most financial savvy and detail oriented?  Even if the answer is yes, you may still consider the benefit of having a healthy wall of separation between the guardian and the giant bucket of money in the testamentary trust created under your will. 

It’s not that investing, insuring, education planning, retirement planning and tax planning aren’t important—in fact, they have the highest probability of impacting your life and the lives of your family members, while the guardianship and trustee provisions in your will are unlikely ever to be exercised.  But in the unlikely case that you and your parental partner are both taken from this earth in an untimely fashion, you’ll make that transition much more peacefully knowing someone you trust is designated to care for your offspring and their financial wellbeing.  More succinctly, you can’t write a will after you’re dead.

90 Second Finance…The Bucket Plan

The "technical" term I use most in educating about personal finance is… BUCKET.  It’s useful in so many areas of financial planning.  You put your money into checking account buckets and set-up various budget buckets.  You contribute money to a 401(k) bucket during your working years and then take money out of that bucket in retirement.

This video is 90 seconds of instruction on the primary decisions you face in creating the optimal Will…the document you should have properly written before you KICK the bucket!

Defense Wins Championships

The fall is, without a doubt, my favorite time of year. And a not-so-insignificant element of that is the joy that fills my heart when huddled around my parents’ television on a Sunday afternoon with my family, a belly full of “linner” (a lunch big enough to be dinner) and the smell of apple pie wafting over a group of adults and children yelling in unison at the images of modern day gladiators chasing around an odd-shaped leather ball.  Football is philosophy… and some of that philosophy translates especially well in our personal finances.

The Most Important Financial Planning Recommendation

Estate_planningWhen I say, “Financial Planning,” it’s altogether likely that the first thing that comes to your mind is either INVESTMENTS or INSURANCE.  And while each of those disciplines are fundamental and foundational to every good financial plan, it is easy for me to say that the most important recommendation that I see in most financial plans does not fall under either of those categories, but instead, in the realm of estate planning.

And, of course, the first thing that comes to mind when I mention stuff like wills, powers of attorney and advance directives is, “Oh, yeah, I know I need to do that.”  You’re in good company if you haven’t; over 80% of people don’t have these documents, and most of those who do, have insufficient or outdated documents.  Why is it, then, that I could suggest that the MOST IMPORTANT recommendations in your financial plan fall under the heading of estate planning?

First, if you have minor children and haven’t yet created wills (or you have children who’ve blessed you with grandchildren), you should stop whatever you’re doing and purpose yourself to contacting an estate planning attorney to get these documents drafted immediately.  Ordinarily, I try to avoid using such dramatic words as best, most and immediately, but I’m not exaggerating here!  The reason this is so important if you have minor children is because you stipulate in your will who the GUARDIAN would be for your children in the case that you and your spouse are both… gone.  Sure, the probability of that happening is very low, but if you don’t determine who should raise your children in your absence through a will, your state of residence will decide for you!

Second, whether you just became a legal adult or have recently gained access into the centenarian club, the time is likely to come when you’ll need someone else to help you with a financial or health decision because you’re unable (through a disability) or unavailable (you’re settling on a house and are out-of-town for business).  You can clear up exactly how these things would be handled with a well written power of attorney document and advance directives.  The former allows someone else to act on your behalf in financial matters; the latter, in decisions surrounding healthcare or end-of-life decisions (like the tragic Terri Schiavo case).

Third, of the very few things you can count on as certainty in this life is that your stay here on Earth will eventually come to an end.  So even if you’ve made definitive plans to join the prophet Elijah, who reportedly left the planet on a chariot of fire sometime around 800 B.C., you’ll likely be leaving someone (and something) behind when you go.  Deliberating over what you intend to leave behind—both monetarily and otherwise—may be seen as not only an opportunity, but an obligation for a life-well-lived.

So why do you think people have a tendency NOT to check-off this big to-do item of having solid estate planning documents created?  People have a tendency to avoid conversations about their own demise, as though they might attract it sooner.  Instead, I encourage you to see this as an incredible opportunity!  Whether your 20 or 120, I encourage you not just to leave an estate, but a legacy.

For more information on HOW to put together a proper estate plan, you’ll find a more detailed explanation in Chapter Sixteen of THE FINANCIAL CROSSROADS.

For more information on WHY, enjoy my CROSSROADS co-author, Jim Stovall’s, best-selling novel, THE ULTIMATE GIFT.

Would your homeowner’s policy cover an earthquake?

Below is a guest post from my friend, mentor, boss and truly one of the great technicians in the realm of personal finance, Drew Tignanelli, on a topic that caused an immediate reaction in me–a phone call to my homeowner's insurance agent to make a change on my policy!

By now, most of us have seen the pictures of devastation in New Zealand from the 7.2 magnitudeEarthquake-In-New-Zealand-300x225  
earthquake.  The message was very clear…When an earthquake hits, it's devastating!  Houses can collapse, foundations can be destroyed, interiors can be cracked, and homes still standing can be too dangerous to inhabit.  Many times the likely loss is a total of the insured value of the home.  This is the result in a place that is accustomed to earthquakes, like New Zealand, that has building requirements to minimize the earthquake property damage.

Now consider the same degree of earthquake in a land with no building codes for earthquake damage control. The likely result may be the equivalent of the devastation from Hurricane Katrina.  The East Coast of the United States is the perfect example of an area that has no building code requirements to protect from land movement.  A magnitude 7.0 earthquake on the East Coast could be beyond our understanding of devastation, since nothing built in this region was designed to withstand land movement.  Do some internet searches of U.S. fault lines on the East Coast and you will find out we are clearly at risk. These faults have just been less active than those out west.

