In our last article on estate planning, we explained why estate planning is essential and discussed the basics of wills and powers of attorney. You probably know you want to avoid probate, but you might not know precisely why.. 

Probate

This process proves a decedent’s in court as legal and determines whether the decedent’s intentions have been carried out. Wills can be contested during this process since the probate court is public. The estate of someone who dies intestate (without a will) goes through probate to determine how to handle the assets.

It can take months to years to settle probate, depending on the estate’s size and other issues.

Once someone dies, all their assets (that aren’t jointly owned) are considered part of their estate. Financial assets that have named beneficiaries, such as retirement accounts and life insurance policies, and accounts with a transfer-on-death/payable-on-death designation are exempted from probate, as are trusts.

In California, if set up correctly, houses can be transferred on death, as can vehicles. Bear in mind that the law on transferring houses sunsets 1/1/21.

The will is legally verified by the judge, showing that the decedent signed the will in the presence of two witnesses. Then an executor or court-appointed administrator sets out to execute the terms of the will.

Executors get the death certificates to show the decedent is in fact, deceased. They find all the assets and have them appraised and notify creditors. (Note the beneficiaries don’t owe any money as long as they weren’t joint signers on any debt.)

The executor also needs to pay taxes, including income and estate tax, from the estate and make any payments like homeowners’ insurance and utility bills. They notify the beneficiaries named in the will.

After paying all the liabilities and taxes, the remainder or residue is distributed to the beneficiaries. The executor or administrator gets compensated for performing all these duties.
If you have a spouse, on first death, there’s no probate. Your spouse can claim the assets. But the will of the second to die must be probated. Almost all states have a “small estate” exemption, and if the total estate is less than the limit, the will doesn’t need to be probated. In California, the limit is $166,250.

Public

Court records, except in some instances, are available to the public. Anything that’s in the will can be discovered by anyone willing to do the research. The will can be contested in court. If you’re a private person or there are some skeletons in the closet that your family wouldn’t want to be made public, you want to avoid probate as much as you can.
Assets that don’t pass through probate, such as trust and retirement accounts, don’t have these issues.

Length of time

The entire process can easily take years. Some courts are severely backlogged, or there may be provisions in the will that could be difficult to execute. For example, the testator (decedent) might have left small bequests to people whose addresses the executor doesn’t have. However, they must still notify the beneficiaries and distribute the assets.
In California probate takes a minimum of 7-8 months (when there’s no pandemic on) and can go for up to two years.

Cost

As noted earlier, this varies by state. Some states have a less lengthy probate process that costs less than others. However, if you live in California, the executor’s fee starts at $4,000 for a $100,000 estate. It reaches $23,000 for $1mm estate up to $163,000 for a $20mm estate.

It’s important to note that for these purposes, the debts don’t reduce the value of the property. For example, if the house is worth $1,500,000 and it has a $1,250,000 mortgage, it’s still valued at $1.5 million.

Also, filing fees range from $60 to several hundred dollars for probate petitions and fees for copies of the death certificate. Notice of the probate hearing must be published in a newspaper, and that can cost $200.

However, there is one instance where it might be preferable to allow the assets to go through probate. That’s if there are a lot of lawsuits or liabilities against the property. 

After the creditor has been notified, there’s a small window – typically six months – where creditors must notify the estate that they’ll file a claim against it. If they don’t make the notification within the window, their claim expires.

Trusts

For probate to be reduced to the minimum possible, people often use trusts to hold their property. Upon death, the assets go by the language of the trust and sit outside the probate estate.

However, it’s not enough to have a trust; the assets must be placed into it. For example, if you want to put your house in a trust (almost always a good idea in California), then the house’s title must name the trust as owner. It’s not enough to write it into the trust.

Most people use a “living” trust to hold their assets. You can put real estate, bank accounts, vehicles, artwork, and other assets into a living trust. It doesn’t make sense to put retirement accounts or transfer-on-death assets into a trust, because they already operate outside probate.

You will be the trustee of the living trust, naming a successor trustee who takes over when you’re gone. Your successor trustee can also act on your behalf if you become incapacitated. They distribute the property as spelled out in the trust once you’re gone, without involving the courts.

