Ric Komarek, CFP
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Monetary Muddle

8/2/2022

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The Federal Reserve raised short-term interest rates by three-quarters of a percentage point (75 basis points) on Wednesday.  The day before, the Fed had released M2 money supply data for June and it fell slightly, the second decline in three months.  At his press conference after the rate hike, Fed Chairman Jerome Powell was vague about the Fed’s future intentions on rates, but was not asked one single question about the money supply.

For now, with the federal funds rate at 2.375%, the futures market is leaning toward a rate hike of 50 bps in September.  The Fed has apparently abandoned “forward guidance” partly because it has already pushed rates close to what many Fed members said is “neutral.”

Meanwhile, the 10-year Treasury yield has fallen from north of 3.4% to under 2.7% suggesting the market thinks the Fed will either slow down rate hikes, or maybe even cut them next year.  Unless, inflation falls precipitously, this makes no sense.  “Core” PCE inflation is closing in on 5% and a “neutral” interest rate should be at least that high, or higher.  The Fed has never managed policy under its new abundant reserve system with inflation rising this fast.  No one, even the Fed, knows exactly how rate hikes will affect the economy under this new system. (See MMO)

Many think the economy is in recession already, because of two consecutive quarters of declining real GDP.  But this is a simplified definition.  Go to NBER.Org to see the actual definition of recession.  A broad array of spending, income, production and jobs data rose in the first six months of 2022.  GDP is not a great real-time measure of overall economic activity for many reasons.  Jerome Powell does not think the US is in recession, and neither do we.  What we do know is that inflation is still extremely high and the only way to get it down and keep it down is by slowing money growth.

And that does look like it’s happening.  So far this year, M2 is up at only a 1.7% annual rate, after climbing at an 18.4% annual rate in 2020-21.  By contrast, M2 grew at a 6.2% annual rate in the ten years leading up to COVID.

Slow growth (or even slight declines) in M2 is good news.  The problem is that the Fed never talks about M2 and the press never seems to ask.  Moreover, slower growth in M2 may be tied to a surge in tax payments – when a taxpayer writes a check to the government, the bank deposits in M2 fall.  Data on deposits at banks back this up.  However, banks have trillions in excess reserves and total loans and leases are growing at double digit rates.  At this point, it is not clear that the new policy regime can persistently slow M2.  Will higher rates stop the growth of loans?  This looks to be happening in mortgages, but it appears to be demand-driven, not supply-driven.   

The bottom line is that the Fed seems determined to bring inflation down but thinks raising short-term interest rates, all by itself, can do the job effectively, even at the same time that it is willing to hike more gradually when inflation is well above the level of rates.  This is not a recipe for confidence in the Fed.  Expect rates to peak higher than the market now expects and keep watching M2.

To view this article, Click Here.

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/1/2022
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​Should you consider a financial caregiver?

8/2/2022

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Age and poor health can quickly impair a person’s ability to deal with life’s many issues, including money.  There are many avenues you may decide to take for a loved one (or you may recognize that you desire some assistance yourself). Below I cover a variety of arrangements for help at various levels of need and formality.

Also note that laws vary from state to state, but here we'll look at some general guidelines. As with any legal issue, please consider consulting with an attorney that specializes in such matters if and when you are making these decisions.

Informal financial caregiving

If you have an elderly relative who is need of help, yet is still highly functioning, one option is to appoint a conversation partner. This allows a trusted friend or relative to oversee someone’s finances. He or she could receive duplicate bank and brokerage statements and join the elder person when they visit their financial advisor.

You could also consider appointing a trusted contact person that someone’s advisor or bank can reach out to in the event of certain circumstances, such as suspected fraud.

Another option at this level is to establish a convenience account.  This is not a joint account, but it lets an assistant help an individual deposit funds, withdraw money, and write checks. At the account owner’s death, the helper will not receive the funds in the account. But there are pitfalls to these accounts, as we’ll discuss below.

Formal financial caregiving

You may formally establish a joint account for someone who needs assistance with their financial affairs, but there are downsides this. Yes, the helper can quickly pay bills and manage financial affairs, but they could also steal from the account. Creditors of either person could access the account, too.