Now here is the point of this article.  Your homeowners insurance policy completely EXCLUDES coverage for the movement of land.  So, if there is an earthquake and your house is destroyed, you will lose everything.  I am a financial professional and even I did not realize that my policy excludes land movement coverage.  Of course you can get coverage, because West Coast residents have it.  But you have to ask for it from your property casualty agent who has incentives to NOT suggest that you consider adding earthquake coverage.  Here is the best news of all… The cost to add the rider for land movement may be no more than $100/year.    

Call your agent and consider the cost of coverage versus the risk of an earthquake on your homeowners' policy.  No matter where you live–East Coast, West Coast, or any coast at all–call your agent and consider the coverage. One way to add the coverage without increasing your policy cost is to raise your deductible and self-insure the first dollars of loss.  I would rather pay a $1,000 or $1,500 for a few small claims than to lose everything.  

I was awake on July 17, 2010 at 5 a.m. when a relatively small 3.6 magnitude earthquake hit in Germantown, MD and I live 45 miles north in Reisterstown, MD.  After what I experienced, and now what I have learned about my policy, I gladly added the $85/year cost of the coverage.  You should be calling your agent NOW to look into adding earthquake coverage to your policy.  Remember, if your agent tries to talk you out of it, it is because they have an economic incentive for you not to carry it.

Hopefully your area will always remain earthquake free and the coverage proves to be a waste of money!

Andrew V. Tignanelli, CPA, CFP(r)


Financial Consulate, Inc.

Annuities are Not Bought…They’re Sold!

For those working as financial planners, that we will eventually be humbled by the recognition of a faulty thought process is not just likely, but a foregone conclusion.  One of the financial products that I was trained on intensely was annuities—fixed annuities, variable annuities, equity indexed annuities and immediate annuities.  And it wasn’t until I was in the industry over seven years that my continued research began to reveal that the benefits of annuities to consumers were exaggerated and the drawbacks, downplayed.  As that truth began to settle in, I had to acknowledge that I was wrong.  That was humbling, but I wouldn’t trade my initially faulty thought process for anything, because learning “the hard way” has helped me grow through experience and it makes me a better planner today.  Here’s my confession, which kicks off Chapter Twelve in The Financial Crossroads:

From Chapter Twelve, The “A” Word:

Funny_Sales_Cartoon_sales_callrememberingnames  In the realm of personal finance, no word has been dragged through the mud more times than The “A” Word—Annuities.  Yet, annuities still survive and even thrive.  How they do is not a mystery.  

There is not an outcry on the part of consumers demanding annuity products.  The reason for the continued vibrancy of annuity products and sales is that they pay a big honkin’ commission to the selling broker or agent.  (There, I’ve said it.)  And, as most of the financial sales tactics exposed in this book, I’m especially qualified to make such a statement, because I have sold them myself.  I wasn’t a bad person in those days, conniving to separate prospects from their hard-earned money for my own selfish benefit.  Conversely, every time in years past when I sold an investment product to a client for a commission, I did so thinking it was best for the client.  My recommendations met all the legal requirements of suitability that are required of a broker, but I declare to you now that in hindsight there is no question that my judgment was partly influenced by the amount of money that I could make (or not make) in the sale.  

And how could it not be?  Let’s say you, as a salesperson, had three different products to sell with the following characteristics: one would pay you 1% for every year that the investment continued to be held by the client, one would pay you 5.75% up front followed by .25% each additional year, and another would pay you 12%—all up front.  Which one would you be likely to pick, all things being considered equal?  Hmmmm.  Let’s add to the scenario the assumption that you were selling in the midst of an economic downturn which had resulted in a significant loss of revenue for you and your family.  Is it possible that in that circumstance you may be inclined to favor the product that pays 12% up front over the one that pays 5.75% up front?  And forget about the one that pays 1%, because in tough times, that simply isn’t going to butter the bread.  These aren’t imaginary numbers that I’m using. One percent is a slightly below average amount that a financial advisor may charge for discretionary management of your investment assets; 5.75% is the average commission paid to a broker who sells a mutual fund (A share); and annuity products pay up to—and in some cases over—12%!

The sale of annuities is justified entirely too often because of the massive commissions that go to the broker or agent selling the product.  Powerful organizations have made it their lives’ work to decry this very notion and have built elaborate systems designed to convince themselves, their brokers and agents, and the consuming public to believe in the justness of their actions.  I was a part of one such group and was encouraged—along with a room full of other financial folks who had been invited to San Diego for an all-expense paid trip to hear what this organization had to say—to join the ranks of the “Safe Money Specialists.”  Other people were selling products.  We were selling peace of mind and getting paid 10 times as much!

I repeat: people who sell annuities aren’t bad people.  But, they are sales people.  You expect timeshare salespeople to have an economic bias to sell you a timeshare.  You expect a phone solicitor who interrupts your dinner to keep you on the phone to convince you to buy something before you hang up the phone.  You don’t, however, expect someone who refers to themselves as a financial planner or advisor or professional to have the primary aim to sell you something.  Unfortunately, many of them do.  Your broker or agent may have drank the company Kool-Aid and genuinely believe that he or she is doing the best thing for you, so treat them with respect when you tell them you’ll be moving your business.  As I learned growing up in the Baptist church, we should, “Hate the sin, not the sinner.”  We will be discussing in much greater detail the ways that financial services employees and financial advisors are compensated and what you should look for in Chapter Seventeen.