Essential Estate Planning Documents You Need During The Pandemic

Essential Estate Planning Documents You Need During The Pandemic

“I want to leave my children enough they can do anything, but not so much that they do  nothing.”

Warren Buffett

The coronavirus outbreak has raised fears even among the ordinarily fearless. It is a health crisis of enormous proportions that has evolved into a significant financial crisis. Unemployment rates are at record highs, signaling a deep recession. Many families have done soul searching, recognizing the vulnerability of life. As a result of COVID19, many people have rushed into creating their estate plan. I can understand urgent feelings as you see high fatality numbers, including profiles where both husband and wife have succumbed.

However, think through your wishes. Only about 45% of Americans have executed an estate plan pre-pandemic. But many more plans probably need to be updated. The estate planning process does not have to be a bad experience. We will discuss the essential documents you need.

Estate planning documents should reflect your family and your financial situation. Recognize that you will make changes as you move through your life cycle. Young married couples with small children are in a different scenario than a retiring couple or a single parent with grown children. Review your plans periodically to ensure that it reflects your wishes for the proper distribution of assets.

Keep Your Family’s Best Interests At Heart

Most of us want to avoid litigation, especially over an estate. Having a plan helps you do that. The best time to think about your plan is when you don’t have a compelling reason to do. Keep your family’s best interests at heart with a well-developed estate plan. By creating your estate plan you will have control over your asset distribution during your lifetime to your loved ones. Start discussions with your attorney, tax accountant, and financial advisor. Through frank discussions, your goal is to put together the most beneficial plan for your situation.

You don’t need an estate plan to transfer a significant portion of your assets to intended heirs. Help your family avoid the often painful and lengthy probate court procedures. Most young people may have fewer assets to transfer when they are young. As they reach successful milestones in life, they may have more assets to transfer to loved ones. Know how to create your estate plan with the essential documents you may need now or in the future. When building your wealth, consider determining how you will eventually distribute your assets.

Related Post: Guide To Estate Planning In 6 Steps

What Are The Key Parts Of Your Estate Plan?

  1.  Beneficiary Designations 
  2. The Will and Letter of Instructions
  3. Revocable Trusts
  4. Durable Power of Attorney For Financial Affairs
  5. Advance Medical Directives: Durable Power of Attorney For Health Care, Living Wills, and HIPAA Authorization

1. Designate Beneficiaries For Your Nonprobate Property

A significant portion of your assets is non-probate property. These assets can be transferred to your designated beneficiaries by contracts. You can do this quickly, and it doesn’t require an attorney. Probate property or testamentary assets pass to your heirs through your will, which we will discuss further below.

Non-probate property is assets conveyed outside the will. For many of us, these assets are the bulk of our estate. They will automatically transfer to your designated beneficiary upon your death. Typically, this can happen before your estate goes through probate court. One of the most important assets you will need to address is your homeownership unless you rent only. Trusts are a particular form of a contract we address later.

Your non-probate property will be transferred to survivors by contract based on your designated beneficiary. As you opened your accounts that contain your assets, you likely filled out a beneficiary designation form.  A beneficiary is a person or organization designated to receive a benefit selected by the asset owner. You can also choose a contingent or secondary beneficiary in case the first-named recipient has died.  Make sure to name beneficiaries for all of the assets that you can. Review your designated beneficiaries periodically.

The  non-probate assets that you may transfer by contract are:

  • retirement accounts, including 401(k) plans,
  • IRAs, Roth IRAs, Keogh, and  pension plans,
  • payable-on-death clauses in bank and credit accounts, investment portfolio(s),
  • life insurance and  disability insurance policies or
  • by owning accounts with another person, usually a family member, through rights of survivorship.

These assets are generally transferred directly to those beneficiaries that were designated by you. All they will usually need is an original “raised seal” death certificate.

Modify Beneficiary Designations As Needed

Change your beneficiaries as you go through life. Refresh your beneficiaries by naming your family members if you are now married with kids. Often, life changes such as a divorce, remarriage, or the passing of a loved one, we want to update our beneficiaries. To understand the importance of designated beneficiaries, please read here.

Joint ownership with rights of survivorship

Husbands and wives (or parents and children) may have joint ownership of assets. These assets are called joint tenancy with the right of survivorship.

Property ownership, once designated, enables transfers. These assets can include bank accounts, investment accounts, cars, and home(s). Upon the death of one owner, the surviving owner(s) will receive this property by operation of law rather than through the will. Payable at death contract designation may be used by two unmarried siblings to allow each to name the other to receive funds upon their death. To access the funds, such as a savings account, the surviving sibling only needs to present the bank’s death certificate with ID.

The transfer of non-probate assets to your designated beneficiaries is not complicated. Once heirs hand over the death certificate, the bank can transfer funds or property to the heirs in a day. These assets do not pass through the will or go through the probate process.

2. “Last Will and Testament”


The will is central to most estate plans. Increasingly most of your assets pass outside probate. Non-probate assets pass by contract either through designated beneficiaries or trusts. Property in trusts passes to those beneficiaries named in the trust. That said, the will remains important in distributing probate property, the rest of the estate. The will directs how to distribute probate assets only you own upon an individual’s death. There is a lot of formality in executing a will.

The individual making the will is called the testator. He or she determines how to distribute his or her remaining assets after death. At least two disinterested witnesses are required to sign the will when the testator signs the will.

The testator will appoint a personal representative, commonly called an executor. The executor, as a fiduciary, will have the powers necessary to fulfill your wishes. Without a will, your state’s intestacy laws will dictate the distribution of your assets.

A Trustworthy Executor Is Better Than Co-Executors

People may opt for co-executors, such as a  spouse and an adult child. The testator believes these individuals can work together. However, relatives and friends are not great choices to perform the executor’s duties. Choose one trustworthy executor. While co-executors may sound harmless, acting in unison, in reality, can be more difficult. Executors may be called on to pay off debts, consolidate and liquidate assets, file income and estate tax returns. They may need to get the court’s permission to distribute the remaining assets’ balance, including money.

Spouses have legal rights to each other’s estates.

State laws presume that married couples share their fortunes equally.

Sharing your property with your spouse is a right called “the partnership theory of marriage rights.” Property acquired during the marriage and titled in the name of one partner becomes property of both spouses typically. The exception is property acquired via gift or inheritance. Any spousal rights to claim an inheritance from the other spouse under the law are void upon divorce. The estate assumes the debts of one spouse, not the executor’s liabilities or the beneficiaries.

There are nine community property states. Here, property refers to all the money, assets, debt acquired during the marriage. As such, in these states, this property is legally part of both spouses’ joint property. The rights of husbands and wives are equally protected.

What A Will Should Address:

  • Decide what property to distribute, including personal property that has sentimental value.
  • Determine who will inherit the assets.
  • Designate a trustee and guardian to manage assets if there are children under 18 who may be beneficiaries. The trustee and guardian can be the same person(s).
  • Handle digital assets by designating proper access to family members. Make sure that you account for your digital assets, which we fully address in this post.

For your will to be effective and valid, it must be signed under your state’s law.

Generally, a will must be in writing, signed before a minimum of two witnesses who can attest to your mental capacity and soundness at the time of signing the will.

A Valid Will 

Challenge-proof your will guided by your attorney. The will becomes effective upon the death of the testator. Up until that time, the testator can change a will. The original (not copied) version of the last will should be kept intact. Store this unaltered version in a safe deposit box or safe place.

 A Letter Of Instructions

Write a letter of last instructions, separate from your will. Such a letter may provide your preferences regarding funeral/burial arrangements and who speaks at your funeral. It should also provide contact information for family, friends, and colleagues. This letter may mention items that weren’t part of your will. However, the letter may consist of essential items for you to let your surviving family members know about. If your instructions conflict with the will’s directions, the will trumps the information in this letter.

Leaving Guidance For Family Is Helpful

Organize financial information, important papers (e.g., a memoir), and provide its location to your family. While the letter doesn’t have the legal force of the will it may amount to personal information that family could use to clarify your intentions.

3. Revocable Trusts

Trusts have additional features not found in wills.

Most people are familiar with a will and know it is the first place to handle probate property. However, trusts are increasingly more common in estate planning. Use trusts when you have a more complex estate, have less liquid assets, and desire privacy. Unlike wills, trusts avoid probates. Trusts provide different features that aren’t in wills.

A revocable trust is for protecting and managing a person’s assets before death, as “living trusts.” The person who created the trust (the grantor) maintains the right to change its terms. They may also cancel the trust for any reason during their lifetime. These instruments can take effect while the grantor is alive. These are called revocable living trusts, and the grantor is often the trustee.  However, if the grantor cannot serve because of becoming incapacitated, an attorney can name a new trustee. If so, the new trustee may need a HIPAA release. (see below).

If preferred, the grantor can make a trust irrevocable, meaning the grantor can make no changes.

Other Trusts:

Irrevocable Charitable Remainder Trust (CRT)

If you have significantly appreciated assets, you may want to set up a charitable remainder trust (CRT). A CRT is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT or other beneficiaries. The remainder of the donated assets goes to your favorite charities. Distribution of these assets occurs upon your death or the death of your designated beneficiaries. There are several benefits, notable income tax deductions while preserving the value of your assets. You can read more about it here.

Donating assets to a Charity

CRTs are tax-exempt irrevocable trusts that reduce the taxable income of the donor during their lifetime. The donated assets go into the trust. Income is distributed from the assets to you and your spouse or other beneficiaries for a timeframe or life. The charity you designate will receive the CRT assets when you and/or your spouse or designated beneficiaries die.

Testamentary Trusts

A testamentary trust is a trust specified in the will and goes into effect after the grantor’s death.. These trusts can allocate money or assets after the grantor’s passing and provide income to surviving spouse and children.

4. Durable Power of Attorney For Financial Matters

A durable power of attorney designates the person(s) as an agent or “attorney in fact.” Their role is to make financial and legal decisions when you are incapacitated and are unable to do so. Mental incapacity may occur through illness, an accident, or dementia. That incapacity can be temporary or permanent. A financial agent makes financial decisions. This agent is essential when families are fighting over the handling of money. Without an agent, there may be a greater need to have a guardian or conservator appointed by the courts.

This document stays in effect as long as you live unless you explicitly revoke it. Having authority provides the agent with access and control to assets. It may list specific financial institutions (e.g., brokerage firms and banks) and account numbers. Power may explicitly grant the agent the ability to make gifts.