These living trusts are usually also revocable so that you can make changes to them during your lifetime. (An irrevocable trust is set in stone.)

Trusts require you to deal with some paperwork while you’re setting them up, and the attorney’s fees to handle it. Yes, there are DIY trust documents out there, but you want to make sure that your trust is air-tight, so it’s worth having a professional do the work for you.

There’s not much ongoing record keeping required, except when you transfer property in or out of the trust. You do need to keep written records of those transfers.

As always, there’s no free lunch. You will pay to have the trust created and assets re-titled. It’s sometimes more challenging to refinance a property that’s held in a trust. If you can’t get over the hurdle by finding another lender who understands trust property, you could always transfer it back to yourself as owner for the refinance. Then transfer it back in afterward.
Creditors can sue the trust because there’s no creditor cutoff window like there is in probate.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Our tendency to live longer means that many families are in the unenviable position of supporting elderly parents while preparing for their retirement and trying to send their kids to good colleges. 

It’s impossible to get everything you want without an infinite supply of funds. But there are some reliable guiding principles. July is Sandwich Generation Month, a month dedicated to all the families struggling with this issue.

Put on your own oxygen mask first

We’ve talked about this principle before, particularly around the idea of self-care. It’s equally important when you’re trying to juggle your financial needs with those of others.

Why do the flight attendants tell you to put your oxygen mask on first? Is it because they think your selfish, or they want you to be selfish? Is it because they think you don’t care about the others around you? Do they believe, without even knowing you, that you feel you’re more important than everyone else?

It sounds ridiculous when put like that, right? You know why you need to put yours first: because you can’t help other people when you can’t breathe yourself.

Your financial needs are no different. If you don’t secure your financial future, how can you help others with theirs? If you drain your resources to help your parents, you cannot help your kids. If you assist your kids, you may put yourself in the position of needing their help in the long run.

Hopefully, by looking at the situation this way, you can see that it’s not selfish for you to want to prioritize your financial health before you try to support others with theirs. It’s common sense, not arrogance or unwillingness to help others.

Get help when you need it

There are a lot of services available for the elderly that your parents can use. You may need to research them. If you can’t spare the time to make all their meals or take them shopping, you’ll probably be able to find a program that will help them. 

And even if you do have the time, make sure that you get a break. Caregiving is a wonderful gift that you give to others, and it is also emotionally and mentally draining. All caregivers need to be able to take breaks to recharge. 

It’s not selfish to recharge your batteries. When you let them run down, you have nothing left to give to anyone. Keeping them charged is the best way for you to provide the care that you want your family to have. There are organizations specifically for caregivers that help with the mental and physical resources you need.

Years ago, a friend (at the time in her sixties) whose mother had early-onset Alzheimer’s disease was the primary caregiver. Her brother agreed to pay her for the service she provided. 

But because she took her mom to an adult daycare a few days a week, he wouldn’t pay for caregiver relief to come in so that she and her husband could go on vacation. This stress went on for years until her mother died of related complications. A few months later, she realized that she was displaying symptoms of the disease and that she had inherited it. 

Imagine spending all those years unable to take a break and enjoy time with your spouse or children due to your caregiving duties. Then you spend more years unable to take a break and enjoy that time because of a disease that prevents you from doing so. 

It would help if you took the vacation time that you get at work because rest and breaks are crucial to maintaining productivity, and even more importantly, joy in your life. Also, make sure that you get breaks and rest when you’re caring for a loved one. Renew your energy by spending time with your spouse and children too.

Loans for school, but no loans for retirement

On the other side of the sandwich, many parents feel the need to provide for their kids’ education in the same way that their parents did. Or because they recognize how important education is.

You and your kids are in very different phases of life. Your own earnings years are either drawing to a close or decreasing. While your kids either haven’t started yet or just entered the workforce. They have the time to pay off loans that you don’t. Most of the time, when you die, your loans and debts stay live.

Which means that you need to make sure you’re saving enough for retirement. You probably are already aware that Social Security is on somewhat shaky financial ground. However, it’s highly unlikely that people who have already paid into the system for decades won’t get anything. Currently, the program is fully solvent until 2035, but after that, it will be able to pay out only 75% of promised benefits.

