How to Get Organized to Meet With Your Estate Planning Attorney

OK, great!  You’ve finally decided it’s time to meet with an estate planning attorney and get your affairs in order.  It’s time to make sure your family is protected. 

Now that you’ve scheduled the first appointment, what’s the next step? 

You can do one of two things: (1) Simply wait for the meeting date to arrive, or (2) Get yourself organized and prepared for the first meeting.

Before You Meet With Your Attorney:  3 Things—

Taking the time to sort through your important papers and get your thoughts in order will go a long way to making the meeting productive and valuable.  Otherwise, the meeting will become a fishing expedition for your attorney and both tedious and confusing for you. 

Here are 3 ways to get yourself organized and prepared for your first meeting:

1. Make a complete list of your assets and liabilities.  

1. List what you own (e.g., bank accounts, investment accounts, real estate, retirement accounts, and life insurance).  Fortunately, you do not need to make a list of your personal property.

2. List out how you own it (e.g., in your sole name or in joint names with your spouse or someone else such as a child or sibling).

3. Indicate whether you have already designated a beneficiary for the account or policy.

4. Record how much you owe (e.g., mortgages, car loans and credit cards).

2. Think about who you want to inherit your estate, when they’ll inherit it, and how they’ll inherit it.

There are many ways to pass your property to beneficiaries, including outright, in stages (such as after college or after getting married), at specific ages, or in lifetime discretionary trusts. 

It’s wise to consider the advice of your attorney, but, at the very least, think about each beneficiary’s current needs and what they may need in the future.

3. Think about who you want to be in charge if you become incapacitated or die. 

Along with naming Guardians for your minor children, deciding will serve as your fiduciaries (including the Executor of your Will, Successor Trustee of your Trust, Attorney in Fact of your Power of Attorney, and Health Care Agent in your Medical Directive) is, by far, the most important decision you will need to make. 

Why?  Because if you choose the wrong person for the job, or if someone you choose declines to serve or can’t serve, the estate plan that you have so carefully put together will come to a grinding halt. 

If you’re like most people, you’ll need the advice of your attorney to choose the right people or institutions to serve as your fiduciaries, but think about which family members or friends will be good candidates - and which will not. 

It’s a lot to think about and organize, but it will be well worth it.  You got this.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Why Does Probate Take So Long?

Probate can be easily avoided, but most estates are dragged through the process.  Why?  Many people fail to create an estate plan, so probate is required.  And - others plan with just a Will, so probate is required.  As a result, assets end up at the mercy of a probate judge, open to public scrutiny, and delayed passing to beneficiaries.

Frustratingly, probate can drag on for months - or even years.  Here are some of the most common reasons why probate takes so long:

1. Many Beneficiaries.  In general, estates with many beneficiaries take longer to probate than estates with just a few beneficiaries.

2. Why? It takes time to communicate with each and every beneficiary and, if documents need to be signed, there are always beneficiaries who fail to return their signed documents in a timely manner.  Regardless of advances in modern technology and communications, it simply takes a long time to reach multiple beneficiaries, spread out across the United States or in a foreign country.

3. Estate Tax Return. Estates, required to file an estate tax return at the state and/or federal level, are usually complicated.  And, the personal representative can’t make a final asset distribution until she is absolutely sure that the estate tax return has been accepted and the estate tax bill has been paid in full.  At the federal level, it can take up to a year before the IRS gets around to reviewing and accepting an estate tax return. 

4. Angry Beneficiaries.   Nothing can drag out the probate process like a family feud. When beneficiaries don’t get along or won’t speak to each other, the personal representative may be forced to go to court to get permission to do just about everything.  That takes time.

5. Incompetent Personal Representative.  A personal representative, who is not good with money, irresponsible, disorganized, or busy with his job or family, will drag probate on and on.  Why?  Because a personal representative must efficiently and effectively handle the responsibilities and duties that go along with serving.  It’s a lot of work.

What Can Be Done to Speed Up Probate?

The best way to speed up probate is to avoid it altogether.  Avoidance is the only way to eliminate probate delays.   If properly drafted and funded, a Revocable Living Trust will avoid probate perils, stresses, and delays. It’s easy.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Will Your Revocable Living Trust Avoid Probate? It Depends.

Will Your Revocable Living Trust Avoid Probate? It Depends.

If you’ve set up a Revocable Living Trust, congratulations!  You’re definitely on the right track. But…you’re only half way there. Many believe because they took the time to create a Trust, their estate will automatically avoid probate.  Unfortunately, this is a false sense of security.

The key to probate avoidance is proper asset ownership, including the full funding of your Revocable Living Trust.

What are Probate Assets?

What assets require probate?

1. Accounts and real estate titled in your sole, individual name [without a payable on death (POD) or transfer on death (TOD) designation]

2. Accounts and real estate you own as a tenant in common

3. Contract assets naming your estate as beneficiary

What Assets Avoid Probate?

• What assets automatically avoid probate after you die and, therefore, do not need to be funded (or cannot be funded) into your trust? 

• Accounts and real estate owned as joint tenants with rights of survivorship

• Accounts and real estate owned as tenants by the entirety

• Life insurance

• Retirement accounts, including IRAs, 401(k) s, and annuities

• Life estate property

• Payable on death (POD) and transfer on death (TOD) accounts and, in some states, transfer on death or beneficiary deeds

What’s the Next Step?

Ask a qualified estate planning attorney to confirm that your Revocable Living Trust is fully funded and that all assets are aligned with your estate planning.  Proper asset ownership is key to probate avoidance.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Should I Write My Own Will?

Personally, I believe in the adage: if it’s worth doing, it’s worth doing right. While this idea is applicable to most things in life, it especially true when it comes to the law, legal documents, and writing your own Will. Specifically, when you consider the importance of have a well drafted estate plan in place: ensuring that your family is cared for when you pass away. Saving money by writing your own estate plan is both a waste of money and time. A do-it-yourself Will/estate plan will not achieve the results you desire. The money saved by not hiring a lawyer to prepare your documents today will equate to a much greater cost when you die, because your estate will likely need to pass via probate (which costs between $9,000 and $19,000 depending on the value of your assets), and can easily lead to family disharmony.

What’s Wrong With Writing Your Own Estate Plan?