Joint tenants with rights of survivorship allows the survivor to take ownership of the account. This could quickly cause conflicts with heirs and thwart the wishes of the deceased.

Can you set up the account as tenants in common? That is a possible solution, as the assets then would pass to the estate of the deceased and not the financial caregiver named on the joint account.

A power of attorney gives someone the legal authority to make decisions about an individual’s finances and/or property.

Might an older or infirm person need a guardian? If a person doesn’t have a power of attorney, a court can name a guardian or conservator to manage their finances and health care decisions, if the court decides they are unable to manage decisions by themselves.

A trustee is given authority only over assets that are in a trust, such as a revocable living trust. Like a will, the trust will stipulate who receives the assets in the trust when the owner dies.

You might find yourself in the role of court-appointed guardian over someone in your family. Such guardians, conservators and trustees are considered fiduciaries. It’s a high standard. It means the financial caregiver must manage a person’s finances for that person’s benefit. They promise to will be acting on the other person’s behalf and always must put that person’s interests first.

The fiduciary standard includes:

• Carefully managing the person’s finances
• Keeping their finances and property separate from the caregiver’s own finances
• Always maintaining good records, including recording the reason for any payment in the memo field of the check

In addition:

• You cannot borrow from the account.
• Are you being paid? Do not pay yourself by withdrawing from the account. Have another person write the check for payment.

If you fail to meet the high standards of a fiduciary, you could be removed, sued, forced to repay money, or even have criminal charges brought against you.

Financial exploitation and elder abuse

Unfortunately, sometimes those appointed to care for the elderly will take advantage of them. Here are some of the signs to watch out for with the older people among your family and friends.

• An outside party, friend, or close relative notices or believes that some money or property is missing.
• Excessive gift giving suddenly takes place.
• The person whose finances are being managed says that some money or property is missing. 
• There is a sudden change in spending or savings. This might include heavy ATM usage, large unexplained wire transfers, purchases of items that don’t seem necessary, bills that go unpaid, names are added to bank and brokerage accounts, or changes in beneficiaries are made without explanation.
• A relative, caregiver, friend, or someone else blocks visitors or phone calls, or seems to be controlling decisions.

Questions you might ask before naming a caregiver

As you think through persons who might fit the role of financial caregiver, ask yourself or the person who is going to be assisted:  Am I comfortable sharing my wishes with them? Will they carry out my wishes? Do I trust this person? Will they act in my best interest? Will they manage my affairs correctly? Will they keep proper records and keep their money separate from mine?

Appointing a financial caregiver is not a responsibility that should be taken lightly. Choose the right person. If you answered “Maybe” or “No” to some of these questions, consider asking someone else. (Sources: Consumer Financial Protection Bureau, AARP)

If you have additional questions, I'd be happy to speak with you. That’s what I'm here for.

I trust you’ve found this review to be educational and insightful. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, thank you for the trust, confidence, and the opportunity to serve as your financial advisor
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Still No Recession

7/25/2022

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To many investors, this week’s GDP report is more important than usual.  The reason is that real GDP declined in the first quarter and might have declined again in Q2.  If so, this could mean two straight quarters of negative growth, which is the rule of thumb definition many use for a recession.

We think these investors are paying too much attention to the GDP numbers; the US is not in a recession, at least not yet.  Industrial production rose at a 4.8% annual rate in the first quarter and at a 6.2% rate in Q2.  Unemployment is lower now than at the end of 2021.  Payrolls grew at a monthly rate of 539,000 in the first quarter and 375,000 in Q2.  If we were already in a recession, none of this would have happened.  That’s why the National Bureau of Economic Research, the “official” arbiter of recessions, uses a wide range of data when assessing whether the economy is shrinking.

In addition, it’s important to recognize that once a year the government goes back and revises all the GDP data for the past several years.  That happens in July, including with the report arriving this Thursday.  Given the strength in jobs and industrial production, it wouldn’t surprise us at all if Q1 is eventually revised positive.
In the meantime, we are forecasting growth at a +0.5% annual rate in Q2.  Here’s how we get there.  