Under this power of attorney, the agent can carry out contract obligations, sell, buy, or close title to real property in your name. Additionally, they may conduct banking or other transactions. Every state has its requirements for ensuring valid powers of attorney. These powers must be “durable” which means that the agent’s authority survives any grantor’s incapacity or disability. These powers are too significant to use a form online. You need to designate someone trustworthy.

5. Advanced Medical Directives

All parts of the estate plan are critical in addressing a person’s wishes. However, advance medical directives are of prime importance.  Advance medical directives provide medical guidelines for treatment preferences, either for temporary or end-of-life planning purposes.

COVID-19 Factor

These directives have become even more urgent as a result of the coronavirus pandemic. Many people require ventilators or medically induced comas before recovering from the virus. As such, directives are essential when the patient cannot make medical decisions. There are many severe medical conditions such as coma, dementia, or brain death, where the directives are essential.

There are three main advance medical documents to prepare: living wills, medical power of attorney (or health care proxy), and HIPAA Authorization release.

Living Wills

Writing a living will enable a person to express their wishes regarding types of medical treatment. Your designated agent would seek the level of desired care when you can no longer express your wishes. This process provides informed consent. A living will is a written legal document separate from your will made in consultation with your attorney and signed by you. This medical directive can help reduce ambiguities during difficult times. For example, you may not want to be on feeding tubes or kept alive unnecessarily, but it should be in this document.

California became the first state to recognize living wills legally. However, it was the legal battle of Terri Schiavo in 2005  that spurred the use of living wills. As a result of Schiavo and the right-to-die movement, living wills became an important document. The Mayo Clinic recommends that you address several possible end-of-life care decisions in your living will. By talking to your physician, you can get a better idea of what possible medical decisions you may need to consider in this list.

Health Care Proxy or  Durable Power Of Attorney For Health Care

This document is similar to the durable power of attorney for financial affairs. Here, an individual designates another person as an agent to make health care decisions on your behalf. That agent stands in your shoes if you are unable to make your wishes known. That person as an agent or attorney-in-fact has the same rights to request or refuse treatment that the individual would have if they could do so.

This instrument is crucial when caring for a person with dementia, Alzheimer’s Disease, or another limited mental capacity. Use this durable power of attorney to appoint someone you trust as your agent,  do certain things, and take actions in your name if you cannot do so. You may need to consult with an attorney in your state, and terminology differs regarding the durable power of attorney for making medical decisions.

During This Coronavirus Pandemic, There Is More To Consider

Each state may have different legal formalities. Check with your state as to whether you need witnesses or a notary. During the pandemic, some formalities have become complicated with social distancing. If the notary rules provide that the document must be signed “in the presence of the notary,” this may prove difficult. In some states like New York, Governor Cuomo signed an executive order on March 20, 2020, allowing notarization utilizing audiovisual technology. We can more easily communicate with attorneys or professionals with companies like Zoom or Cisco’s Webex.

When considering these advanced medical directives, you can change these documents at any time. You can specifically reference coronavirus within your document or as an addendum if you become infected with the virus. For some guidance, The Conversation Project has some good resources in this area.

HIPAA (Health Insurance Portability and Accountability Act) Authorization

HIPAA protects an adult’s medical information from being released to third parties without the patient’s consent. Without a valid HIPAA authorization on file, the medical providers cannot legally discuss the patient’s medical information with family members.  Medical practitioners are barred from even speaking with the spouse without a release.

Medical providers will avoid facing family members rather than face serious sanctions and penalties without a release. Close family members may have vital information such as medications or allergies about the patient. HIPAA doesn’t bar this communication, but it can cloud the essential two-way communication with family.  A HIPAA Authorization release is relatively easy to get and essential in uncertain times with coronavirus outbreak. Here is an example of New York State’s release.

Your agent with a durable power of attorney for health care along with family members, should get the release. This way, they may have access to your medical records and essential health care information.

In light of the COVID-19 outbreak, there is a HIPAA waiver of specific provisions as of March 15, 2020. Expressly, the US Department of Health and Human Services waived sanctions and penalties arising from a hospital’s noncompliance of HIPAA Privacy rule. Waivers are designed to lessen the burden on hospitals during the pandemic health crisis.

Final Thoughts

Estate planning decision-making can be difficult. However, it provides peace of mind by reducing some of the uncertainty that may arise for your family. Estate planning is in your family’s best interests. We all should consider having a plan in light of the coronavirus outbreak. 

Protecting your assets and having a plan to distribute them to loved ones should reduce potential angst. Engage an accountant to help you realize tax efficiencies.

Have you started thinking about estate planning? It is usually easier to do when you have no urgent reason to do so but are thinking of your family’s best interest. This guide is designed to get you started thinking about your plan but you need careful consideration and professional guidance.

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13 Money Lessons From Warren Buffett’s 2020 Letter to Shareholders

13 Money Lessons From Warren Buffett’s 2020 Letter to Shareholders

Each year I read Chairman and CEO Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders upon its release. For many reasons, I do so as a shareholder, an investor, a former equity analyst, and a professor. Teaching finance to college students the letters are a treasure trove and better than many textbooks.  They are enjoyable to read, and I learn a ton from them.

The 2020 letter provides insights into the company’s diverse businesses. These businesses represent a proxy for our economy. What makes the letter so special is that Buffett writes it himself, sharing money and investing lessons with his memorable wit and humor. Each year, Buffet aims his words at investors at every level.  He pretends he is writing to his two sisters, Doris and Bertie. They have a significant amount of shares.

This year’s letter had several new aspects, which contained some soul searching but no major surprises. Buffett and his partner in crime, Charlie Munger, are the oldest leadership team of Fortune 500 companies at ages 90 and 96, respectively. They recognize the need to be candid with shareholders about the company’s future without them.

13 Key Takeaways:


1. 2019 Was Not A Stellar Year For Berkshire’s Stock Performance

Berkshire’s stock underperformed the S& P 500 index, the market’s proxy, by 20.5 percentage points in a strong year for equities. This year’s performance was its biggest disappointment since 2009. Looking at its 55 years history, Berkshire compound annual return of 20.3% exceeded the S&P 500’s not too shabby 10%. While this is an excellent performance for any company, Wall Street’s “what have you done for me lately?” mentality raised many questions for Buffett. The company has been hurt by its lack of acquisitions, particularly in fast-growth areas like the technology sector.

The company’s operating earnings in 2019 were slightly down compared to a year ago. Berkshire Hathaway does not pay a dividend to shareholders who would have boosted returns to shareholders.

2. A Disciplined Acquisition Strategy

Acquisitions are a signature priority for the company. However, Buffett has had trouble finding an “elephant-sized” one. Buffett tried buying Tech Data, a technology distributor, but  Apollo Management bid higher and acquired the tech company.

Buffett uses three criteria for buying new businesses:

  • The business must earn good returns on the net tangible capital required for its operations.
  •  Berkshire’s unique acquisition strategy prefers to inherit strong and honest managers.
  • Buffett wants to pay a sensible price and will not enter into bidding wars.

Although they prefer to own 100% of the acquired company or at least a controlling interest, they have valuable non-controlling interests in many businesses. Those holdings are worth $248 billion based on the year-end 2019 market price. They represent long-term holdings of reliable companies include American Express, Apple, and Delta Airlines.

However, the accounting isn’t as favorable a contributor for their non-controlling stakes. Berkshire can only realize the dividends that Berkshire receives in operating earnings they report. However, they cannot include the proportionate retained earnings reported by these holdings. Dividend income from the ten largest holdings in 2019 amounted to $3.8 billion compared to its share of $8.3 billion for retained earnings.


3. Reinvestment In Diverse Productive Operational Assets Remains Top Priority

Berkshire Hathaway splits their controlling businesses into insurance and non-insurance operations. Together, they reflect diverse companies representing a tapestry of our economy. Buffett has acquired dozens of companies over the years. In the current letter, he analogizes acquisitions to marriages: “Joyful weddings — but then reality tends to diverge from prenuptial expectations. Sometimes, wonderfully, the new union delivers bliss beyond either party’s hopes. In other cases, disillusionment is swift.” Almost poetic!

Although Buffett does not explicitly cite the significant disappointments, his commentary pointed to the original one. That dates back to early 1965 when he acquired Berkshire’s textile business, which received most of the capital. Buffett began acquiring companies, which received more of the company’s money. The textile’s losses became a drag on growth and eventually lost financial support. Of course, without that business, there may not have been a Berkshire Hathaway today. Today, Berkshire designates most of its capital to their companies that achieve good-to-excellent returns and less for those that perform poorly.

Top businesses that get superstar status in Berkshire’s portfolio are insurance operations,  followed by BNSF railroad and BH Energy acquisitions. The rest are Clayton Homes, International Metalworking, Lubrizol, Marmon, Precision Castparts, Forest River, Johns Manville, MiTek, Shaw, and TTI. They also own many smaller businesses.

4. Wind As A Major Energy Accomplishment

Berkshire Hathaway Energy has been very successful in charging lower energy rates. They realized efficiencies from converting wind into electricity. The company expects to be wind self-sufficient for its Iowa customers in 2021, far ahead of the other Iowa utility. Berkshire’s move to the wind is potentially well ahead of other utilities in the US. Positively, Berkshire’s energy business may take on more utility projects.

5. Valuable Insurance Businesses With Conservative Risk Approach

Berkshire’s property/casualty insurance businesses provide a lot of capital by “float” or “free money.” Float is an attractive aspect of the insurance business. The insurers receive premiums upfront from the sale of insurance policies. They make payment of claims which can stretch out over decades. In the meantime, the company invests the float money in conservative high-grade bonds. Given our low-interest-rate environment, the returns have been low for these financial instruments in recent years. Had the float been invested in lower-quality bonds or stocks with higher returns, Berkshire and its shareholders would have been bigger beneficiaries but at far greater risk.

Instead, Berkshire is sticking with a conservative investment policy for the float. Insurance can be a risky business. There have been significant catastrophes in the past, such as asbestos, Katrina, earthquakes, and tsunami in Japan. When they occur, it can be tragically devastating for human lives and significantly impact businesses unexpectedly.