Legally, you have the right to draft your own documents; however, that doesn’t mean you have the right to have them actually work.  Do-it-yourselfers accidentally disinherit children, fail to protect assets from lawsuits, trigger probate, invite court interference, give assets outright to a drug addicted beneficiaries, and incur huge fees to straighten out a big mess.

Creating an effective set of estate planning documents involves many moving parts and deep analysis.  An estate planning attorney will consider your family situation and financial status coupled with where you live and where you own real estate.  Your goals and concerns are also carefully considered.

With a myriad of variables at play, how can a book of generic forms, computer program, or website possibly address all correctly?  It simply can’t. 

Even attorneys, who don’t focus on estate planning, are hesitant to write their own estate plans.  Instead, they turn to their colleagues who understand both probate and trust laws, and are experienced in putting together estate plans that work.

Use Books and Software to Learn About Estate Planning, Not for Estate Planning

Estate planning books and software should only be used as tools to learn about the estate planning process. They should not be used a substitute for the hands-on, legal counseling from an experienced estate planning attorney.

While there are many tasks you can complete on your own, designing, drafting, and implementing an estate plan is not one of them.

What’s the Biggest Problem With Do-It-Yourself Estate Planning?

The biggest problem with do-it-yourself estate planning is that it often creates a huge burden for loved ones.  It’s your loved ones who will find out you tried to save a few bucks and, as a result, caused a huge stressful mess that will cost thousands of dollars to fix.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Estate Planning Basics for Newlyweds—How to Get Prepared for the Unexpected

It’s that time of year—the time for beautiful weddings, fun receptions, delicious cakes, special gifts, and romantic honeymoons.  While this is a joyous time for everyone, it’s also time for you and your new spouse to plan for your future – for richer or for poorer, in sickness and in health. 

Why Newlyweds Need to Plan Their Estates

Why should newlyweds care about estate planning?  Because everyone – young or old, married or single – needs to protect themselves and those they love.

Unfortunately, many couples spend more time planning their honeymoon than they do planning the best way to protect each other.   

What Happens Without an Estate Plan?

This fallout of becoming incapacitated or dying without an estate plan is serious, expensive, and painful.  It often causes financial ruin and family discord, lasting for generations. 

Without an estate plan: 

1. You will leave your spouse and the rest of your family in the dark – they won’t know what you would want to happen if you became incapacitated or died.  This often leads to family fights as each individual vies for what he or she thinks you would have wanted.

2. You’ll leave a huge burden on your loved ones to make tough decisions about medical heroics and the withdrawal of life support.

3. The court or state law, not you, will decide who makes health care decisions if you are unable to make those decisions yourself.   

4. A judge, not you, will decide who raises your children.

5. The court can lock down your assets so even your spouse has to get court permission before making a financial move. 

6. Any assets you leave to loved ones can be taken by their divorcing spouses, bankruptcy creditors, medical crisis creditors, predators, and frivolous lawsuits.

7. You may accidentally disinherit your spouse and your children.

8. Your beloved pet could end up in a shelter or euthanized.   

What Should You Do?

We invite you and your new spouse to telephone our office to set up a meeting.  We’ll walk you through how to protect each other and those you love; how to protect your beloved pets; and how to protect your assets and make things easier for you and your families.  Call now; we look forward to hearing from you.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Parental Warning: If You Own Your Property this Way, You May Accidentally Disinherit Your Own Children

Owning property as Joint Tenants with Right of Survivorship is easy, common, and often disastrous.  Sadly, children – both minor and adult – are often disinherited.

While there are several forms of joint ownership, the one most people use (and the one considered in this discussion) is called “Joint Ownership with Right of Survivorship.” When one owner dies, the jointly owned asset automatically, by operation of law, transfers to the surviving owner.  

• Joint ownership is a very common way for married people to own their assets. 

• Joint ownership is also commonly used by aging parents and their adult children.

Joint Ownership Just Postpones Probate:

In most cases, joint ownership merely postpones probate; it doesn’t totally avoid it.  If the surviving owner does not add a new joint owner (or place the asset in trust) before she dies, the asset will have to go through probate before it can go to the heirs.  Or, if the owners die at the same time, probate is required immediately.

Joint Ownership Can Cause You to Unintentionally Disinherit Your Beloved Children:

Surprising to most parents, assets titled as “Joint Tenants with Right of Survivorship” are NOT controlled by their Will or Trust.  In fact, if you are the first owner to die, you can’t control what happens to that asset.  

• If you add a spouse who is not the parent of all of your children as a joint owner, you will disinherit your children from a previous relationship.

• If you add one child as a joint owner, you will disinherit your other children.

The transfer of ownership takes place immediately upon your death. Even if your Will or Trust directs that you want someone in particular to receive your share of a jointly owned asset, it will still go to the surviving owner.  The surviving owner can then do whatever he or she wants with the entire asset.

Here’s an example:

After Robert died, Joan owned their vacation home outright. She remarried a few years later, and she added her new spouse’s name to the title. When Joan died, her children were shocked to learn that the new husband now owned the property, even though their father had always promised it would stay in the family and go to the three of them.  

Other Risks of Joint Ownership:

1. While it’s easy to add a co-owner’s name to a title, taking someone’s name off a title can be difficult. If the person does not agree, you could end up in court.

2. Your assets are exposed to the other owner’s debt and obligations. For example, if you add your adult son on the title of your home and he is successfully sued, you could be forced to sell your home.

3. There could be serious gift and/or income tax consequences.

4. If you add a minor as a joint owner, the only way to sell or refinance the asset is through a court guardianship.

5. If you need to sell or refinance and your co-owner is incapacitated and unable to conduct business, you’ll have to ask the court to appoint someone to sign for your co-owner (even if that co-owner is your spouse). Once the court gets involved, it usually stays involved to protect the incapacitated owner’s interest until the incapacity ends or the person dies.

Actions to Consider:

1. To avoid both inconvenience and tragedy, call our office immediately to set up an appointment and have your asset ownership reviewed.

2. We will review your asset ownership and explain what will happen to your assets if you become disabled and when you die.

3. We will show you how to own your assets to best ensure your estate plan works, meaning it does what you think it’s going to do.

Joint ownership with a sibling, life partner, business partner, child, spouse, or anyone else, puts your assets and your children’s inheritance at risk.  It may cause significant and unnecessary taxes and cause your estate plan to fail.  To avoid both inconvenience and tragedy, you are invited to call our office right now.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

On June 12, 2014, the U.S. Supreme Court—in a unanimous decision—ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives. 