Consumption:  “Real” (inflation-adjusted) retail sales outside the auto sector grew at a 2.2% annual rate, and it looks like real services spending should be up at a solid pace, as well.  However, car and light truck sales fell at a 19.7% rate.  Putting it all together, we estimate real consumer spending on goods and services, combined, increased at a modest 1.2% rate, adding 0.8 points to the real GDP growth rate (1.2 times the consumption share of GDP, which is 68%, equals 0.8).

Business Investment:  We estimate a 5.5% annual growth rate for business equipment investment, a 7.5% gain in intellectual property, but a 4.0% decline in commercial construction.  Combined, business investment looks like it grew at a 4.4% rate, which would add 0.6 points to real GDP growth.  (4.4 times the 14% business investment share of GDP equals 0.6).

Home Building:  Residential construction looks like it contracted at a 4.0% annual rate.  Mortgage rates should eventually become a headwind, but, for now, it looks like an increase in spending on construction was more than accounted for by inflation in construction costs.   A decline at a 4.0% rate would subtract 0.2 points from real GDP growth.  (-4.0 times the 5% residential construction share of GDP equals -0.2).

Government:  Remember, only direct government purchases of goods and services (and not transfer payments like unemployment insurance) count when calculating GDP.  We estimate these purchases – which represents a 17% share of GDP – were roughly unchanged, which means zero effect on real GDP. 

Trade:  Exports have surged through May while imports, after spiking late in the first quarter, have remained roughly flat so far in Q2.  That means a smaller trade deficit.  At present, we’re projecting net exports will add 1.0 point to real GDP growth, although a report on the trade deficit in June, which arrives on July 27, may alter that forecast.  

Inventories:  Inventories look like they grew at a slower pace in the second quarter than they did in Q1, suggesting a drag of about 1.7 points on the growth rate of real GDP.  However, just like with trade, a report out July 27 may alter this forecast.  

Add it all up, and we get 0.5% annual real GDP growth for the second quarter.  Monetary policy will eventually tighten enough to cause a recession, but that recession hasn’t started yet.

​Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/25/2022
​To view this article, Click Here
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How Should You ‘Spend’ Your Tax Refund

4/12/2022

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Are you getting a tax refund this year? Plenty of folks are. Much like trivia, running through the IRS data is always interesting…at least for those who love diving into the minutiae. So here are some tax facts for the 2022 season:
  • Through March 25, 2022, the IRS has received over 81 million returns and processed just under 79 million returns.
  • Roughly half the returns were delivered by tax professionals and the remainder were self-prepared.
  • So far, the IRS has sent out almost 58 million refunds checks totaling $188.7 billion. The average tax refund is $3,263, which is 12.4% above a year ago. It’s a pretty good chunk of change for the average person.
While I generally counsel against an interest-free loan to the federal government, some folks like what might be called “forced savings.”

But, getting back to our title, how might you best “spend” your lump sum. Maybe a better question we can ask is how might you best “invest” your cash windfall?

Not everyone will receive a refund or a large check from the IRS. But ideas I’ll put forth can be used when receiving any gift, bonus, or unexpected cash windfall.

Before we dive in, I want to quickly add: If your children, a relative or close friend has talked about their refund, feel free to forward these suggestions to them.

7 smart ways to invest your tax refund

1. Do you have a rainy-day fund? Is if fully funded? You understand the importance of reserves. Whether it’s a home repair, auto repair, a layoff or unexpected bill, having cash set aside will ease the financial burden.

I recommend three to six months of readily accessible savings in the event of an emergency. If you don’t have a rainy-day fund, don’t procrastinate; get started today. 

2. Get out of debt. Years ago, I saw a quote that went something like this. “The road to poverty is paved by high interest rates.” I don’t know who coined the phrase, but too many people run up high-rate debts and struggle to pay them off. 