6. The Compounding Power Of Retained Earnings

Buffett discussed an economist, Edgar Lawrence Smith, who had written Common Stocks As Long Term Investments in 1924 in his letter. Smith argued that stocks would perform better than bonds when prices rise, and bonds would deliver better returns when prices decline. However, the author himself admitted that the studies he was using did not prove his theory.

Giving support to Smith’s insights, John Maynard Keynes wrote in his review of Smith’s book: “I have kept until last what is perhaps Mr. Smith’s most important, and is certainly his most novel, point. Well-managed industrial companies do not, as a rule, distribute to shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back into the business. Thus there is an element of compound interest (Keynes italics) operating in favour of a sound industrial investment. Over a period of years, the real value of the property of a sound industrial is increasing at compound interest, quite apart from dividends paid out to shareholders.”

Before Smith’s book, stocks were considered speculative compared to bonds. Reading The Beautiful And Damned classic by F. Scott Fitzgerald written in 1922, the protagonist Anthony Patch had lived off his bonds, selling them off as his emergency fund as he had no other income. Stocks were not what gentlemen buy.

Think of the company’s retained earnings as its savings account compounding growth. This growth can be invested in new opportunities, whether to buy new companies or expand their holdings.

7. “If”

Buffett is a big fan of Rudyard Kipling’s poem “If and uses “If” when asked about predictions. When making forecasts, Buffett Cannot predict future interest rates, tax rates, or economic growth. Changes in these rates can cause stocks to have significant drops in the market of 50% or greater. That said, he remains an unflappable optimist about our country and the future of stocks for the long term. Equities are the better choice over fixed-rate debt securities assuming interest rates and corporate rates remain as they are now. Hard to predict significant “ ifs.

That said, equities perform better over the long term benefiting from compound growth. However,  you can do things to reduce your risk by not using borrowed money (e.g. buying on margin) to buy stocks. Control your emotions when the markets get rocky so that you don’t sell good stocks recklessly. Volatility in the markets happen regularly but weather the dips for the long term rather than sell out of nervousness. An emergency fund helps you maintain liquidity when the unexpected happens, such as a job loss.

8. Use Of Conservative Accounting Standards

Buffett and Munger refer to earnings as bottom-line net earnings, meaning after considering all income taxes, interest payments, management compensation, restructuring costs, depreciation and amortization, and home office overhead costs. Net earnings contrast to the often practiced adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). EBITDA is a much higher number than net earnings. However, Berkshire prefers net earnings, which is more conservative. Munger has often referred to the EBITDA profit metric as “BS earnings.”

High growth companies who are not year generating bottom-line earnings use EBITDA as a measurement. Wall Street bankers and analysts have endorsed EBITDA as alternative valuations for growth companies. Buffett is critical of companies that report earnings before “one-time events” such as restructuring and stock-based compensation costs. What he means is that these costs still need to be deducted from gross earnings. Some management doesn’t want to include these items as an expense, but as Buffett quips: “What else could it be–  a gift from shareholders?”

9. Buy-Hold Investment Strategy is A Longstanding Trademark

Berkshire has a significant collection of equity holdings. This portfolio is separate from the companies Berkshire controls. Here, Berkshire has ownership typically about 5%-10%+ stakes in substantial companies that deliver dividends and stock appreciation. Berkshire holds about fifteen positions thoughtfully bought and intended for long term. At the end of the year, Berkshire’s portfolio of $248.0 billion market value, well over its $110.3 billion costs.

This portfolio does not include Berkshire’s more significant holding in Kraft Heinz because it is in a control group. Kraft Heinz is one of his acquisitions that Buffett believes the company overpaid. One of his few mistakes. Overall, Buffett often is praised for his buy-hold portfolio diversification.

10. Berkshire Share Repurchases

Buffett and Munger will buy back shares if they sell at prices below their intrinsic value estimate and have sufficient cash. Berkshire bought back $5 billion in shares for about 1% of the company. They are reluctant to buy back shares solely for the appearance of propping up the stock. They have been critical of other companies doing that.

The management of their constituent companies has also repurchased shares, using their retained earnings. Repurchased shares boost Berkshire’s ownership percentage from the lower outstanding share count.

11. Has An Ample Emergency Fund

Berkshire maintains a high level of cash-equivalent securities, invested in US Treasury bills of $125 billion at yearend. They use debt sparingly with $19.9 billion.  Buffett admits to making expensive mistakes along with missed opportunities. The company always maintains a minimum of $20 billion to guard against any potential calamities. Holding this money is like an emergency fund for the company so they can have liquidity readily accessible. Berkshire would never want to sell any of their businesses to raise capital.

12. Planned Exits For Buffett And Munger

Neither management is going anywhere in the immediate future. They remain energetic and optimistic about the company’s future. The company is well known for its strong corporate culture throughout its many companies. That said, in preparation for Buffett’s eventual exit, he discussed the details of his will’s directives. According to Buffett’s directions, fiduciaries–executors and trustees–cannot sell any Berkshire shares right away. Both the Mungers and Buffett have most of their wealth concentrated in Berkshire shares.

Over time, the trustees will convert A shares into B shares annually and distribute them to various foundations. The higher-priced B shares are the original Berkshire Hathaway stock and have never gone through a stock split. A recent stock price for Berkshire A (BRK.A) was $343,449.00, while the B shares (BRK.B) are $229.33, a more accessible price for the average investor.  It will likely take 12-15 years to distribute after Buffett’s passing.

Buffett feels confident in his strategy despite the concentration of that much wealth in one stock. His faith in the company outweighs his need for diversification. That is not good advice for the regular investor, but hey, he is Warren Buffett. Buffett is aware that Investment banks may approach the Berkshire Board of Directors to change Buffett’s strategy. However, Buffett has a strong belief in his board. He has been critical of overpaid directors at other companies who do not buy shares with their savings except through grants. The need for board independence for Buffett has been a constant topic well before Sarbanes-Oxley law’s requirements.

13. “We Are All Duds At One Thing Or Another”

In a jab at directors he met through the years, Buffett said he would not have chosen them to handle his money or business matters. Adding, “They, in turn would never have asked me for help in removing a tooth or improving their golf swing. Moreover, if I were ever scheduled to appear on Dancing With The Stars, I would immediately seek refuge in the Witness Protection Program. We are all duds at one thing or another.”

Ajit Jain And Greg Abel Will Have More Exposure At This Year’s Shareholders Meeting

Jain and Abel –two prominent operating managers–have been touted by Buffett in recent years. Jain heads the insurance business, while Abel is part of the Berkshire Hathaway energy business. Buffett and Munger have not named Abel and Jain as successors. Buffett turned 90 on his last birthday (August 30), so it is only reasonable that investors encourage the company to make their decision official soon.

Final Thoughts

Warren Buffett has long been an investment icon, teacher, and generous philanthropist. His folksy letters to shareholders provide personal finance lessons in a manner of common sense. They are informative about the company’s businesses.  Buffett’s refreshing optimism about the future can be contagious. He owns up to mistakes and is self-deprecating with his wonderful sense of humor.

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There are so many enjoyable stories about Warren Buffett. Do you have one you might want to share? We would love to hear from you!










Why Women Need Their Own Financial Accounts

Why Women Need Their Own Financial Accounts

“For women, financial independence is a matter of necessity.”

Carrie Schwab-Pomerantz

Financial independence is essential for everyone. Women have lagged in gaining autonomy, being more reliant on their spouses for money than is healthy. They have made significant progress in the workplace, and their financial clout is rising.

As they pursue higher education and careers, women are increasingly the breadwinners.  41% of mothers were sole or primary breadwinners, with an additional 23.2% on par with their spouses, according to the Center For American Progress.  True, some of these statistics are due to the greater growth of single moms. According to Jean Chatzky, by 2028, women will control 75% of discretionary spending, and by 2030, 66% of America’s wealth.

As Family Structure Changes Are Joint Accounts Still Warranted?

Traditionally, couples blended their financial lives and assets and opened a joint account. However, changes in our family structure–later marriages, high divorce rates, second marriages, cohabitation, single motherhood/fatherhood, same-sex couples–may dictate the need for separate financial accounts. That said, there is still a tendency for couples to treat money as joint assets, with women closing their bank accounts, transferring their assets to be managed by one spouse, usually their husband.

As young teens, girls (like boys) share their bank accounts or credit cards with their parents, often to monitor their spending. Historically and even now, men monitor their wives’ spending. Until fairly recently, women could not get their credit cards or access their lines of credit. They needed their fathers or husbands to cosign on their applications. The Equal Credit Opportunity Act of 1974 finally lifted that restriction. That is well behind the women in Ancient Egypt of 3100 BCE who held equal financial rights with men, who could acquire, own, dispose of the property in their name; enter into contracts in their name.

The Benefits Of Joint Accounts

Joint bank accounts for couples make sense for some purposes. Building openness, trust, and transparency in a marriage are often cited as crucial benefits for a couple to have a unified account. I am not saying that couples should not have joint bank accounts at all.  Indeed, equitable contributions based on each person’s commensurate salaries (or net worth if that is practical) to fund the combined account makes sense. It is easier to pay joint expenses out of one account for household bills such as rent or mortgage, insurance, college tuition, and groceries.

I recently wrote a letter to my teen daughter on becoming financially independent, and here is that post. It is never too early to talk to your children about money topics as their confidence matters.

Women Have Distinct Financial Hurdles To Overcome

Women need to have their financial accounts–bank, retirement, investments– and manage their own money with more confidence. By being women, longstanding gender biases provided us with these obstacles to overcome:

1. Gender Gaps Persist

Women are paid 82% less than men, according to a 2017 Pew Research Center study. According to a UBS study, the cumulative effect of starting at a lower base at age 25, with raises on that smaller amount, will provide 38% less wealth for women by the time she reaches 85.. Of course, women may not receive the same raises or bonuses as men adding to this gap.

2. Retirement Savings Will Be Less

According to the National Women’s Law Center (NWLC), if lower earnings for women prevail through their working years, the loss could amount to $406,760 over a 40-year career. Their report presumes a woman is working full time with a constant wage gap of $10,169 each year. If so, women may need to work ten years more than their male counterparts to make up the difference.

These amounts may be a conservative amount. Separately, a Merrill Lynch study with Age Wave has shown that with the multiple impacts of lower earnings, parenting, caregiving, and reduced retirement savings opportunities, women will collect $1,055,000 less than men by their retirement age.