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

The Key Takeaways:

1. Inherited IRAs are not protected from the beneficiary’s creditors in bankruptcy.

2. Using a trust as beneficiary can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect these savings from the beneficiary’s creditors.

Using a Trust as Beneficiary of an IRA:

Using a trust as beneficiary of an IRA or retirement plan account will let you use the oldest beneficiary’s life expectancy to stretch out the tax-deferred growth. It will let you keep control over when the beneficiary receives distributions, and can protect the asset from the beneficiary’s creditors (including bankruptcy), predators (those who may have undue influence on the beneficiary), irresponsible spending, and divorce proceedings. You can even provide for a beneficiary with special needs without jeopardizing government benefits.

In order for the trust to qualify, it must meet certain requirements, including that a) it must be valid under state law; b) it must be irrevocable not later than the death of the owner; c) all beneficiaries of the trust must be individuals (no charities or other non-persons) and they must be identifiable from the trust document; and d) a copy of the trust document must be provided to the account custodian by a certain date.

Because the trust’s oldest beneficiary’s life expectancy must be used to determine the distributions, many people opt for a separate share for each beneficiary or even a separate trust for each beneficiary. These are called “stand alone retirement trusts” because they are created solely for retirement plan and IRA assets. (A revocable living trust would still be used for other general estate planning purposes.)

What You Need to Know:

Planning for IRAs and other tax-deferred savings plans is not something to be taken lightly and not a task to try to master yourself. The laws are complicated, and a simple mistake can be disastrous and irreversible. Because there is often a lot of money involved with these plans, it pays to work with an estate planning attorney who has considerable experience in this area.

Important Notes:

1. A conduit trust requires that all distributions from the IRA or retirement plan must be distributed to the trust’s beneficiary(ies). (The trust is simply a “conduit” from the plan to the beneficiary.) These distributions are not protected from a beneficiary’s creditors and have no asset protection.

2. With an accumulation trust, the distributions may be kept within the trust instead of being distributed to the beneficiary. Assets that remain in the trust are protected from the beneficiary’s creditors, but any undistributed income kept in the trust will be subject to higher income tax rates than what an individual would pay on the same amount.

3. A “trust protector” can be given the power to change the trust from a conduit to an accumulation trust. This can be valuable if there is a change in the beneficiary’s circumstances (due to disability, drug problems, etc.), making it advantageous to keep the distributions in the trust.

4. Your attorney will be able to suggest the best combination of beneficiary designations for both the IRA or retirement plan and your Trust(s). Having these options will let your beneficiaries make good decisions based on the circumstances at that time. For example, if your spouse is in ill health when you die, it may make sense for your spouse to disclaim an IRA so that your children can inherit it and have distributions paid over their longer life expectancies.

Take Action:

It is essential that you take action to ensure that your IRA can’t be seized by your beneficiaries’ creditors.  Call our office now to schedule an appointment.  We’ll get you in as soon as possible and analyze whether a Standalone Retirement Trust is appropriate to protect both your beneficiaries and your assets.  

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

A-B Trusts—Do You Need to Get Rid of Yours?

Are you married? Is the last time your spouse and you updated your estate plan more than three years ago? If so, it is time for you to update your estate plan. Chances are that your estate plan contains “A-B Trust” planning (also called “Marital and Family Trusts” or “QTIP” and “Bypass Trusts”) which, up until 2011, was the only way for married couples to double the value of their federal estate tax exemptions. However, all of this changed in 2011, when “portability” of the estate tax exemption between spouses was introduced for the first time.

In simple terms, “portability” means that when the first spouse dies, the surviving spouse can claim the deceased spouse’s unused federal estate tax exemption and add it to his or her own exemption.  The good news is that portability has been made a permanent part of the federal estate tax laws.  The bad news is that the A-B Trust planning in your old estate plan may now do more harm than good.

Take, for example, Fred and June who have been married for 40 years.  If Fred dies in 2014 and none of his $5.34 million estate tax exemption is used, then June can add Fred’s $5.34 million exemption to her own $5.34 million exemption so that June now has an exemption equal to $10.68 million.  Better yet, all property passing outright to June from Fred’s estate, revocable trust, or by right of survivorship will receive a full step up in income tax basis to the fair market values as of Fred’s date of death.  Subsequently, when June dies her beneficiaries will receive a full, second step up in income tax basis to the fair market value as of June’s date of death.

What if instead Fred and June have a typical 1990’s estate plan, which uses those good old A-B Trusts to ensure full use of both spouses’ federal estate tax exemptions?  If Fred and June were lax and neglected to update their 1990’s estate plan and Fred dies in 2014, then not only will June be stuck with A-B Trusts that were drafted using decades-old planning priorities, but their heirs won’t receive any step up in income tax basis for the assets remaining in the B Trust when June dies.  Instead, the heirs will inherit the B Trust assets with the income tax basis calculated as of Fred’s 2014 date of death.  If June lives for a long time, then this could very well result in a large income tax bill when the heirs decide to sell the inherited assets many years down the road. 

Fred and June’s story is only one scenario.  It shows the down side of an old estate plan that uses A-B Trust planning.  On the other hand, there are still many good reasons for married couples to keep A-B Trust planning in their updated estate plans.  If you’re married and your estate plan is more than a few years old, then give us a call so that together we can determine if an A-B Trust plan still makes sense for you and your family.  It is quite possible that your existing estate plan can be revised so that it takes advantage of the good features of A-B Trust planning while gaining the benefits of an additional step up in basis.

If your living trust contains A-B Trust planning, you may have a trust administration disaster waiting. We implore you to have your estate plan reviewed by a law firm that specializes in estate planning and administration. If interested, please contact our office for a no-charge estate plan review to ensure that you do not have an outdated marital funding clause, which can have disastrous results.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

What if Treating Your Children Fairly Means Unequal Inheritances?

When planning their estate, most parents express the desire to treat their children equally out of a sense of fairness.  However, sometimes being fair or doing what’s right by your children may not mean equal or the same inheritances.

The Key Takeaways:

1. Treating children fairly does not always mean equal inheritances.

2. How and when each child receives an inheritance may need to be customized to your children as individuals.

3. Not providing an outright inheritance is usually a good choice, as assets that stay in a trust are protected from irresponsible spending, divorce, predators, and creditors.