Pay down or pay off high-rate credit cards or unsecured loans. You might start off with the card with the lowest balance first. Wiping the slate clean on a card or cards is a big psychological win and will encourage you to stay in the battle until you are out of debt.
 
3. Tackle your student loans. Can the president simply wave his hand and forgive your student loans? If he could (and maybe he can; the jury’s still out on this one), would you receive a 1099 for debt that’s forgiven (the devil is always in the details)? Or, for that matter, should you wait for the bureaucracy to solve your problem? 

If you have an emergency fund and credit card debts are low, consider tackling your student loans. Sure, they helped you get through college, but they are a burden hanging over your financial future.
 
4. We reap what we sow. If you don’t sow into a retirement plan, there will be no harvest come retirement. For example, if you take the hypothetical $3,263 tax refund and stash it in a Roth IRA, you’ll have $32,834 in 30 years, assuming an 8% annual return. Plus, you’ll pay no federal income tax when you take a qualified withdrawal from a Roth IRA. 

At 10%, you’ll have $56,937, and at 6%, you’ll have $18,741. Of course, returns aren’t guaranteed and may vary, but trading one’s natural inclination for instant gratification for a future payoff can pay you a handsome reward.

5. Invest in
the future of your child, grandchild or yourself. There are various options, and we can point you in the right direction to help get your started. 

You might consider an education savings account of a 529 plan for your kids. While you won’t get a tax deduction for contributions into the accounts, these vehicles allow you to grow the nest egg tax-free, and they can be withdrawn for qualified expenses without a tax liability.
 
Have you decided that you would like to invest in yourself? Do you want to ascend to the next level? Certifications and college classes can help sharpen your skills. Even if you are not career-oriented, investing in your hobbies can bring added enjoyment.

6. Gifting your refund
. You may decide that you don’t need the money. I know folks who gave away their stimulus checks to their kids or charity. What puts a smile on your face? That may be the appropriate strategy for your refund. 

7. Have some fun
. As we said, the average refund check so far has been $3,263. You may take one of my ideas to heart and earmark the lion’s share toward that goal. But don’t be afraid to save some for yourself. 

Whether it’s a nearby weekend trip, a day trip to the spa, or that expensive restaurant you have always wanted to try, it’s OK to take care of yourself.

These suggestions are just food for thought. But be strategic. Think long-term. And take some time to consider what you might do with your refund or any windfall you may receive. A lack of planning and impulsive decisions can be costly. And remember, I’m always here to assist you.
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A Banner Year and a New Year

1/18/2022

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The year 2021 was a banner year for investors. The broad-based S&P 500 Index, which is made up of 500 larger U.S. companies, finished the year up 26.9%. If we included reinvested dividends, the index advanced 28.7%, according to S&P Dow Jones Indices

Much better-than-expected corporate profits (Refinitiv), which were powered by an expanding economy, plus a super easy monetary policy compliments of the Federal Reserve, deserve much of the credit.

Low interest rates, low bond yields, and rising profits easily offset worries about the lingering pandemic and much higher-than-expected inflation.

But we are now looking ahead into 2022. What might the new year bring? After last year’s strong advance, what might be in store for this year?

Since 1950, there have been 26 years in which the total annual return of the S&P 500 Index exceeded 20%, according to data provided by the NYU Stern School of Business. In the following year, the S&P 500 Index advanced 20 times, or 77% of the time, in line with the long-term average.

The average up year was 18.1%, while the average down year was 6.4%.

It’s an interesting exercise, but let’s always remember that past performance is no guarantee of future performance. Each year will have its own distinctions.

We could add one more wrinkle. The total return of the index has doubled over the last three years, according to Dow Jones Indices.

What dictates the market’s direction will likely be the economic fundamentals and whatever impacts those fundamentals.

For example, what might the Federal Reserve do with interest rates? At the beginning of 2021, the Fed expected no rate hikes in 2022. However, it failed to anticipate last year’s surge in inflation.

As the year ended, the Fed’s new projections, which it released after its December meeting, reflected a forecast of three quarter-percentage-point rate hikes this year.