3. Lower Earnings Impact Social Security Monthly Benefits

Average social security monthly benefits for retired workers were $1,422  in 2018, with women receiving $1,049 versus $1,382 for men. Across all employer retirement plans, men have higher average account balances, which gap grows wider with age.

4. Women Hold More Debt And Lower Credit Scores

Women earn 57% of the bachelor’s degrees in US colleges and universities. They have more degrees in every higher education category, including doctorates than men. However, this is not translating into higher earnings for women. The result is that women are being squeezed by carrying nearly two-thirds of the outstanding student debt as of early 2019 while earning less.

As a result, women tend to have slightly lower credit scores than men. According to a Federal Reserve report, women score 762 versus 768 for men based on  Vantage Credit Scores. Women’s lower scores are due to higher outstanding debt and higher credit utilization rates than men. Low credit scores hurt their abilities to raise capital to start and manage their businesses compared to men.

5. Taking More Time Off

Career pauses for women occur far more often (44%) than for men (28%). They take time off when having children and are nearly twice as likely to work part-time. Many take an extended hiatus from work. There is a greater likelihood a woman will be a caregiver to aging parents, including her spouse.

6. Life Expectancy Remain Longer

Women live longer than men in the US, by estimates of 5 plus years based on recent reports. Overall life expectancies have declined in the past few years associated with opioid-related deaths, significantly higher for men based on the Kaiser Family Foundation report.

7. Widowhood And Divorce Takes A Greater Toll On Women

According to the US Census Bureau, the average age a woman becomes a widow is 59 years meaning that women may face decades managing their own money. Divorce causes significant financial hardship. Divorce rates in the US for the 50+ population have doubled since 1990. While challenging for both parties, the split usually takes a more significant toll on women.

A woman (Jane Alexander) seeking financial independence took center stage in the play Grand Horizons on Broadway. Playing Nancy and Bill as a couple in their 70s, they contemplated divorce after 50 years of marriage. Nancy asks for a divorce, wanting her financial independence at last. When asked by her surprised husband and her adult children why she is willing to do this, she shrieks, “I want my own bank account!” Nancy adds she doesn’t have her credit card, which impedes her ability to go freely to places without Bill, such as with friends or to shop, dine, or travel independently. The audience of largely women roared at this reality.

Women need to overcome these challenges by becoming financially independent. That means exercising greater control over their finances. At some point in their lifetime, 90% of women will be solely responsible for navigating their finances.

 What Women Need For Greater Financial Independence


1. Separate Banking And Checking Accounts

According to a TD Bank survey, nearly half of couples with joint bank accounts also have bank accounts. 43% of women wanted their accounts, citing independence as their top motivation, while only 34% of men did so for those purposes. 20% of couples keep separate arrangements to make sure they have enough money for their own needs. Individual accounts for women promote autonomy and provides active encouragement to manage their own money.

According to FICO, women (26%) are less likely to open a bank account for themselves compared to men (17%). Women have, on average, 1.5 fewer online bank accounts. On the other hand, women are more tolerant of security measures than men.

2. Separate Retirement Accounts

Through their workplace, women need to establish their own 401K retirement accounts. They also need to contribute to their own IRA account. On average, women of all education levels are less comfortable managing their retirement investments. According to a Federal Reserve report on retirement, 58% of men with at least a bachelor’s degree are mostly or very comfortable investing their self-directed retirement savings. In comparison, only 32% of women are comfortable doing so.

Part of this gap may be because women tend to do short-term planning: day-to-day household budgets. However, they leave long term planning for their husbands. According to this study,  60% of US couples have dual incomes; only one person may be saving for retirement. Shortchanging the nest egg is a danger for women whether they are working or stay-at-home moms.

Consider Your Retirement Lifestyle Needs

Women need to determine what kind of lifestyle they expect to be financially independent. The Department of Labor recommends maintaining at least 70% of pre-tax income for your retirement years, though closer to 90% is a better target. It depends on what your specific plans will be. Consider what choices you make in your retirement savings.

I recently found an old IRA account with a balance of $20,000 I put away in a bank account.  Current balance? Drumroll….$20,000. I never invested in anything! My bad! Most likely, I lost track of the account and missed an opportunity to transfer it elsewhere so it could grow. It is vital to invest your retirement money so that you can keep pace with or exceed inflation. That’s why stocks in mutual funds are the right choice for long-term horizons.

Women who are working and have access to their employer-sponsored 401K retirement plan must rely on themselves. If available, they should take advantage of their employer’s match contributions by meeting the required minimum. With a high rate of nearly 50% of couples divorcing even late in their marriages, women face more difficulties in the event of a split.

Spousal IRA

Women can establish spousal IRA (Roth or traditional) if your spouse is not working as long as the married couple file joint taxes. This contribution remains subject to the income limits. If the wife is the sole worker, she can contribute up to $6,000 to her own IRA and $6,000 to her husband’s account for a maximum of $12,000.The latter account is owned by her husband and is not a joint account.

3. Have Your Investment Accounts

Apart from retirement accounts, women should have separate investments funded by their earned income and any inherited assets acquired from their family. However, studies point out that women favor cash over stocks because of their conservative nature and lack of confidence. A Blackrock Investor Pulse Survey showed 72% of women rejected riskier equities than 59% of men. They also tend to trade less frequently than men, adhering to buy-hold strategies.

A Fidelity study highlighted their lack of confidence, with only 9% of women believing they could outperform men concerning investor returns. Yet, in reality, women overall performed 0.4% better in investment returns. Compounding that slight beat over a long term horizon could amount to significant dollars. Holding a lot of money in cash rather than investing is a bad choice because of opportunity costs.

Women can afford to be more aggressive in investment choices, especially when they are young. Start investing early with a diversified portfolio holding at least 75% in stocks and the rest in bonds and money markets. Many investment choices can help you reduce risk by more diversification through low-cost mutual funds and ETF’s.

4. Find Your Own Financial Advisor

Given the different characteristics that women face, married or single, finding your own financial advisor is a good idea. Men and women have different attitudes toward money, careers, cirmcumstances and your particular needs. You do not necessarily need to have a female advisor. Find someone who understands your needs, outlook, risk profile and family situation and has your best interests at heart.

5. Improve Your Financial Management Decision-Making

A study commissioned by Ameriprise Financial reported that 41% of all women make their own financial decisions. That number has upside potential as women handle more assets and can gain comfort with their financial prowess. Having your own accounts–banking, checking, credit, retirement and investments–is a great motivator to be more proactive in long term financial planning.

At the same time, be vigilant at reviewing your financial account balances and credit reports. You should automate direct deposit into your retirement savings and bill payments. Use security measures to protect yourself from fraud better.

How To Better Protect Yourself From Fraud

Mandated consumer protections for our financial accounts only go so far. We need to have a healthy dose of skepticism and take our precautions. Digital technologies are growing faster, providing us with more capabilities and convenience. Compliance gaps exist among the incumbents (like Wells Fargo) and fintech companies. Take measures to have financial security. 

Here are our recommendations to protect your financial accounts:


1. Be Alert To Imposters And Phishing Emails

According to the FTC, scammers are sometimes posing as someone you can trust, such as a family member, government official, or charity. Never send money or give out personal information in response to an unexpected request.

2. Safely Dispose Of Your Personal Information

Use a paper shredder or wipe your computer hard drive. Find ways to delete all your information from your smartphone. Remove your SIM card from unused phones. To be honest, I keep all my old electronic devices.

3. Don’t Use Public WiFi

Our family has stopped using public WiFi reluctantly. I always used Starbucks’s wifi  when I literally lived at my local place when studying for the bar (to practice law).  I have also encouraged my kids to use the public wifi rather than drive up our data bill. No more! We find it easy to connect to public wifi because there isn’t authentication that is beneficial for hackers.

4. Don’t Believe Your Caller ID

It is very easy for scammers to use fake names and numbers. I have picked up my house phone because I recognized my own cell number. I hung up that baby so fast that I almost broke my phone. My house phone is on borrowed time.

5. Consider How You Pay

While credit cards have significant fraud protection when detected, wiring money does not. According to the latest FTC report, scammers use money transfer services in many schemes. Never send money to strangers using Western Union or MoneyGram. Be aware that you can’t get your money back.

When I worked on a case for the court, an elderly woman who was losing her mental capacity was literally giving away a large portion of her significant net worth through MoneyGram. She had a constant caller asking her to meet him at mysterious places in her neighborhood. Her family was unaware of her declining capacity or her regular money wiring until they found massive withdrawals.

When using Venmo, Zelle or Apple Pay, make sure you are sending money to the correct party. Check the recipient’s address and contact info.

6. Keep Your Passwords Private

Young people tend to overshare everything, including their smartphones. They often will provide friends with their passwords. Change passwords often and use strong passwords. Opt for two factor authentication. For those who worry about forgetting a password, use a password manager.

7. Don’t Carry Your Social Security Number In Your Wallet

This seems obvious but also don’t carry any private information that may contain your social security number which can be on many different kinds of documents, such as credit card applications, bank applications or your health plan.

8. Review Your Credit Report Regularly

The three nationwide credit reporting companies–Equifax, Experian, and TransUnion–are required to provide you with a free copy of your credit report at your request, once every 12 months. You can also visit to obtain your free report. The FTC does not recommend that you use other websites for free reports.

9. Monitor Your Personal Statements

Review all your statements when you get them and call vendors when you spot a mistake. Check your deposit balances daily. Sign up for text alerts with your bank.

10. Don’t Open Suspicious Emails

When you get mail with a bank name, scrutinize carefully. Don’t open links from someone you don’t know or appear to be suspicious. Your bank will either text or call you if they see unusual spending.

Couples Need To Do Joint Financial Planning

Irrespective to how couples decide to structure their financial accounts, here is what they need to do:

  • Set short term and long term financial planning goals together. Women tend to do day-to-day finances but need to understand how to plan for long term needs.
  • Share expectations for saving, spending and budgeting as well as insurance, retirement savings, investing and estate planning.
  • Communicate openly, honestly and meet regularly on possible money issues like debt payoffs.
  • If creating joint accounts, determine the percentage of contribution of funds and allocate the share of expenses.

The truth is that most couples avoid talking about money until issues arise. Even then, communication may prove so tricky that spouses may hide or distort the facts. Avoid financial infidelity as it may cause more significant problems in your relationship. Honesty remains the better policy.