When Unequal Inheritances May Be Fair:

There are often special circumstances to consider before you divide the family pie into equal parts. For example:

• You may want to leave more assets to your son who struggles to support his family on a modest teacher’s salary than to your daughter who makes six figures, married a Wall Street tycoon, and has chosen not to have children.

• You may want to give a larger inheritance to a child who has dedicated himself to volunteer work, the arts, religion, or public service.

• You may want to compensate a child who has given up part of his own life to care for you.

• You may want to provide for grandchildren even if one child has more children than another.

• You may have a much younger child who needs care into adulthood whereas your adult children are financially independent. 

• You may have a special needs child who will need care for his entire lifetime.

• You may have a child who has contributed to the family business and other children who have not.  Instead of making them all equal owners in the business, you may want to leave the business to the one who has contributed and shown an interest, and then provide for the others with other assets and/or life insurance.

Distribution of Inheritances May Also Vary:

Not only do you need to decide how much your children should receive, but also when they will receive it—and that can be different for each child. You can distribute inheritances in one lump sum or in installments; or, you can keep an inheritance in a trust. Consider factors such as the size of the potential inheritance, your children’s ages and family situation, how they have handled their own money, and how much they need your financial gift.

What You Should Know:

Many parents do not provide outright inheritances, preferring to keep the assets in a trust for their children. The trustee can make distributions for your children’s benefit based on guidelines you provide, but assets that stay in the trust are protected from irresponsible spending, creditors (bankruptcy, lawsuits, and divorce), and predators (those with undue influence on your child).

Example: Frank and Jen have two sons who are stable and responsible with their own money; they will receive their inheritances in a lump sum after their parents both have died. However, their daughter is in and out of rehab and has been irresponsible with her own money. Fearing she will misuse her inheritance, they decided to keep her share in a trust so it can provide for her without being completely available to her.

 Actions to Consider:

1. If you can afford it, consider giving your children some of their inheritance now. Not only will you have the opportunity to witness them enjoying your gift, but it will also provide insight as to how your children will handle an inheritance.   

2. Consider whether your children should inherit everything you own.  Perhaps you have additional goals such as providing for your grandchildren’s education, gifting other loved ones, providing for beloved pets, making charitable contributions, or setting up a family foundation or donor-advised fund. 

In summation, It is essential that you take action to ensure your children receive their inheritances as is best for them as individuals.  Our office can ensure your estate plan and your children’s best interests match…and continue to match as life unfolds.

Who Needs an Estate Plan?

If you’re reading this, you need an estate plan.  Why?  The short answer is: Everyone, age 18 and older needs an estate plan. It doesn’t matter if you are old or young, if you have built up considerable wealth or if you are just entering adulthood —you need a written plan to keep you in control and to protect yourself and those you love. 

The Key Takeaways: 

• Every adult, regardless of age or wealth, needs both a lifetime plan and an after-death estate plan.

• Planning for incapacity will keep you in control and let your trusted loved ones care for you without court interference - and without the loss of control and expense of a guardianship or conservatorship proceeding.

• Every adult needs up-to-date health care directives.

• You need to leave written instructions to make sure you are the one who selects who’s in charge of when and how your assets will be distributed.

• We all need the counseling and assistance of an experienced estate planning attorney.

What is an Estate Plan?

Your estate is comprised of the assets you own—your car, home, bank accounts, investments, life insurance, furniture and personal belongings. No matter how large or how small your estate, you can’t take it with you when you die, and you probably want certain people to have certain things you own.

To make sure that happens, you need to provide written instructions stating who you want to receive your assets and belongings, what you want them to receive, and when they are to receive it—that is the essence of an estate plan. If you have young children, you will need to name someone to raise them in your place and to manage their inheritance. 

A properly prepared estate plan also will have instructions for your care (and the management of your assets) if you become incapacitated, even for a short time, due to illness or injury. Without the proper documents in place, your family will have to ask the court for permission to use your assets to take care of you and to oversee your care. That process is out of your control and it takes time and costs money, making an already difficult situation even more difficult for your family.

It might surprise you, but having a plan in place often means more to families with modest means because 1) they can least afford to pay unnecessary court costs and legal fees and 2) state laws, which take over in the absence of planning, often distribute assets in an undesirable way. Here’s an example:

Sam and Meg had two young children. Sam died in a car accident on his way to work. Because he had no estate plan, the laws in his state divided his estate into thirds: one third went to Meg and one third to each of his children. Meg, a stay-at-home mom, was forced to go back to work. The court set up guardianships for each child, which required ongoing court costs, including accounting, guardianship and attorney fees. By the time the children reached 18 and received their inheritances, there was not enough left for them to go to college.

What You Need to Know:

Don’t try to do this yourself. You need the counseling and assistance of an experienced estate planning attorney who knows the laws in your state and has the expertise to guide you in making difficult decisions such as who will raise your children and who will look after your care at incapacity.  That attorney will also know how to carefully craft the appropriate estate planning documents, so that what you think will happen when you become incapacitated or die actually happens.

Actions to Consider:

1. Call or email our office now to set up an estate planning consultation appointment.  We make tough topics manageable to discuss and talk about. 

2. Don’t worry about how life will unfold; the best practice is to have your plan prepared now based on your current situation.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

How to Minimize the (Voluntary) Federal Estate Tax with Portability

Surprising to most people, the federal estate tax is a voluntary tax.  Estate planning attorneys used to say, “You only pay if you don’t plan.”  Now, portability provides both an alternative and a back up plan to lifetime tax planning.  This means you might be able to minimize or even eliminate federal estate taxes even if you didn’t plan.  Here’s how.

Portability allows married couples to use two estate tax exemptions and save significant amounts in estate taxes without lifetime planning and without the division of assets.  This planning option first appeared in 2010, but, because it was a temporary measure, many estate planners were hesitant to rely on it.  It became permanent law in 2013 and is now considered a viable tool for many married couples.

The Key Takeaways:

• EVERYONE still needs lifetime estate planning to protect themselves, their families, and their assets.  (Estate planning is not just about tax planning and it’s not just about money.)

• The failure to use both federal estate tax exemptions may cause an unnecessarily high tax bill for married couples. 

• Portability lets married couples use both of their exemptions without lifetime tax planning.

• Portability is not automatic—an estate tax return must be filed after the death of the first spouse, generally within nine months.