We’ve been here before, most recently in the 1980s, when one solution was to push back the age at which people could take normal retirement, from age 65 to age 67. There are other ways to fix Social Security, including paying the tax on all wages, not just the first $138,000. On the other hand, it’s probably not a wise course to decide that you will depend utterly on Social Security for your retirement either.

Few workers have pensions anymore, so your retirement savings will be the bulk of what you live on in old age. If your balance is low, you have less time for the money to compound and you need to beef it up significantly. If you’re in the middle of your prime earning years (your 40s and 50s), you need to sock away as much as you can.

That may leave less for your kids’ college educations, but they can take out loans. They can also look into work-study programs. Many families save by enrolling their kids in community college for the first two years, before transferring to a 4-year university. There are a lot of options when you’re not focused on specific institutions or specific degrees. 

Be honest with your kids that they’ll need to contribute to their college fund. They might choose to supplement what you can give them with earnings from summer work, or save up birthday and holiday gifts. Get them involved in the future. Not only is it good for your wallet, but it’s better for them too.

If you want to discuss how to balance out your sandwich situation, please give us a call at 619.255.9554 or email us for an appointment.

As we discussed earlier (in the post about being productive while working from home), we’re all under a cloud of uncertainty. It’s not clear when people will start going back to work in the office. Or even if that will happen, since many employees likely will be working remotely for some of the time. Not knowing what will happen next makes financial decision making difficult. 

So, how you can optimize your decisions even when the circumstances are unclear? Fortunately, we can implement some reliable strategies that work under any uncertainty, whether it’s COVID-19 or anything else that life throws your way. You can adapt them to both business and personal decisions.

Take a deep breath to help ease anxiety and read on.

Recognize the uncertainty to avoid trigger decision-making

Sometimes people want to forge ahead with the decision making so they can take action. Humans tend to feel better when they’re doing something. Which is why so many end up selling their stocks when the market drops, because at least they’re doing something to relieve the anxiety of seeing their paper worth drop.

(Remember that your actual portfolio doesn’t drop in value unless you sell and take the loss.)

By acknowledging that you don’t (and can’t) have all the facts, you’re not resisting the logical part of you that knows this. If you don’t accept the situation, the side of your brain that understands you don’t have all the facts will be fighting every decision you make!

“My lesson… is to start every meeting at my trading boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.” – Nassim Taleb, author of Fooled by Randomness, Antifragile and The Black Swan

Examine all the options before financial decision-making

You may already have some thoughts about which way you want to decide. But make sure that you’ve explored every possibility, no matter how remote. Sometimes just taking a contrarian viewpoint helps you understand the possible negative consequences of your preferred course of action. And the positives of taking a different route, so that you arrive at a better-informed decision.

The best way to make sure you’re looking at all the alternatives is to involve other people. Have you ever seen contests with jars filled with some candy or other treats, and there’s a prize for guessing how many are in the jar? Any individual guess is highly unlikely to be right, but the average usually ends up extremely close to the actual number when they’re all combined. 

Use the wisdom of crowds. Invite others to hash out the options with you. If it’s a business decision, get your colleagues involved. If it’s personal, friends, and family. If it’s a financial decision, talk to your financial advisor. When possible, include people that you know have differing viewpoints so that you can understand why they have a particular perspective, which could change your view of the matter.

Spread out the risk

As you know from investing, the more risk, the more opportunity from return. If you can take more chances, you’ll increase the likelihood that you’re right. Give yourself a higher probability of one of your choices being the right one.

You can see this in the NFL. Research showed that over 14 years, the teams that ended up with two “lesser” draft picks performed better than those who had one high pick. They gave themselves more opportunities to do well with two players, rather than relying on just the one to carry them through.

Talk to your financial advisor about how your portfolio is designed for risk. Your advisor should be able to explain the financial decision-making behind your investment allocations and selected funds in your portfolio. 

Know you’ll be wrong and stay involved

We’re all human, which, by definition, means imperfection. Therefore, make your life less stressful from the get-go by understanding that you’re not going to be right all the time. It doesn’t happen. Sure, you can make better estimates and better guesses about the future as you go along.

Absent a crystal ball, you have no way of knowing whether you’re going to be right or not. If you expect that you’ll be wrong, it’s much easier to deal with when it happens.