Final Thoughts

Women have made significant progress in gaining autonomy. Even as breadwinners, women sometimes appear subservient to men when it comes to handling finances. A combination of lack of confidence and experience in long term planning may be at play. Full financial independence remains elusive for many women. The assertion over their own financial accounts will provide women with greater autonomy, money management skills and confidence over their financial future. Its 2020 and it is time!

Thank you for reading! If you enjoyed this post, let us know and share with others you think may have an interest. We appreciate that!


Financial Resolutions For The New Year

Financial Resolutions For The New Year

“It is not in the stars to hold our destiny but in ourselves.”

William Shakespeare

The year 2020 is almost here. It’s time to plan our New Year’s resolutions. You don’t need New Year’s to do financial planning, however, the beginning of the year is as a excellent time to review financial goals and improve our habits.

11 Resolutions To Get In Good Financial Shape


1. Financial Goals For 2020

How did you do in 2019 relative to your plans? Assess your current goals against your long term plans. A new year means you are one year closer to going to college or graduation, starting your career, going back to school, your kids going to college or your retirement. Any upcoming life events that require you to make changes to your financial goals, like having a baby, getting married or retiring? Revisit your goals and modify for new plans.

If you are getting a raise or bonus, allocate this incremental money among your goals: saving, spending, paying off debt or investing, whatever suits you. In Fidelity’s 10th Annual New Year’s Financial Resolutions study released late 2018, nearly 9 out 10 Americans feel positive about their financial situation. Regarding financial goals, 48% of those surveyed want to save more, 29% plan to pay down debt and 15% intend to spend less. Among mistakes made in the previous year, 28% said they dined out too much. The most significant concern cited by 50% of participants was unexpected expenses. Establish an emergency fund and leave worries behind.

2. Visit A Financial Adviser or Planner

Go to your financial planner before year-end to do tax planning. That may involve selling long term securities with capital losses to offset capital gains in order to reduce your upcoming tax bill. You want to review your 2020 financial goals with a planner. Consider major life events like a new baby and opening a 529 college savings account for college. You may need to add to your life insurance. Review your investment portfolio to make sure you are diversified and modify risk allocations, if appropriate. Allocate money based on contribution limits to retirement accounts (401K or IRA) if you haven’t maxed out.

Planning for retirement is important to do as early as possible to leverage compounding benefits with maximum contributions. Beginning to save for retirement in your 20s gives you a longer horizon to build your nest egg. Adjust your savings to be automatically taken out of your paycheck. If you are getting a raise or bonus, increase your savings amount.

2020 Contribution Limits For Retirement Accounts

For 2020, 401K contribution limits rise by $500 to $19,500  while catch-up contribution for plan participants age 50 or older rises by $500 to $6,500. The defined contribution maximum limit (including employee and employer) has increased $1,000 to $57,000 or by $1,500 to $63,500 for those age 50 or older. Regarding IRAs, the contribution limits are unchanged at $6,000 or $7,000 for individuals age 50 and over.

While you may not need a financial planner or adviser now, you may want to consult with one as you accumulate assets. See our post how to choose an financial adviser here.

3. Protect Yourself Against Unexpected Costs With An Emergency Fund And Insurance

Emergencies happen. They can put a serious dent in our budget and our lives. To save for unplanned costs, my parents kept money in envelopes around the house, under mattresses, and in cookie jars. That works for some of us. Having your savings in a bank generating interest income even at low rates is preferable.

According to the 2018 Report of Economic Well-being of US Households, 40% of adults, if faced with unexpected expenses of $400 would either not be able to cover it or would do so by selling something or by borrowing. Data from says 62% of Americans have less than $1,000 in savings.

You need to have an emergency fund as a financial safety net for times of unexpected expenses that are necessary and urgent. How large it is depends on your basic living expenses, your debt load and lifestyle. Start growing your emergency fund gradually so you can be prepared for your family’s basic needs.

Excuses Won’t Pay Your Bills

Of course, we all have excuses as to why we don’t need to set up an emergency fund account. You may believe you have a stable job, your parents will help you out or you can always use your credit cards. You may not be able to fathom putting one month of savings, let alone the recommended six months of money in an emergency fund. It could simply be that you are procrastinating and intend to have one.

Unfortunately, you can’t time your financing needs for the unexpected situations when you need cash. Unplanned events such as sudden job loss, illness or surgery for your pet are fairly common.  Plan your emergency fund for six months or more as your goal. Your fund should be a big enough cushion to pay your monthly bills and costs such as food, rent or mortgage, utility, health care, car, property taxes, and pet care.

Your emergency fund should be invested in liquid accounts that provide some interest income but is readily available. If you put your money into a CD account, make sure you know the terms of the CD so it is available when you need it. You can read more about the emergency fund and how to invest it here.

Insurance Is Necessary To Protect Family And Assets

Along with having an emergency fund, you need to consider if you,  your family and assets are properly protected by insurance. Protect important areas notably life, home, health, and disability. We need to protect ourselves from events that happen out of our control. Shield your income, property and possessions from the possibility of financial losses that could result in bankruptcies. Unforeseen events like accidents, natural disasters, illness, injury or even death may present risks to our assets and families. There are 8 types of insurance you need.

4. Net Worth And Budget Are Key Tools To Measure Wealth


Your net worth statement and monthly budget statement are the important financial statements to create, measure and update. They hold the key to your current financial life. Net worth is a snapshot of your financial condition. It is calculated using total assets, that is, what you own less total liabilities, or what you owe. Hopefully, what you own is in excess of what you owe.

This is your personal balance sheet measuring your net wealth at a point in time. As you add to your assets, hopefully outpacing your liabilities, you will be getting wealthier. Two ratios to review:

Net Worth Ratio= Total Assets Less Total Liabilities

Your total assets are what you own at its current market value. Total liabilities are what you owe based on your debt obligations, notably the balances on your credit card debt, mortgage, car loan and any other loans you have. The higher the positive number you have, the better off you are financially.

Targeted Net Worth Ratio (The Millionaire Next Door)

This ratio comes from one of my favorite personal finance books, The Millionaire Next Door. I have read it at least twice and refer to it often when teaching my college students about overspending. The book advocates for high savers who do a better job maintaining and building your wealth. They use age as a factor in the calculation as some other ratios do.

Targeted Net Worth Ratio= Age x (Pretax Income/10)

Your targeted net worth provides you with an indication of what you should be worth after liabilities.  For example, if a 30 year old is making $95,000 annually, his/her net worth should be $285,000. That amount is derived as 30 x (95000/10). It is a guidepost to help you reach your goals.  Although somewhat arbitrary, it gives you some context of what could be achievable if your goal is financial flexibility.

Budget Matters

The monthly budget is your income statement. It is based on your total sources of income less total expenses (fixed and variable expenses). When your income exceeds your costs, you have money to save, add to your emergency fund, pay down debt and invest for the future. On the other hand, if your costs exceed your income you will need to earn more income, borrow to pay costs, reduce spending or a combination of these.

Your monthly budget can be done on a spreadsheet or app, plugging in your monthly pretax income less fixed costs which are largely your living costs such as rent, utilities, monthly car payments, insurance, typical food/grocery,  and other debt. Your variable costs are often discretionary and include dining out, entertainment, travel, and potential costs. Another way to budget, is simply track your monthly expenses by reviewing your bills. You be surprised how much you spend on things you didn’t need.

 50-20-30 Budget Ratio

Alternatively, you can use the 50-20-30 budget ratio, a methodical way to budget. Harvard Professor, Senator, now Presidential candidate Elizabeth Warren is known as a bankruptcy expert. Warren popularized this ratio in her book written with her daughter in 2005, “All Your Worth: The Ultimate Lifetime Money Plan.” 

Essentially, you are allocating your after-tax income into three budget buckets:

  • 50% of your spending is for your needs, notably housing, utilities, groceries, car payments and other needed fixed expenses.
  • 20% for savings that can be used for paying down debt, emergency fund, and  investing or combination.
  • 30% are for your wants, that is discretionary or flexible spending for entertainment, vacations, and shopping.
  • This what is left after your allocations are made for priorities, notably needs and savings.

Whatever works for you, start budgeting early. Budgeting is difficult when you are younger, not making a lot of money yet and just starting out in your life. You may be carrying student debt and renting an apartment while your salary is at the beginner’s level. On the other hand, you have less costs to monitor so make it a good lifelong habit. Use it as a motivational tool to save more and spend less.

You should review your budget at least monthly with your spouse or significant other. Review each other’s expenditures in the various categories to make sure you are on the same page. Couples often spend differently and it is important that you are communicating with each. other. By sitting together, you may find ways to cut out costs and save more.

5. Spend Within Your Means

Spending can be the root of financial evil if you splurge too much. Only 46% of Americans report making more than they spend according to a Pew Research study. Overspending leads to borrowing, usually with higher cost debt associated with credit cards. How to better manage your spending should be a priority. To seriously cut spending, you need to examine your household budget.

Track your daily spending for a month and review it for items you may not have needed. Cancel subscriptions you no longer need or unused services. Consider negotiating better rates for services, especially if there is competition. Just asking whether a lower rate is possible even if it means less premium services you didn’t need can produce savings. Make savings a habit by saving a little at a time. You should budget for 10%-15%  of your income going into savings. Part of those dollars should go towards unexpected needs. Here are some ways to save, ” 25 Ways To Save Money And Feel Good About It.

Healthcare FSA: Are You Under The Limit? Spend Before Yearend

There is one place you may need to spend more. It’s for healthcare expenses using pretax money. If you have a healthcare flexible spending  (FSA) account through your employer, you may need to spend more pre-tax dollars on healthcare costs if  you are below your FSA limit for the year. This is a nice tax benefit. The 2019 FSA contribution limits are $2,700. Health FSAs may be used for a wide range of out-of-pocket healthcare expenses for medical, dental, vision, co-pays, deductibles, and prescriptions. For 2020, FSA contribution limits rose another $50 to $2,750.00

6. Manage Your Debt More Wisely

Be ready to tackle some tough choices and trade-offs regarding your debt management. It is hard to accumulate wealth if you have too much debt. To strengthen your financial health, you need to deal with your debt wisely.You will accumulate debt in your lifetime. Borrowing is not always a bad thing especially for good reasons like for your college education, furthering your career or buying your home. Make sure you are getting the right loan.