• Trust planning is still highly useful for both tax and non-tax reasons (e.g., asset protection and family line protection) and can be used with or without portability.

How Portability Works:

When portability was made permanent in 2013, Congress also made the $5 million federal estate tax exemption permanent (with annual increases tied to inflation).  As a result, most families don’t have to worry about federal estate taxes.

However, if your net estate is more than $5 million and you are married, portability allows your surviving spouse to use your individual estate tax exemption as well as his or her own, allowing the transfer of up to $10+ million in assets with no estate taxes, saving millions from Uncle Sam’s clutches.

Unlike trust tax planning, which must be done while both spouses are alive, portability is available after the first spouse dies and is a valuable back-up plan for couples that neglected lifetime tax planning.

Note: Portability is not automatic. An estate tax return (Form 706) must be filed within nine months after the death of the first spouse, or within any extension granted. If no timely return is filed, portability and the deceased spouse’s unused exemption (estate planning attorneys call this the “DSUE”) are forever lost, perhaps, causing the estate to pay more in estate taxes than was necessary and leaving less for the family.

Interestingly, remarriage does not change the identity of the most recently deceased spouse, and a surviving spouse can use multiple DSUEs.

Here’s an example:

Bob and Sue were married for many years.  When Bob died, Sue’s attorney filed an estate tax return, thereby “electing” portability. Some time later, Sue married Phil. She decided to use Bob’s DSUE during her lifetime and made gifts to their children.

When Phil died a few years later, Sue’s attorney filed an estate tax return for Phil’s estate, making portability available.  In addition, when Sue died, her estate was able to use both her exemption and Phil’s DSUE.  Sue was able to use three federal estate exemptions and completely avoided the federal estate tax.

Keep in mind that if Sue had not used her first husband’s (Bob’s) DSUE before Phil died, it would have been wasted.  Why is this?  Because Phil would have become her most recently deceased spouse.

What You Need to Know:

Trust planning can be used with or without portability and is still highly relevant for couples with any size of estate.

When there are children involved, especially if they are from a previous marriage or relationship, trust planning can allow the first spouse who dies to provide for the surviving spouse and keep control over who will eventually receive his/her share of the estate.

In addition, trust planning can protect assets from a beneficiary’s irresponsible spending, creditors, medical crises, lawsuits, and divorce proceedings, allowing the assets to remain within the family for generations to come. Trust assets can also provide for a special needs beneficiary without losing valuable government benefits.

Actions to Consider:

1. Ask your estate planning team when you need to be concerned about state estate taxes and state inheritance taxes.  (Some states have their own death/inheritance tax, often with a lower exemption than the federal estate tax. As a result, it is possible that an estate will be subject to state taxes even though it is exempt from federal taxes.)

2. When a spouse dies, ask your estate planning attorney whether using portability is appropriate for you.  (Most married couples can benefit from portability, even if only as a preventive estate planning measure.  The value of assets may increase to more than one exemption before the surviving spouse dies.)

3. If your second (or third) spouse is seriously ill, ask your estate planning attorney you should use any remaining DSUE to make lifetime gifts to beneficiaries.

4. Ask your estate planning attorney whether the generation skipping transfer (GST) tax is a factor for you.  The GST tax is not portable and needs its own planning analysis.

5. When your spouse dies, be sure the estate tax return (Form 706) is prepared and filed by a qualified professional such as an estate planning attorney.

6. Ask your estate planning team about non-tax trust protections such as asset protection and family line protection.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

The Three-Year Review and The Three-Year Plan

Review your life’s circumstances from three years ago. Think about what you knew and what you didn’t know about managing your wealth. What were the top five lessons you learned? How have your views about money and wealth changed? Given all that, where do you want to be financially in three years? Think about how you will get there and how to do so efficiently.

The Key Takeaways:

1. Taking the time to look back over the last three years will help you see accomplishments you may have missed in various areas of your life.

2. Taking the time also to look forward three years will help you to set goals and determine how to achieve them.

3. Working toward incremental achievements instead of the “big fix” sets the stage for lasting and meaningful change.

Ben Franklin wrote: “Without continual growth and progress, such words as improvement, achievement and success have no meaning.” 

We achieve because we learn new things, apply them and see results. But too often, we get caught up in the busyness of our lives and fail to see the progress we’ve actually made—in careers, family, finances, education, spirituality and health. While one area in this list may not be what you want it to be, make sure you give yourself credit for the changes that did occur. For most important things in life, we do not change overnight or, if we do, the results take time to settle in. You will be encouraged in marking your life’s progress by looking back at regular three-year intervals. 

Why three years? If looking back just one year, we may be in the middle of big progress but not yet see enough results; five years often dulls the details. Three years is soon enough that we can recall with vivid memories “how things used to be” while having a long enough runway to see real progress as our changes take flight.

In the same way, set important goals with a three-year future horizon. The reasons for this time period mirror those when looking back. We have time to make changes that are hard, and we can work on accumulating incremental results instead of feeling the pressure to get it all done in a short period (i.e., a year).

What You Need to Know:

Just as you set financial priorities in spending and saving, you can set priorities in other areas of your life. Remember to have realistic goals with incremental benchmarks, so you will be able to measure your growth and see the progress you are making. Don’t expect huge changes overnight; you have a lifetime to make yours work the way you want.

Actions to Consider:

• Keep a journal or log of your progress to remind yourself of your achievements.  Setting incremental and achievable goals is vastly more productive than trying to do it all at once. A key part of our wealth legacy is imparting to our loved ones the lessons we learned, both good and bad.  Share these life lessons that you learn as you implement a three-year review and three-year plan program.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Learning from Your Mistakes Can Become Your Teaching Moment

Everyone makes financial mistakes. The key is to learn from them, try not to repeat them and then pass on this hard-earned wisdom to your loved ones as an element of your financial legacy.

The Key Takeaways:

• We can learn not only from our own mistakes but also from those of others. 

• Sharing the wisdom gained from these errors can help others avoid them—and the pain and regret that usually accompany them.

One part of advancing as people is learning from our own mistakes. Another part is learning from the mistakes of others. The latter is decidedly less painful to us than the former! As Eleanor Roosevelt said, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.”

Even the savviest investors make mistakes or have regrets. Learning from others’ mistakes can help us to gain wisdom without the pain of having to go through the experience ourselves.