When you play it safe because you’re afraid of being wrong, you miss out on opportunities. Make room for error in your process, even as you do your best to reduce systematic ones.

Venture capitalists know that three-fourths of the companies that they invest in will fail. So they often get involved with the management of the companies they buy. They help coach the founders and staff through the obstacles that arise. This involvement helps them mitigate the failure and learn what mistakes not to make in the future, even as they understand some of their portfolio won’t make it to the next round of funding.

Decide to learn for better financial decision-making

There are a couple of ways that you can use learning to make better decisions. 

One is to reflect on the decisions you’ve previously made. Include the ones that came out poorly, and the ones that came out well. 

Sometimes the result isn’t tied to the decision. You can make the right decision that doesn’t turn out well for various reasons, including luck. Or you make a decision that had a high probability of succeeding, but end up on the low end of the probability. Even good decisions aren’t guaranteed to come out well 100% of the time.

Review your decision-making process separate from the result. Did you make the best decision you could under the circumstances? If not, why not? What did you learn from the experience?

The second way to make better decisions is to run small tests or experiments before launching a full-scale version. 

For example, rather than ramping up your entire production line for an untested product, run some online experiments to determine if your customers would be interested in such a product. And, importantly: what they would be willing to pay for it. If they’re willing to pay, but the price point is too low to be profitable, you can scrap the idea. Or tweak it into something that people would buy that would still be profitable to you. With modern technology, it’s easy to do this kind of testing.

Or maybe you have a hobby that you’re considering monetizing. Instead of going full-bore on creating an entire line, make some prototypes and shop them around to make sure there’s interest in your items first.

Ideally, of course, you use both techniques. Tests and experiments begin to help you make a decision, and then reflection afterward to pick up on any lessons you need to learn for next time.

If you want to dive deeper into this topic, we highly recommend Annie Duke’s “Thinking in Bets.” This book allows you a peek into the thought process of one of the world’s most renowned poker players.

Would you like Platt WM to help you crowdsource a decision? We’re happy to help our clients think through their business and financial options. Give us a call at 619.255.9554 or email us.

Money is essential to living in the US, so everyone needs to know the basics about finance. Not many schools teach the subject. You might have to be the one to teach your children money fundamentals, no matter their age. If they’re old enough to earn an allowance, they’re old enough to learn how to deal with it.

We’ve arranged the concepts below from simple to more complicated. Kids today are often well-versed in TikTok and Snapchat but not money. As the parent, you’ll know where they are in terms of financial sophistication. How you talk to your kids can also differ depending on how old they are. The idea of a spending plan for a six-year-old shouldn’t be discussed at the same level as with your teenager.

Your children should have a good understanding of most of these before they get to college (with the possible exception of retirement savings). Don’t worry if you missed that deadline, because it’s never too late!

If you can, start early so your kids don’t get tempted by the credit offers that wash over college campuses. Or they don’t end up taking out $300,000 worth of loans to obtain a credential that would only generate around $40,000 per year in salary (true story).

Spend Less Than You Earn

Even young children can learn this at a very basic level. Suppose they’ve earned $5 in allowance money. Talk to them about setting some aside for later, maybe buying a gift for a sibling, and taking the rest to spend.

This can be scaled up as necessary for older children. They might want to spend money to hang out with their friends.

Plant the seed of spending less than you earn as early on as you possibly can, and water it regularly! Make sure the concept of saving is built in. Right away your kids understand that a portion of all earnings should be stashed away for later.

Wants vs. Needs

This is huge for helping children learn to live a financially comfortable life. Yes, your child needs a set of pencils for school. But they don’t need the super-expensive set.

Yes, they need clothes to wear. But they don’t need designer outfits.

Yes, your young child wants a lollipop, but they don’t need it.

Help them make a list of what they need and what they want. You might be surprised at what goes in each category! Talk to them in an age-appropriate manner about making sure that their needs are covered before they spend on their wants.

For example, you might expect your older children to purchase some school supplies or cover their own cellphone bill (or whatever), using their allowance or part-time job money. Be clear that they pay for these requirements first. Before they spend their money on other items like entertainment.