Are those potential rate hikes already being discounted by investors? If inflation fails to ease--or worse, accelerates--could the Fed take a more aggressive posture?

Let’s take this point one step further. Longer-term bond yields have remained very low in the face of a less dovish Fed, high inflation, and robust economic growth.

Will we get a reset in 2022? Or have there been fundamental changes in the bond market that are holding yields low? Or do bond investors simply believe inflation and economic growth will slow?

Corporate profits are also a key driver of stock prices. Consider this: If you were to purchase or sell a small business, wouldn’t recent and projected profitability play a big role in the sales price? It absolutely would. The same principle holds for publicly traded companies.

How will the pandemic play out? We’ve seen Delta and we’re now seeing a surge in cases tied to Omicron. The economic impact of Delta was limited, and thus far, investors have side-stepped economic worries about Omicron. But what does 2022 hold?

We’ve posed several important questions that don’t offer easy answers. We may see a pullback in 2022, and we recognize that downturns are a part of investing.
Based on your goals, circumstances, and risk tolerance, we craft portfolios that help manage risk, but we can’t eliminate risk.

If we trade the fear of a sell-off for the so called safety of a savings account, we won’t participate in the long-term upside that stocks have historically offered. Conversely, take on too much risk when the market has been strong, and you may experience sleepless nights in a swift downturn.

If life events have forced you to rethink your goals, let’s talk. Financial plans are not set in stone.

Yet, adherence to one’s financial plan and a long-term focus have historically been the straightest path to reaching your financial goals. We may see volatility this year. But predictions are simply educated guesses. As we’ve seen in the past, sell-offs, when they occur, are followed by rebounds. Keep this in mind as we navigate the New Year together.

I trust you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.
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​How to follow through on New Year's resolutions

1/18/2022

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The new year is the perfect break in the calendar that allows us to take off the old and put on the new. It’s like turning the page. It's a new chapter. It's a new book! You can't change the past, but you can change the future.

One way we can make a change is to set new goals, which we call New Year’s resolutions. 

If you are considering financial resolutions, you might include getting debt under control, saving more for retirement, getting a head start on taxes, or reviewing health and life insurance options.

Did you know that there is evidence that the first resolutions were made by the ​Babylonians about 4,000 years ago? Julius Caesar reintroduced the practice when he established January 1 as the start of the new year in 46 B.C.E.

We make resolutions to accomplish goals, tasks, and to improve ourselves. In the financial realm, wouldn't it feel great to resolve to and get debt under control, save more for retirement, get a head start on taxes, or finally review those health and life insurance options?

We get a sense of satisfaction when we “check off that box.” So how can we increase our chances of success? Follow-through is critical, and these tips will help you not only set, but attain your goals in the new year.

Set resolutions and achieve your goals
  1. What resolutions are important to you? Set goals that are meaningful and within reach. Many set worthy goals, but they are too lofty or too difficult to accomplish. Traveling the world may be exciting, but it requires massive planning. And, honestly, it’s vague. A healthier lifestyle is a good resolution, too. But what does it mean to you? Does it mean working out or losing weight? If it’s working out, then what, when, and how often? Be specific and get granular. Do you want to start a new hobby? Have you always wanted to paint? Check with local resources in your area and sign up for a class by the end of the month. It’s specific, and you have attached a date to your resolution.
  2. Don’t choose too many resolutions. Choose too many and you’ll likely end up accomplishing little. Instead, pick one or two. Elizabeth Saunders writes in the Harvard Business Review, “Because there aren’t usually instant negative effects, you’ll tend to look at these goals as ‘extras.’ And since most of us don’t have much time or energy for a lot of extras, you’ll increase your likelihood of success by picking just one or two resolutions.” Agreed.                                                
  3. Write down your goals. According to Inc., “Psychology professor Dr. Gail Matthews, at the Dominican University in California, led a study on goal-setting with nearly 270 participants. The results? You are 42% more likely to achieve your goals if you write them down.” Writing down your resolutions has a two-fold effect: it forces clarity, and it is motivating.
  4. Implement a plan to achieve your resolutions. For example, let’s take something simple. You want to get your house cleaned by the beginning of spring. You have your resolution, you’ve written it down, and you have a date. It may seem like a daunting task. But what if you were to schedule one room each day, or two rooms a week. Instead of always focusing on the far-off peak in the distance, you are taking one step at a time, and your goal is now manageable.
  5. Recognize small wins. Writing down your small successes allows you to see your progress.
  6. Keep yourself accountable. And, whatever your resolution may be, it helps to have an accountability partner—preferably someone you look up to. Besides, you can encourage each other.
  7. Reward yourself. There will be an inherent sense of satisfaction when you have achieved your New Year’s resolution, but why not give yourself a prize, a reward when you have checked that box? It’s an accomplishment, and you deserve to celebrate it. You won’t be perfect. At times, life will get in the way. That’s ok. Just keep coming back You may not accomplish your resolutions right away, but with persistence, you’ll see success
 