In many ways the key to long-term investing is learning our lessons well. For your loved ones, identify the top mistakes you’ve made in your financial life and explain why the lessons you’ve learned are important to pass along.

What You Need to Know:

Imparting the wisdom you have gained over the years is part of your financial and family legacy. Being candid about your mistakes and regrets also can provide your loved ones a glimpse of the person you once were and have become because of these experiences. 

Actions to Consider:

1. Think about the things you’ve learned over the years related to money. Create a list of your lessons, principles and practices. Don’t worry about the wording or order at this point.

2. Next, consider the items on the list based on the impact they had on you. Impact is not just financial loss but also anxiety, strife and confusion. One way to judge impact is to read the item and see what thoughts flood your mind or how much your stomach churns; you can be certain that these impact you measurably.

3. Now, group your list by greatest impact to least impact.

4. Set a schedule, say, each month or quarter, to write out your lessons and how you’ve applied them, and share this with your loved ones.

 If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Three Social Security Traps

What you don’t know about Social Security benefits can hurt you and your spouse for the rest of your lives. Here are three traps to avoid when taking your benefits.

The Key Takeaways:

• The longer you can postpone taking your Social Security benefits, the larger the amount you and your spouse will receive over your lifetimes.

• Continuing to work after you start receiving benefits early can temporarily reduce the amount of your benefits.

• It is important to seek the advice of a retirement specialist who can help you navigate the rules of Social Security to your best benefit.

 Three Traps to Avoid:

1. Taking Money Too Early. It can be tempting to start taking your benefits as soon as you become eligible at age 62. But the longer you can wait, the higher your monthly benefit will be—and the more you will receive over your lifetime. Also, cost of living adjustments (COLA) are calculated on the amount of your monthly benefit, so if you take benefits at age 62, your COLA adjustments will be calculated on a lower amount.

2. Working Income. If you elect to take benefits early and you keep working, the amount of your benefit can be reduced. This reduction will continue until the year you reach full retirement age (66).

3. Spousal Benefits. Your decision when to start taking your benefit affects your spouse too. After you die, your spouse is eligible to receive your monthly benefit if his/her own benefit is less than yours. If you elect to receive your benefit earlier rather than later, your spouse’s benefit will also be lower. If you wait until you reach full retirement age (66), you can claim your Social Security benefits but delay taking them. This lets your spouse draw spousal benefits immediately, while you continue working and increasing the value of your future benefits.

What You Need to Know:

Ideally, you will want to evaluate when to take your benefits based on your retirement savings and other sources of retirement income, your and your spouse’s health, your family’s history of longevity, and if you plan to continue working. While most people would benefit from waiting until a later age to start their retirement benefits, some may risk running out of money and will need to take their benefits as soon as they are eligible. A retirement planning specialist can help you decide what is best for you.

Actions to Consider:

• If you are concerned about the future of Social Security, you could take your benefits at 62 and invest them. By the time you need to start taking the money, you may be able to make up any loss you incur by taking them early. But, of course, this is dependent on your portfolio allocation and market performance.

• If you keep working beyond age 62, your Social Security benefit will increase each year up to age 70.

• While you are eligible for Social Security at age 62, you are not eligible for Medicare until age 65. If you stop working, you will have to pay for private insurance with your own money.

• If you wait until your full retirement age (66), another spousal benefit option is available. If you both want to retire at the same time and your spouse will receive a lower benefit, you can claim spousal benefits now from your spouse, let your benefits continue to grow and then switch to your (higher) benefit later.

If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Five Tips to Remove Financial Hassle from Your Life

Everyone faces hassles in life. We can’t escape them completely, but if we can minimize them, our quality of life improves. There are hassles in managing your finances and wealth, too. Here are five tips that will help you get financial aggravation under control.

The Key Takeaways:

• Minimizing hassles helps reduce stress and improves the quality of your life.

• Managing your finances and wealth in a simpler way can alleviate unnecessary annoyance.

The Five Tips:

1. Consolidate banking, debt, investment and insurance providers. The fewer people and institutions you have to deal with, the more productive you will be.

2. Instead of working with individual professionals, work with a group that operates as a team. Individual professionals have to make recommendations without knowing what others are advising you to do, so you are likely to have either inadequate or overlapping planning. A team approach—where members bring their own areas of expertise and resources and work together on the “big picture”—is more efficient (fewer meetings, reports and explanations), saves time and money, and provides more complete solutions.

3. Organize your financial documents in a logical way, especially your life-planning documents. Think about the information your family will need if something happens to you. Obvious documents include your will or trust, health care power of attorney, health and long-term care insurance policies, life insurance policies, bank and investment accounts, loan documents, titles and safe deposit box. Organizing this information, and showing your family where to find it, will greatly reduce their hassle when the time comes to implement the plan.

4. Evaluate new investment opportunities once each quarter. This is often enough to stay current without getting distracted. If you read or hear about something that interests you, make a note to discuss it with your investment advisor at the next quarterly meeting.

5. Use just one or two research sources. While I realize that we all live in the information age, where we are constantly bombarded by a plethora of stimuli almost constantly, it is hard to tune out the noise. However, this author believes that multitasking is a great way to get a large amount of tasks started, which results in nothing getting done—at least not well. I do not know about you, but when I turn on the TV and there are ticker tapes and flashing messages running across the screen, I find it hard to focus on anything I am being shown. Because of these factors, we recommend finding a couple of reputable research sources and stick with them. You do not want to waste hours researching sources that may be contradictory and, worse, are not reliable.

What You Need to Know:

Simplifying your financial life may take some time and concentrated effort. Every six months, take the time to assess how you’re doing in making your financial life more efficient and consider areas that could be improved. For example, if you are working with different professionals, schedule the various update meetings close together so your attention will be focused for a known amount of time. If you are working with a coordinated team, set your update meetings ahead of time so you can know the schedule and not worry about finding dates at the last minute.

Other Actions to Consider:

• When organizing information for your family, remember to provide access to computer files and online accounts. Clean off your computer desktop and make it easy for someone you trust to find your accounting files and other important records.

• Make a list of your professional advisors, friends and associates who should be contacted in the event of your illness, injury or death. A list of your doctors and any medications you take can also be helpful.

 If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Taking Care of a Valuable Asset (You)

The combination of your talents, experience and skills represents an asset. Like any asset, it should be managed and protected. This includes keeping staying healthy, having sufficient insurance, planning for both the near term and the future, investing in you, and having contingency plans if a sudden turn occurs.