If 2020 is the year for buying a home, consider the 15 year fixed mortgage vs. the 30 year fixed mortgages. The shorter mortgage term will cost more per month but your total cost for your home will be lower. Have you considered renting over buying a home? Buying a home is not an investment, it is the place you and your family live and hopefully enjoy.

However, if you are looking at your home as an investment, you may want to look at your borrowing rate versus the investment returns you might have earned over the same timeframe. There are trade-offs between owning a home, paying a mortgage and not being able to make investments for the long term.  There are some pros and cons to consider whether to buy or rent your home here.

Opt for shorter loan terms if you are buying a car unless you are paying cash.. The typical term length for auto loans is 68 months according to ValuePenguin.  Loans of 72 and 84 months are increasingly more common with 96 months available. The longer the loan term the higher the interest costs that is added to the price of the car. Find another car you can better afford than adding all that cost.

Using Credit Cards Require Discipline

You need good financial habits when dealing with borrowings, especially with credit card debt. Don’t overleverage yourself with credit card debt. Have rules you can keep. Pay off your credit card balances off in full every month. Paying the minimum on time avoids hits to your credit score and penalty payments, however you will be paying higher borrowing costs over a longer period. Make sure that you automate all your loan and bill payments.

According to FINRA’s 2015 financial capability study, 32% of consumers pay only the minimum monthly card balance as compared to 52% that pay the balances in full. Paying the roughly 2.5% required minimum on a $3,000 balance can take over 20 years to pay if off. The average US consumer has 3.1 credit cards with an average balance of $6,354 plus an additional 2.5 retail store cards with $1,841 average balance according to Experian’s 2018 study. About 41.2% of all households carry some credit card debt.

If you can’t pay your monthly card bill in full each month, cut your spending. When you pay only the minimum balance on your cards, you are paying high interest payments for a longer time. You will be wearing a financial noose around your neck far longer than you want. When you get overwhelmed with your credit card balance and your debt balances, make reducing your debt levels your top priority. The stress levels of having too much debt can engulf us, resulting in higher absenteeism at work and an inability to fully function.

Two methods to reduce debt: the Avalanche Method and the Snowball Method

Assume you have the following debt balances:

  • Credit card debt of $3,500 @ 15%
  • Student federal loan#1, of $5,000 @ 4.5%
  • Student private loan#2,  of $7,000 @ 7.5%
  • Car loan of $13,000 @  5%
  • Miscellaneous debts of $1,500 @ 4% average rate

Using the avalanche method, you would prioritize your high cost debt first. That will likely be your credit card balance by targeting the credit card debt at the higher 15% rate.

If you are only able to pay $1,000 per month, it would take you 3.5 months to bring down your balance to zero.

Mathematically, the avalanche way makes sense to rid yourself of high cost debt. That debt grows faster and your total interest costs will likely be lower using the avalanche method.

The snowball method is gentler. You begin to pay down your smallest debt amounts. This should motivate you to get into the habit of paying down debt and feeling accomplishments sooner. Here, you would pay the smaller amounts in the miscellaneous total before challenging yourself with the bigger amounts at higher rates. You will likely be paying more in total borrowing costs.

Which method to use?

One way to look at debt reduction is to look at as a trade-off in investments. Paying down debt with higher interest rates of over 15%, is like making a 15% return! That already feels like an easy choice.

For those who are highly motivated, analytical, and ready to take on the task to lower their borrowing costs, the avalanche method is better.

It is truly a personal choice. The best choice is to get started on addressing your debt so you can move on to better financial health.

Ways to find cash to pay down debt: 

  • Annual tax refunds
  • Sale of an investment earning lower returns than what you are paying
  • Your annual bonus
  • Spending below your earnings and resultant savings can help


7. Review Your Credit Report And Raise Your Credit Score

As part of your new year’s resolutions, make sure to review your credit reports via You can rotate among the 3 credit bureaus to review your report every few months. Errors on your report can hurt your credit and need to be fixed promptly. Our financial lives depend on our creditworthiness. When we go for a loan, lenders review our credit report and our FICO credit scores to determine what our annual percentage rate (APR) should be. Generally, the higher our score on a 300-850 score, the lower the borrowing rate we will pay on our loans for our car, mortgage or college tuition.

Your credit report may contain errors that you need to fix quickly as our credit standing is required for many aspects of our lives:

  • Knowing where you stand before making important financial decisions.
  • Borrowing for a home purchase.
  • Car loan or lease.
  • Student loan.
  • Checking for inaccuracies, identity theft and fraud.
  • Getting a job.
  • Renting an apartment.


Can You Improve Your Credit Score?

The short answer is yes, you can! Read our post on how to the FICO Scores is formulated and six ways to raise your score here.

8. Investing As Early As Possible

As you save more, allocate some money for investing purposes. Small amounts invested in your portfolio in your 20s can make a big difference long term through compounding of returns. Make sure that you diversify your portfolio so you are not concentrated in one or two stocks in the same industry. When you are young, you can take more risks and afford to have a greater percentage in stocks.

The best way to achieve diversification is to buy low cost index funds or ETFs of your choice. Vanguard is one of the best mutual fund companies with low costs and diversification of all kinds. If you don’t want to deal with changing allocations of assets you may try target date funds.

You don’t need a lot of money to begin investing in stocks. Read our guide on investing for beginners to learn some basic fundamentals here. You can open up a free account at Robinhood to begin investing. Many of my college students use Robinhood to buy stocks. I always suggest that you research a bit before buying stocks, learn about financial markets through some experts like Jim Cramer and of course Warren Buffett. We have a lot of resources in several posts on investing. Make sure you are investing money you don’t need for your living expenses.

9. Review Your Designated Beneficiaries and Estate Planning Documents

Create your estate plan so you will have control over your asset distribution to your loved ones during your lifetime. Aim for your plan to be as litigation-free as possible. Beneficiary designations are an important way to distribute most of your assets effectively. You should review your beneficiary designees annually or in the event of major life changes so they reflect your wishes.

Most of your assets can be easily transferred to your intended heirs quickly. You will avoid often painful and lengthy probate court procedures. Your will actually doesn’t control who inherits all of your assets. In reality, the majority of the average person’s assets are transferred by contract.

Transferring Assets Outside Of Your Will Is More Efficient

Many of our assets are nonprobate property. As such, they are transferable to survivors by contract immediately upon death rather than under a will.

The advantages of contract transfer over the distribution of assets by a will are less time, cost and more privacy. Transfers to loved ones by a will could take 6 months-1 year if probate is not required. If contested in court, the distribution could take longer. Even worse, your will would be made public through court documents.

We explain how to make proper beneficiary designations so that our intentions are carried out.

For many of us, the majority of our assets can be transferred out via designated beneficiaries. However, if you have a lot of assets, you need to create and review your estate planning documents.

10. Charitable Donations

The end of the year is the time to make donations to your favorite charities, give unworn clothes away, canned goods, and look for volunteering opportunities in the new year. To satisfy the IRS deadline for yearly tax deduction eligibility, your contribution needs to be received and processed by December 31. Read Schwab instructions carefully as there may be earlier timeframes depending on the assets.

Others depend on us. We make a living by what we get, but we make a life by what we give.  Winston Churchill

11. Be Grateful

There is a lot that has happened in the past year for all of us. Take stock of those events. Take time to be grateful that you and your loved ones made it to another year. Thank others you work with, your clients, doormen, those invisible folks in your workplace that empty your trash and who keep your place clean, those who wait on us in restaurants and service, including our military who keep us safe. Say thank you to your friends and loved ones and in your heart for those who are gone.

Gratitude is a healthy attitude to have. Yes, it can lead to better finances. It’s free and doesn’t take up a lot of time.

Final Thoughts

Starting the year with financial discipline is a great way to achieve your financial goals. Set the stage for a prosperous and healthy year by jumpstarting the planning process. Hopefully, these 11 money tips inspire you to take action, make needed adjustments and be on the right path to accumulating wealth. Wishing you and your family a happy and healthy new year’s!

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12 Tips To Help New Parents Avoid Money Mistakes

12 Tips To Help New Parents Avoid Money Mistakes

“Don’t raise kids to have more than you had. Raise them to be more than you were.”



Having a newborn baby is a time to rejoice. However, the reality of raising a child can be daunting. The costs are often underestimated. Even those with the best money habits may get carried away for a new family member. We justify our spending more easily as we seek safety, comfort and fulfillment. Costs will mount if we don’t put some brakes in place in advance.

New parents must put a financial plan in place to fit their new responsibilities. To avoid financial blunders, parents should increase their efforts to save and invest, spend within our means, take a fresh look at workplace benefits and utilize tax credits.

Here are 12 tips to help you dodge potential financial mistakes:


1. Be Financially Ready With An Emergency Fund

Every household should have an emergency fund with 6 months of savings set aside for unforeseen events. It is no different when we are expanding our family. Arguably, we need this money cushion even more so.

Raising a child in the first year costs $13,186 on average.. These costs are before hospital costs which may be covered by health insurance. A LendEdu survey found that parents budgeted $9,371 for that first year, saving roughly that amount. However, this falls short of the actual amount. Diapers costs, among other items, are miscalculated.

Why Do We Underestimate?

It is so easy to be blindsided when we lack experience, especially when we are raising our newborns. Ask any new homeowner and they will share major home costs that were a surprise. That’s what an emergency fund is for.

I recall being surprised by the many purchases we had to make in a rush for our baby. We learned that the delivery date for our son was moved up about 2 weeks unexpectedly. Comparison shopping was just not an option. We were older parents but felt like helpless newbies. Excited at our upcoming birth, we acted like children in a candy store.

My Bad

One of my worst purchases (ever!) was handmade Egyptian cotton linens for the crib for $1,000. I was suckered into it by a salesperson at the now-defunct Bellini’s. How ridiculous a thing to buy for a newborn baby!

We were fortunate to have ample savings having worked for several years. But I always wonder, what if we were younger or didn’t have a cushion to spend.

2. Don’t Overspend For Your Newborn’s Needs

We want the best for our children always. However, we need spending limits or go broke before they go to college. Be judicious about spending early and learn to budget. We need good financial habits when planning for our new child. Not everything has to be the best, the newest or the most expensive. Emphasize safety above all else. Plan out what is important to get initially, borrow from family or friends for some items and consider thrift shops.