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It’s Time to Get Serious About Tax Planning...

12/17/2021

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October Update on the Current Economy and Markets

11/4/2021

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What drives the overall market?
​

Following a modest sell-off in September, stocks racked up a big gain in October, with the Dow Jones Industrial Average and the S&P 500 Index setting new highs late in the month, according to market data provided by the St. Louis Federal Reserve.

The S&P 500 turned in its best monthly performance of the year, while the Dow managed its best return since March.

While October’s rebound is encouraging, let me caution that I want to keep you focused on your longer-term goals. Stocks have historically had a long-term upward bias, but they don’t move in a straight line, no matter how positive the economic fundamentals may be.

Be that as it may, 2021 has been a very good year for investors.

For the layperson, viewing the multiple highs we’ve seen this year can spark questions. One may ask, “Why are stocks performing so well? Aren’t we still in a pandemic? Isn’t inflation a concern? Aren’t we facing economic and political challenges that should derail the rally?”

All are good questions. All are fair questions.

But various metrics that investors collectively follow vary from what the casual observer might be more attuned to. And by investors, I mean the millions of large and small investors that buy and sell equities on a regular basis.
Let’s look at three variables that have played an outsized role in this year’s rally:

  • economic growth
  • profit growth
  • interest rates

They have all been strong tailwinds for stocks.

Economic growth slowed in the third quarter, but overall, it has been strong this year. Economic growth by itself might not be an important variable, but economic growth powers profit growth. And investors are very attuned to what happens with profits.

The pandemic has created enormous economic distortions that have benefited some sectors at the expense of others. I get that. Overall, however, the economic rebound has fueled a substantial increase in earnings this year, according to Refinitiv, and that has aided equities.

Notably, October’s strong performance was closely tied to another quarter of much-better-than projected Q3 profits (Refinitiv).

Think of it like this. If you find a small business that you might want to purchase, you’d examine many aspects, but current profits and expected future profits would play a big role in the final purchase price. The same line of thinking holds true for publicly traded companies.

Let’s add one more variable to our recipe: interest rates. Interest rates and bond yields are at very low levels. Without jumping deep into the weeds of time-tested academic research, low interest rates leave savers with fewer options.
In turn, that makes stocks more attractive to savers.

Final thoughts

I’ve said before that we’re due for a correction of at least 10% - 20% anytime. Obviously, that did not happen in October, as favorable economic fundamentals countered September’s uncertain mood.

Yet, risks never completely abate, even if they are overshadowed by favorable developments. Inflation is still a worry, and investors now expect a faster pace of rate hikes from the Fed, according to a recent CNBC survey.

Even if the Fed were to go ahead with one or two quarter-percent rate hikes next year, the fed funds rate would remain near historic lows.

I trust you’ve found this review to be educational and informative.

Let me emphasize that it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have placed your confidence and trust in me to serve as your financial advisor.
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Seven Deadly Estate Planning Mistakes to Avoid

11/4/2021

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Let’s ask a question that seemingly has an obvious answer. Why is estate planning important?

First of all, when many hear the term “estate planning,” they quickly envision those who own mansions, various real estate holdings, large stock portfolios, expensive toys and priceless heirlooms.