The Key Takeaways

• You—your talents, experience and skills—are your most valuable asset.

• Properly managing and protecting this asset can make you more valuable and prepare you for future changes and opportunities.

Caring for Yourself as an Asset

Too often, we let ourselves slip to the bottom of the priority list. But when you start to think of yourself as your most valuable asset and begin to nourish and protect this asset, you will perform at your best and increase your value. For example:

Keep yourself healthy. You can’t perform at your best if you don’t take care of yourself. Start with the simple things you already know you should do: eat the right foods, drink water, exercise regularly, get enough restful sleep, etc. See your doctor and take care of small issues before they become big problems. In addition to keeping your body healthy, it is equally important to keep your mind healthy. Since we live in a digital age, we are inundated with stimulants. Most likely, you work all day in front of a computer screen. When you get home, you may watch TV, get on a home computer or iPad and surf the Internet or watch a movie, etc.

With this barrage of stimulating content constantly around, our minds can easily get overwhelmed. Anthropologically, this was never the case. In this author’s opinion, this does not lead to a healthy mind. To counteract this overstimulation, which is now prevalent in our society in which we all live, it is important to get some mental space. This can be achieved in a variety of ways, depending on your preferences. Some suggested ways to give your mind that space are to go out into nature, read a book, meditate, or engage in some other spiritual or creative endeavor. While technology helps us achieve more in a shorter amount of time, it seems as if we are busier than ever before. While I am not sure what precisely causes this phenomena, it is clear that we must find a way to give our mind some rest from this never ending doing.

Have sufficient insurance to manage risk. Coverage usually includes health insurance; long-term care insurance; life insurance; property and casualty insurance; liability insurance; and professional insurance.

Invest in yourself to stay valuable, both for the short and long term. Work on ways to be consistently productive in your work. Learn new skills or take training that will help in your current job/career or that will prepare you for a future one. Consider additional education or an advanced degree to help expand your abilities and potential.

Have contingency plans. Plan for the unexpected. Start paying off debts and building an emergency fund. Keep your resume updated. Expand your professional contacts in your current industry or one you would like to pursue by attending networking functions and using social media like LinkedIn.

What You Need to Know

When you take care of yourself, protect yourself and invest in yourself, you will perform better, become more valuable, and will be more prepared if your future takes an unexpected turn or a golden opportunity comes your way.

Other Actions to Consider

1. Stress can affect you physically, mentally and emotionally. Having a comprehensive plan, and a team of professionals looking after its execution, brings far greater value in financial benefits, peace of mind, and confidence in the future than the upfront costs. 

2. Don’t expect to make all the changes at one time. Take small but consistent steps. Set some goals and start working toward them.

3. Everyone has different talents and abilities. Consider what you do well and work on being as good as you can be in those areas. At the same time, be conscious of things you could do better and work on some improvement in those areas.

If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Aligning Insurance Products within a Planning Structure

Aligning Insurance Products within a Planning Structure:

We use a variety of insurance products to manage risk in different areas of our lives in order to protect our wealth from losses that can come from property damage, businesses we own, disability, retirement and death. Instead of considering these products as separate items, make them part of an integrated, overall risk management plan.

The Key Takeaways:

• A variety of insurance products can be utilized to help manage risk and protect wealth.

• The best results occur when separate insurance products are part of an integrated plan.

 Different Kinds of Insurance for Different Risks:

Most insurance can be grouped in these general categories.

Property:

This would include insurance on automobiles and other vehicles, home, furnishings, jewelry and artwork, and personal liability insurance.

Business:

Business owners need insurance on a building they own, office equipment and computers, as well as liability, worker compensation, errors and omissions insurance, and so on.

Health and Disability:

Disability income insurance replaces part of your income for a certain length of time if you should become ill or injured and unable to work. Health insurance helps to pay for medical services received. Long-term care insurance helps to pay for extended care that is not covered by most health insurance or Medicare.

Retirement:

Annuities and other insurance products can help replace income after retirement.

Estate Planning:

Life insurance is often used to replace an earner’s income; to pay funeral expenses, debts and taxes; to fund family and charitable trusts; to fund a business buyout and compensate the surviving owner’s family; and to provide an inheritance to family members who do not work in a family business.

What You Need to Know:

Remember, insurance is for risk management—to protect your wealth from potential areas of loss. If a risk is no longer there (the exposure ends or you are able to self-insure and cover the risk yourself), then the insurance coverage for that risk can be eliminated.

Actions to Consider:

1. Trying to coordinate your insurance and manage your risk yourself is a daunting task. Instead, work with a team of advisors who have the knowledge and experience to help you make sure your risks are covered at the appropriate levels, without duplication and unnecessary costs.

2. An advisory team will usually include your financial investment advisor, estate planning attorney, and life, health and property/casualty insurance agent(s). Other members may be added to this team as needed. You will probably find that your advisors will welcome the opportunity to work on your team, because they want to provide you and your family with the best possible service and solutions.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Understanding Losses: Liability Exposure

We live in a litigious society. Lawsuits abound, whether deserved or not. If you own property or stock that was purchased at a low price and has had high appreciation, it is at risk to litigation and creditors—even if you are not in a high-risk profession. Others may be in a private business such as medicine or law that bring with it additional exposures to monitor. 

The Key Takeaways:

• Assets that have high appreciation are at risk of litigation and creditors.

• There are steps you can and should take now to protect your assets, especially if you have considerable wealth in these assets.

We Are All at Risk:

The wealthy, celebrities and sports figures are easy targets for lawsuits, as are those in high-risk professions, such as the medical field (doctors, dentists, other health care professionals), lawyers, accountants, architects and those in construction (builders, developers).

Note: As a general rule, you can’t limit your professional liability through legal means. If you are concerned about a professional claim, the best first step is to have adequate malpractice insurance. However, additional protective steps should still be taken to secure your private practice or business from creditors and non-malpractice litigants.

But, really, we are all at risk of liability claims. These can include business deals that have gone wrong, car accidents, sexual harassment claims and slip-and-fall claims. Even the behavior of children, their spouses and ex-spouses can lead to loss of family wealth.