Money as a Tool Not an End Goal

You don’t want to raise a Scrooge McDuck who enjoys their money by diving into a pile of gold coins! Help them understand that the point of life is not to amass as much money as possible, but to lead a fulfilling life using money as a tool.

With younger children, keep it simple. Do they like it when other kids don’t let them use their toys, but keep the toys all to themselves? Those kids are greedy, and no one wants to play with them.

Children who see money as a tool and not an end in and of itself are less likely to be greedy and more likely to use it responsibly.

Charity

As a follow-up to avoiding greed, kids can be taught the value of helping others. Sometimes that’s a financial donation, but it often isn’t. A great lesson for this is to “adopt” a family at the holidays. Choose a family whose children are similar in age to your own, and have them help pick out the items needed.

In addition to money, children can learn to donate their time. Make it fun! If they love the water, join in on a beach cleanup during the summer. There are plenty of organizations out there so you’ll find one that works for your family.

Whether your family plans to donate money or time, talk to the kids about how they can determine if the charity is legitimate. How do you know that the money goes where you want it to go? When choosing the volunteer activity, they can also do (age-appropriate) due diligence.

Set Financial Goals

It’s highly likely that your kids, no matter what age, want something! They may not have the money for it. Teach them how to solve this puzzle.

For young children, pick a goal that won’t take too long for them to achieve. For older children, if it’s a more expensive item, you might contribute some amount and then have your child save up for the rest.

Sometimes, kids find through this type of exercise that the original goal isn’t quite worth saving all that money. That’s OK, and it’s a valuable lesson as well.

Debt and Compounding Interest

You might save this lesson for your older children. However, they definitely need to know it before they go off to college. They must understand that when they don’t pay off all the debt on a credit card, it grows higher than the amount they originally took out.

You can probably find illustrations of this online. Most credit card companies now show on the statement how long it takes to pay off a certain amount of debt when only the minimum payment is made.

Credit scores are also important for kids to understand. How too much debt makes it harder for them to buy cars and houses, and even rent apartments or get a job. Having a good credit score means using debt responsibly (e.g., paying off the credit card in full at the end of the month) and not having too much of it.

Debt vs. Credit Cards

Kids today aren’t necessarily familiar with checking accounts, so the difference between debit and credit may not be immediately obvious to them. Explain how the debit card draws from their account. And has no impact on their debt or credit score.

By contrast, paying on a credit card leaves the money in their account alone. But if they don’t pay the credit card off at the end of the month, they’ll owe more than the purchase price.

They also need to understand that this type of purchase could affect their credit score as well, if they’re not responsible about paying off the balance every month.

Taxes

Here’s another subject that’s probably better for older children. Not only income taxes on the money that they earn, but also sales tax on what they buy. They’ll need to learn that the price of the item on the rack isn’t what they’re going to pay at the cash register.

A big misconception kids (and adults!) have about income taxes is that the tax bracket rate applies to all their income. Introduce the concept of marginal taxes, where the bracket rate applies only to the amount above a certain floor according to the tax code. Let them know what income taxes are used for: roads, fire departments, public health, and the like.

If your child is earning money, whether it’s from YouTube videos or a part-time job, they should learn how to do their own taxes. My dad made me learn how to do mine back when there was no software. It’s a great life-skill for your kids to have, and they understand why the money they see in their account isn’t the $15/hour that was promised!

Retirement Savings

One key concept to get across is the importance of saving for it ahead of time. Hopefully you already planted that seed with the idea of spending less than you earn, and the discussion of how compound interest works. This time, it’s working for them, not against them.

Another is why tax-deferred accounts are so attractive. Most kids should probably be opening Roth accounts if they’re eligible to make retirement contributions, but at this stage you probably don’t need to get into the nuts and bolts of traditional v. Roth.

They’ll need to learn about stocks and mutual funds. That a share of stock means they’re owning a share of the company they’re buying. Stocks are best for long-term investments, which is also important for them to know.

They’ll need to learn about stocks and mutual funds. That a share of stock means they’re owning a share of the company they’re buying. Stocks are best for long-term investments, which is also important for them to know.

Would you like to invite your adult children to your next planning session so they understand your plans and goals? Give us a call at 619.255.9554 or email us.