Please, put that stereotype out of your mind. Everyone should have an estate plan or will.

There are several reasons, but let’s touch on the most important. Your wishes are carried out, and you can prevent or discourage fighting among potential heirs by spelling out what each beneficiary will receive.

Pretty straight forward. You decide—not a court, and thereby prevent the ugliness that could easily follow.

Many folks understand this, but common mistakes can surface, thwarting your intentions. And they can surface after it’s too late for you to do anything about it.

Before we jump into some of the common missteps, let’s acknowledge that estate planning can be complex. Much will depend on your estate and the assets you plan to gift to your heirs.

But mistakes, if not avoided, can lead to costly consequences that could have been circumvented with proper planning. That said, I’d be happy to entertain any questions you have or point you in the direction of an experienced estate planning attorney.

As always, feel free to consult with your attorney.

Here are seven common mistakes to avoid...
  1. Not having any plan. Have you ever had a project you wanted to complete, but procrastination set in? Once completed, you feel a sense of satisfaction. It’s like checking off the box on your to-do list. So satisfying. What happens if you die without a will, which is known as dying intestate? For starters, you haven’t legally documented how you want to distribute your assets. If that happens, the courts will determine who gets what, and it will rarely coincide with your intentions. Besides, it can turn into a messy and expensive process if acrimony arises among potential heirs.
  2. Set it and forget it. Creating an estate plan isn’t something you set up and forget about. You’re not on autopilot after signing the document. When major life events occur, you should revisit your plan. You may have had additions to your family, a divorce can change the familial equation, or your net worth or assets changes over time. Not to mention the every changing tax and estate laws. Have you moved to another state? State laws impact how wills are drawn up, and a new address may require an updated legal document.
  3. DIY. Doing it yourself with a will won’t cost you much, and there are plenty of online options. But are you comfortable navigating unexpected complexities that may crop up? For example, does the online site fully take the laws of the state where you reside into account? I sometimes like to say, “You don’t know what you don’t know.” Another way to frame it: Do you know the right questions to ask? If not, your will might not have the proper language because it wasn’t written in the correct manner. Saving money on the front end could be costly to your estate if the will you initially prepared hits unintended hurdles.
  4. Do account-specific beneficiaries contradict the written intentions in your will? I’ve discussed the need to update beneficiaries, if appropriate. But what happens if a bank or brokerage account lists one beneficiary or beneficiaries and your will names another? For example, let’s say an IRA account at a brokerage firm has your two sons listed as your beneficiaries split 50-50, but the will explicitly states your daughter as the heir of the account. In this case, your sons will win the battle. Please be sure the wishes in your will line up with the beneficiary forms that are held with your financial institution.
  5. Did you forget to fund your trust? There are complexities in setting up a trust and we encourage you to seek a qualified professional, but let’s review one unfortunate mistake. While a living trust can ease the transfer of assets to beneficiaries without going through probate, it’s not enough to simply create a trust. You must transfer assets into the trust. Or, rename the accounts in the name of the trust. If you fail to fund the trust, the assets you intended to pass smoothly to your beneficiaries won’t pass smoothly at all. Instead, the situation will create headaches and needless legal fees for your heirs. In addition, your assets may not wind up in the hands of the intended beneficiaries, as you thought you had spelled out.
  6. Making DIY changes. You know what changes you want. But adjustments executed improperly can lead to unwanted consequences that muddy your intentions. Once-valid legal documents may be inadvertently sullied by do-it-yourself changes that may only be straightened out in lengthy legal proceedings.
  7. Planning for your minor children. This is my last point, but it’s definitely not the least important.  A major reason for end-of-life planning is not only to properly bequeath your assets after you pass, but to be sure your minor children, if you have any, are taken care of. Be sure to have a guardian in place. Make sure you inform the guardian and receive consent and clearly spell out instructions regarding financial matters to that person.

Final thoughts

Creating and implementing an estate plan will allow your wishes to be carried out when you are no longer here. However, don’t throw up roadblocks that can create complications, delays or even thwart your plans.
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