What You Need to Know:

The best time to do asset protection planning is before a claim arises, when there are only unknown potential future creditors. While there are some options even with an existing claim (such as an ERISA qualified plan), it is highly important to avoid fraudulent transfers. (A fraudulent transfer, also known as fraudulent conveyance, is a transfer of wealth to another person or company to swindle, delay or hinder a creditor, or to put the wealth beyond the creditor’s reach.)

Actions to Consider:

1. Asset protection planning must be accomplished under the guidance and planning of qualified professionals. A misstep or unintended error can negate the entire process and fully expose your assets.

2. Everyone should have personal liability insurance, which is quite inexpensive.

3. Existing state and federal exemptions should be maximized. State exemptions can include personal property, life insurance, annuities, IRAs, homestead and joint tenancy. Federal exemptions include ERISA, which covers 401(k) plans, pensions and profit sharing plans.

4. Sometimes it is possible to convert non-exempt assets into exempt assets. For example, cash can be invested to pay down a mortgage to increase home equity, or an unprotected IRA can be transferred into an ERISA plan.

5. Sometimes assets can be transferred to the spouse who is not at risk. However, should a divorce occur, these assets would be owned by that spouse.

6. Limited liability companies (LLCs) can be formed to remove expensive equipment from a business or practice, which is then leased back to the business or practice.

7. Family limited partnerships (FLPs) can be formed to own non-practice assets (personal and investment real estate, investment accounts, bank accounts, collectibles), which can be leased back to the individual.

8. Domestic asset protection trusts (formed in certain states) and offshore asset protection trusts are also options that can be used.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Wealth Protection: Avoiding Losses

Wealth Protection: Avoiding Losses:

You can’t create wealth until you preserve it first. Each dollar lost unnecessarily isn’t just a single dollar lost, but a compounded dollar lost. A dollar not lost allows wealth to compound from a higher floor. Losses can occur from many places beyond investments: property, income, taxes and fees. It is well worth paying for the expertise of professional advisors who are able to prevent or reduce losses in all of these areas.

The Key Takeaways:

1. Protecting your wealth from losses allows you to build more wealth, as compounding growth is able to build on a larger base.

2. Losses can occur from many sources you may not have considered.

3. Experts can help you identify where these risks are hiding and provide solutions to protect you.

Prevent/Reduce Losses to Grow Wealth:

Any time you can prevent or reduce a loss, you preserve wealth. Here are five areas in which losses may occur.

1. Investments: Choose your investment manager carefully. Ask how losses can be avoided. Look at past performance history of each investment, but be aware that one with the highest returns may also have the highest losses and a volatile historical record. Take the time to review your asset allocations, investment manager’s performance, and level of risk, and make changes when necessary.

2. Property: If you have a loss on property that is not insured for its full replacement value, you will pay for the uninsured part of that loss out of your own wealth. Periodically review the full replacement values of your property and maintain adequate insurance.

3. Income: You may lose income due to a layoff, illness or injury. Having adequate health insurance, disability income insurance and an emergency fund that will cover at least six months of lost income will help to preserve the rest of your wealth until you recover or find other income.

4. Taxes: Most people think about income taxes when considering tax management.  However, other taxes are also important to manage, like capital gains taxes or matching gains and losses when selling investments or property. An experienced estate planner can help you with estate tax planning and income tax planning for wealth transfers during your lifetime and after death, including the sale or transfer of a business.

5. Fees: Many fees, such as investment product fees, trading expenses, and insurance product surrender charges, can be avoided or lessened with a comprehensive financial plan.

What You Need to Know:

An experienced estate planning attorney can also help you shield your family and your assets from probate court interference at incapacity and death, unintended heirs, unnecessary legal fees and taxes, and lawsuits.

Additional Actions to Consider:

• If you need an advisor who specializes in a certain area, ask for referrals from other advisors, your banker, friends and business acquaintances. If you start hearing the same name several times, you’re probably on the right track.

• Take the time to research and understand any strategies that are being recommended to you. An educated consumer is a smart consumer.

 If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Understanding Losses: Compounding Interest

Most investors are familiar with the magic of compounding interest but they often fail to realize that when the portfolio loses money, the math of compounding works against them. That’s because when a dollar is lost, it is not just a dollar but a compounded dollar that is lost, so the investor must regain more just to break even.

The Key Takeaways:

1. Compounding interest works for the investor when the portfolio is making gains, but works against the investor when losses occur.

2. When minimizing losses in your investment and trust portfolios, your wealth compounds from a higher floor and this is the key to long-term wealth creation.

How Compounding Works For You:

Compound interest is calculated on the principal and accumulated interest. Here’s a simple example of how compound interest works:

                 Investment          Interest Rate        Interest Earned              Total

Year 1         $10,000                   7%                       $700                   $10,700

Year 2         $10,700                   7%                       $749                   $11,449

Year 3         $11,449                   7%                       $801                   $12,250

The benefit of compounding interest makes it important (and attractive) to invest for the long term. For example, if you continue to earn 7% interest each year, at the end of 20 years your $10,000 investment would grow to $38,697.

How Compounding Works Against You:

If you have a loss, compounding interest makes it difficult to catch up. For example, say you lose 7% the first year. To recover the loss and get back to the original investment of $10,000, it would take you until sometime in Year 3 at 7%.

                 Investment          Interest Rate        Interest Earned              Total

Year 1         $10,000                  -7%                      -$700                    $9,300

Year 2          $9,300                    7%                       $651                    $9,951

Year 3          $9,951                    7%                       $697                   $10,648

But that is not really break-even. To recover the 7% loss and catch back up to the benefit of compounding interest, you would have to have a 23% return in Year 2 to reach $11,449. It’s a basic algebra formula: $9,300 x N = $11,449. Divide both sides by $9,300 to solve for N. Answer is 1.23…or 23%.

This is why it’s critical to minimize losses.

What You Need to Know:

As losses become greater, so does the reverse compounding. With a 10% loss, the investor must gain back 12% to break even. With a 20% loss, the gain must be 25%. With a 50% loss, the investor needs to earn back 100% just to break even.

Actions to Consider:

1. Work with your investment advisor and trustee to minimize losses in your taxable portfolios and any trusts you’ve set up.

2. Examine other ways you may be exposing your wealth to unnecessary risk. For example, having adequate insurance will prevent you from having to use your wealth to cover any uninsured losses.

3. Work with an estate planning attorney to minimize losses from court interference at incapacity and death, unintended heirs, unnecessary taxes and fees, and to protect your assets from lawsuits.

 If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.