Find Acceptable Price Ranges For Needed Items

Initially, you do need diapers, a place to sleep (crib or bassinet) and a car seat. There are some great sites to find average costs and price  ranges for bassinets, cribs and mattresses, diapers (cloth is cheaper versus disposable) and a diaper bags, changing tables, baby monitors (audio or video), car seats, glide rocking chairs and ottomans, baby swings, and bath tubs.

You probably don’t need Louis Vuitton monogram mini Lin Diaper Bag, the world’s most expensive diaper bag at $2,200 or the other most expensive newborn items on this list.

What You May Need

Luxury is not a necessity. Some of your costs are one-time like baby proofing your home. Other costs will vary significantly by where you live. For example, if you are both working and want to hire a nanny the average fees can range from $400-$1000+ per week. Additionally, you may need a babysitter and their rates go from $10-$25 per hour.

The US National average for day care is $611 per month, however, in major cities like Boston or New York, it will be well over $1,000 per month. Well baby doctor visits without health insurance average $95 per visit according WebMD. Visits may be significantly higher in New York and other urban areas.

You can bulk up on baby food and diapers, however, your baby may reject some brands or tastes.

3. Avoid Lifestyle Inflation

As your child gets older and makes friends, you may feel pressed to shop for more stylish clothing and sporting a luxury stroller. Remember, young kids will size out of these things fairly quickly. Avoid throwing lavish birthday parties even though you want celebrate each year. Their friends will have fun no matter where you have the party. Of course, we do it to impress the other parents but we don’t need to.

Speaking of lavish waste, we once received a beautiful box delivered to our doorman. It was from a friend of our son’s with an invitation to a 5th birthday party that read like a wedding invitation. My jaw nearly dropped and I worried about what kind of party my son would want. The funny thing is I recall that Tyler did not have a good time at this birthday party.

It may start with birthday parties but we soon may think about bigger homes and nicer cars. Keep your spending in check. 

4. Saving Early For College

Set up a 529 savings account as soon as you have a social security number for your child. Start saving early for college to benefit from tax advantages and compounding growth. You are not limited to the plan offered in your home state. There are many investment choices to suit anyone. Don’t get so overwhelmed at the choices that you end up not activating the account.

To read more about 529 Savings Plans and alternative savings devices  for college, see our recent post here. Start with any feasible amount and continue to add to this account. Tell your child’s aunts, uncles and grandparents that you would prefer a cash present over another toy or outfit. Make them aware of your savings account.

There are several ways to save early besides the 529 Plan although that is preferable. Below, we discuss life insurance for babies and infants that have a savings component that may appeal to you.

5. Keep Up Your Retirement Savings

While saving for your child’s tuition is important, do not sacrifice  your own retirement savings. Many parents do that but it is not a good idea. As much you may hate your child borrowing for college tuition, taking a loan our for retirement is a worse outcome. It is better to reduce your spending on unnecessary items to save more than face withdrawal of your retirement funds or borrowing against it.

6. How To Talk To Your Children About Money

Our children take their cues from us in a number of different ways. Start to teach your kids early about money at an age-appropriate time. They may be better able soak in how to treat and respect money values.

We should be good role models in helping them learn how to save money. Teach them to know the difference between wants versus needs. Don’t give in to impulsive purchases when they get upset. Instead delay gratification on purchases. Set a good example on investing now for future growth.

Both parents should be on the same page in this regard. My husband and I often argue from on opposite sides.  He can’t seem to say no to the kids so I play the heavy parent. However, my kids just ask me less for things and go around me and get what they want from Dad. I think I just admitted that my kids manipulate us. (They do!).

 7. Your Employee Benefits Need A Fresh Look

Once you have a child, it is a good time to take a fresh look at your employee benefits package. What may not have jumped out at you when you first started working there, may be more important now for your growing family.

According to Harvard Business Review, when making a decision between a higher paying job or lower paying job but better benefits, health insurance (88%), more flexible hours (88%) and work-from-home options (80%) scored the highest in their survey.

Childcare Are Among Our Largest Expenses

The cost of child care is high for those who are working and need support. According to’s 2015 Cost of Care Survey, 28% of families pay more $20,000 annually for this. Childcare is the largest expense for many families and may even surpass college tuition and housing costs for some families.

Among the employee benefits that can lift some of working parents’ burden are dependent care assistance, child care financial support by way of tuition assistance and scholarships, long term care resources and referral. Back up child care is also key when the nanny is ill. Onsite child care centers are often offered by companies that have large campuses.

8. Flexible Spending Account (FSA)

If you have a health plan through your job, you can use a flexible spending account to pay for co-payments, deductibles, some prescription and non-prescription drugs and other out-of-pocket health care costs. The FSA is a savings account with tax advantages.

This account allows employees to contribute a portion of their pre-tax earnings to pay for qualified expenses.  Employees have limits of $2,650 per year per employer. If your spouse has an FSA at their employer, you can put in an additional $2,650 per year. It is a “use it or lose” plan. Your FSA does not earn interest.

Another type of FSA is a dependent-care flexible spending account which is used for childcare expenses for children age 12 or under. The maximum dependent care FSA contribution is $5,000 per household.

Making use of these accounts may provide you with beneficial cost savings.

9. Health Savings Account (HSA)

The HSA is similar to an FSA as it provides tax advantages. HSAs are associated with high deductible health insurance plans which are often used by the self-employed. Like the FSA, you can contribute your pretax earnings, making your contributions tax-free. Here, the contribution limit in 2018 was $3,450 for an individual or $6,900 for family coverage.

Unlike the the “use it or lose it” feature of FSA, you may rollover the unused contribution to the next year for the HSA. Your account earns interest and if you leave the job you may take the account with you.

10. Life Insurance Is Essential For Growing Families

To protect your growing family, you need to have life insurance coverage. You may have a starter plan from your employer but generally the amount is insufficient, especially with young children. In the event of the passing of the main earner of the family, your life insurance should cover your fixed living costs as college tuition and other child care needs depending on their ages.

There other types of insurance families need to consider including disability insurance. We cover several insurance types here.

Should You Have Coverage For Your Newborn Or Infant?

Generally, you don’t need to buy life insurance for your baby. Hopefully, they are healthy and they don’t have earnings streams to protect.

Among life insurance providers, Gerber Life Grow-Up Plan has some attractive features:

1. Parents, grandparents or permanent guardians may purchase this plan. It is whole life insurance of $5,000-$50,000 of coverage. They may apply for their newborns or infants when they are 14 days to 14 years.

2. As a whole life insurance policy, there a cash value portion that accumulates as premiums are paid. According to Gerber’s plan, coverage doubles during the child’s 18th year at no extra cost. Additional coverage may be bought as needed.

3. It guarantees insurability and locks in an affordable premium for a child at a young age. For families with high risk of medical issues, this may be an important benefit.

4. With a whole life insurance policy, it provides death benefits plus you are building cash value in a tax-deferred manner. This savings component can be used for college tuition. The policy may be surrendered for its cash value.

True, the death benefits is a bit macabre and hopefully not needed for children.

The Criticisms:

I don’t believe life insurance for babies is needed. I have read some criticism of Gerber’s plan. Despite having a longstanding good brand name for baby foods, review the details carefully.  Look into the fee structure for additional insurance coverage, its tough cancellation policy, and how slow the cash surrender value actually builds.

Although this plan has some appeal, I prefer 529 Savings plan for college tuition and it is debatable if life insurance is needed for babies.

11. Several Tax Benefits For Your Children

Our children may be helpful when it comes time to pay taxes.There are a number of different tax credits  that you can use if you have a child. Check with your tax professional for possible changes associated with the 2017 Tax Law.

Child Tax Credit

You may be able to reduce your tax bill up to $2,000 for each of your qualifying dependent children under age 17. The credit is intended to offset the cost of raising children. Parents may get the maximum amount with qualifying incomes (married couples who make under $400,000 or single persons under $200,000).

There is a $500 non-refundable credit for qualifying dependents (eg. an incapacitated parent) other than children.

As a tax credit, it reduces your taxes dollar-for-dollar. If you do not benefit from the full amount of the Child Tax Credit (because the credit is greater than the amount of income taxes you owe for the year), you may be eligible up to $1,400 for a refundable amount.

Child And Dependent Care Tax Credit

Paying for childcare and dependent care can be quite expensive. The Child and Dependent Care credit can be worth from 20% to 35% of up to $3,000 of child care (or $6,000 of expenses for two or more dependents) related to some or all of the dependent expenses you paid. The higher 35% is for incomes below $15,000.

This tax credit may help you defray childcare costs for dependent children 12 years or under. For dependents, other than children, the IRS requires that they must have lived in your home more than half the year.

Adoption Tax Credit

There is a federal adoption tax credit up to $14,080 per child for finalized adoptions in 2019. This is not refundable so you can only use it if you have federal tax liability.

This credit may be used for qualifying expenses you paid to adopt a child. These expenses include adoption fees, attorney fees, court costs, traveling expenses (including lodging and meals while away from home), and other expenses directly related to the adoption. You would need to have supporting documents that you received If you claim this credit.

American Opportunity Credit

Tax credits are for qualified education expenses for an eligible student for the first four years of higher education. The maximum amount you can claim is $2,500 per eligible student per year. The amount of credit is 100% of the first $2,000 of qualified education expenses you paid for that student. However, if the credit pays down your taxes to zero, you can have 40% of the remaining credit (up to $1,000) refunded to you.

There are income limits to claim full credit with modified adjusted gross income pegged at $160,000 or less for married couple filing jointly (or $80,000 for a single filer). The American Opportunity Credit is preferable, however, if you don’t qualify, you can try for the Lifetime Learning Credit.

Student Loan Interest Tax Deduction

You may be able to claim the Student Loan Interest Deduction for interest paid on a qualified student loan, even if you choose to claim a student tax credit. If you decide to claim the deduction, you could reduce your taxable income by up to $2,500 of the student loan interest you have paid for your dependent child. You don’t need to itemize your deductions to claim this deduction.

To qualify for this deduction, see respective modified adjusted gross income limits.

12. Estate Planning

The best time to think about your plan is when you don’t have a compelling reason to do so. When you are raising children, it is a great time to be  thinking of your family’s best interests.

Set Up Your Designated Beneficiaries

By creating your estate plan, you will have control over your asset distribution during your lifetime to your loved ones. A significant portion of your assets can be easily transferred to your intended heirs. This will help you to avoid often painful and lengthy probate court procedures.

When setting up your beneficiaries, think carefully whether to identify for your children as there may be complications for you to be aware of and we discuss here.

Creating a will, possibly a trust, and advance directive documents will help you with the rest of the way. Read  our guide to basic estate planning in 6 steps.

Make sure to consider your digital assets as part of your estate. We have addressed why you need to make an inventory of digital assets here.  

Final Words

Planning for a newborn is essential. It is an exciting time in your life and it is easy to get overwhelmed. We have all been there and made mistakes, especially financial ones. Hopefully, this will help you can avoid some of the more obvious errors by organizing well ahead of time.

Hearty congratulations to you and your expanding family. What steps have you taken to prepare for your child’s experiences? What mistakes did you encounter that you may want to share with us? We look forward to hearing from you!


6 Tips How To Better Handle Beneficiary Designations

6 Tips How To Better Handle Beneficiary Designations

“Bear in mind the wonderful things you learn in schools are the work of many generations. All this is put in your hands as your inheritance in order that you may receive it, honor it, add to it, and one day faithfully hand it on to your children.”

Albert Einstein



Create your estate plan so you will have control over your asset distribution to your loved ones during your lifetime. Aim for your plan to be as litigation-free as possible. Beneficiary designations are an important way to in distribute most of your assets effectively.

Most of your assets can be easily transferred to your intended heirs quickly. You will avoid often painful and lengthy probate court procedures. Your will actually doesn’t control who inherits all of your assets. In reality, the majority of the average person’s assets are transferred by contract.

Transferring Assets Outside Of Your Will Is More Efficient

Many of our assets are nonprobate property. As such, they are transferable to survivors by contract immediately upon death rather than under a will.

The advantages of contract transfer over the distribution of assets by a will are less time, cost and more privacy. Transfers to loved ones by a will could take 6 months-1 year if probate is not required. If contested in court, the distribution could take longer. Even worse, your will would be made public through court documents.

We will explain how to make proper beneficiary designations so that our intentions are carried out.

First, let’s discuss the 3 ways nonprobate property may be  transferred by contract:


1.  Designated Beneficiary(ies) Upon Your Death

A beneficiary is a person or organization designated to receive a benefit. You can and should also designate a contingent (or secondary) beneficiary. Sometimes the first named or primary beneficiary dies after the form was filled out. Most of you have seen one but here is an example of a form to select your beneficiaries for those who want to take a look.

We usually get the form from our employer or a financial company. It takes only a few minutes to fill out yet carries significant repercussions if incorrectly filled out or ignored. That will be part of our upcoming discussion. You should name beneficiaries for all of the assets that you can.

Your nonprobate property are assets that are transferred to survivors by contract upon your death to your designated beneficiary.

Check With A Professional On Legal And Tax Issues

There may be legal and tax ramifications to be aware, especially your designated beneficiary is already receiving governmental benefits. Estate distributions to a beneficiary may require payment of an inheritance tax in certain states but not from the federal government.


Among your nonprobate assets:

  • retirement accounts, including 401K  plans, 403b plans, SEPs, sole 401Ks, Keough plans  IRAs, pension plans
  • 529 college savings plans
  • investment accounts, mutual funds accounts
  • payable-on-death clauses in bank accounts, credit union
  • life insurance policies or
  • by owning joint accounts with another person, usually a family member,  through rights of survivorship.

These assets are generally transferred directly to those beneficiaries that were designated by you.

When you first opened these accounts, you received a legal form to complete that provided you with the opportunity to designate your beneficiary.

Review beneficiary designations periodically

For example, if you designated your mom when you first set up your accounts, it is probably a good idea to refresh your beneficiaries. Often, after life changes such as a divorce, remarriage or the passing of a loved ones, our beneficiaries should be updated.

2. Property Ownership Designation

Husbands and wives (or parents and children) may have joint ownership of assets called joint tenancy with the right of survivorship.

Each person owns 100% of the asset. These include bank accounts, investment accounts and cars. They can dispose of these assets without the approval of the other owners. However, in the case of jointly owned real estate, most states restrict the ability of a co-owner to sell or burden the property without the consent of the other.

Upon the death of one owner, the assets are transferred on death (TOD). The surviving owner(s) will receive this property by operation of law, rather than through the will.

3. Payable-on-death (POD) designation

Similar to TODs, the designated beneficiary has no right to this property, usually a bank account, until the owner has passed away. Once the owner has died, the beneficiary will provide a copy of the death certificate and show proper identification to access the account.

6 Tips to Ensure Your Designated Beneficiaries Are Proper:



1. Don’t Forget To Name A Beneficiary

We live busy lives. We get a ton of forms when we start a new job or open new accounts.  We may lose them or forget where we placed them. Worse yet, we honestly want to fill them out but we are unsure or procrastinate over making such decisions. The form truly takes a few minutes and it is better to reasonably identify a loved one rather than leaving the form blank.

Absence of a designated beneficiary may result in the respective assets going to the estate itself to be shared among several people rather than the sole designee.

2. Name A Contingent Beneficiary

Besides naming a primary beneficiary, it is important to name a contingent beneficiary in the event the primary beneficiary has either passed away before the owner of asset or has become incapacitated. It may have been several years since the designated beneficiaries were selected.

3. Reviewing, Changing and Updating Your Beneficiary Forms

When you first start a job or open an account you may have been idealistic as to who you wanted to receive your assets. I have had friends select their boyfriends. Our lives go through a myriad of changes such as marriage, having children, divorce, and our interest in varying social causes.

We need to periodically review, and if necessary, update our beneficiaries who we are intending our assets to go.

My First Designated Beneficiary

When I first started working after college, I actually named my brother Mark as a beneficiary. I was 20 years old and he was starting high school. As “big sis” starting work right after college, I wanted to do something special for him. Being naive I thought he would like the gesture. I left the job 18 months later so it didn’t have a lasting effect. However, many of our decisions do.

Common Mistakes: An Ex As Your Beneficiary But Your Youngest Isn’t Designated

Your former spouse may still be listed as a primary beneficiary even though you haven’t talked to that person in years.  You have been working at your company for a long time and inadvertently neglected to name your youngest child or have since adopted the children of your second spouse.

Reviewing your beneficiary choices are often easily done online or through investment account statements you receive in the mail.

Another reason to review your form may be that you have been at the same firm for 35 years (congratulations!). However, are you sure your company still has the form on file?

A True Story

Someone recently told me that a family member had recently been diagnosed with a serious illness. They wanted to make sure they had insurance for the upcoming surgery.  The company told him that there were no records of designated beneficiaries on file for the years around the time he began working there.

Forms get lost when companies move, especially during the pre-digital age (after the times of dinosaurs)  and it may not have been converted online.

4. Be Careful When Designating Those With Special Needs

There are three possibilities that need special consideration and requires the expertise of an estate attorney and/or accountant to consider:

Minor Children: Differences Between Probate And NonProbate Properties

We often may name our children as designated beneficiaries on forms as well as in our wills for probate assets There are legal ramifications that you should be aware of.

It is fairly common for parents to have testamentary trusts within our wills that assert minimum ages for our children to have access to assets. They may want to restrict their children well past the age of majority (usually 18 years of age) to 25 or 30 years. Testamentary trusts, usually contained in wills are trusts that go into effect upon the death of the grantor.

A trustee is often used to administer the assets at their discretion until the beneficiary reaches that appointed age.That works for probate property.

Outright Distribution To Beneficiaries: Age Should Be Considered

However, the will’s contents which may carry a parent’s intentions, is trumped by beneficiary designations for nonprobate property.  This means that if a parent passes while the children are of minor age,  property, such as an insurance policy or a bank account, will pass to them automatically at 18 years. Most young adults cannot handle significant funds without supervision. Although research shows an inheritance lasts 5 years, it can much shorter in a younger individual’s hands.

Therefore, you may want to name the estate as your designated beneficiary rather than your children outright or create a living trust which can be changed as your children age. Your estate attorney can provide help on this area.

Background on Living trusts

Trusts can be used before death, as living trusts. These trusts are standalone, that is, independent of the will. These instruments can take effect while the grantor is alive. The grantor is the one conveying the property to the heir. It can give the grantor the right to make changes.

These are called revocable living trusts and the grantor can be the trustee. However, if the grantor is unable to serve because of becoming incapacitated, a new trustee can be named.


The Irresponsible Adult May Need Special Consideration

The naming of an adult child who is known for being irresponsible with money may need to be treated differently. In that case, you should speak to an attorney regarding the set up of a spendthrift trust.

This kind of trust is designed for the benefit of a person that is unable to control their spending. It gives an independent trustee full authority to make decisions on allocating money to the beneficiary.

Individuals With Disabilities

You need to be careful about naming a disabled individual as a designated beneficiary. You may jeopardize that person if they are already receiving governmental benefits, such as social security benefits. If they were to receive assets from your designation upon your passing, it may inadvertently prevent them from receiving further governmental aid.

5. Make Sure You Have Correct Spelling of Intended Beneficiaries

When you are designating an intended survivor, they may have a  name that is commonly misspelled or a title like Junior, Senior, or the III after their name. Check that you are indicating the correct person. It is always wonderful to give to others but make sure it is the person you intend.

6. If In Doubt, File A New Form

Having correct and updated forms are very important especially when you have retirement accounts, life insurance, bank and investment accounts. If you think about how your life has changes in recent years, you may just want to go the easier route of filing a new form for each of your assets that can be transferred outside of your will.


By keeping your beneficiary designations, and all of your estate planning documents current, you are providing the best protection for those you care about the most. A small amount of your time and effort may cover the vast majority of your assets.

Protect your assets and have a good plan to distribute them to loved ones. You don’t want to add potential angst to their grief. Engage an accountant to help you realize tax efficiencies and estate attorney for special situations.

Have you started reviewed your beneficiary designations recently? It is usually easier to do when you have no urgent reason to do so but are thinking of your family’s best interest. Start thinking about your assets and which ones are nonprobate property and consider reviewing them or file new ones.

Related Post: Your Guide To Basic Estate Planning In 6 Steps

Please share any thoughts or comments you may have. We would love to hear from you!


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