Well, after the midterm election results have settled for a while, I promised I would pipe in with my thoughts about what this means for tax policy moving forward. Here they are:
Yes, you read that right.
Despite what may seem like a fundamental shift in the makeup of Congress (the Republicans taking over control of the Senate) and the questions I’ve been asked of late that seem to imply that it will, by necessity, change the way the tax code is legislated and implemented — the truth is that our tax code is so deeply entrenched as a way to curry particular favors and reward certain interests, that it would take a VAST political movement to make substantive change.
And, in my opinion, that won’t be happening with a divided government. I could be wrong of course — but let’s just say that for the purposes of THIS year (2014), don’t be banking on anything changing in your favor unless YOU make it happen.
That’s a good maxim, in general, when it comes to politics.
But moving on from the political “realm”, and from the last few weeks of tax and estate planning fare, I wanted to take a higher view of doing life WELL.
To do that, I like, of course, to examine the lives and principles of those who have done very, very well.
There are always principles to bring forward to today. In fact, their power is increased because of the deteriorating work ethos and wisdom of our current age (at least, in my humble opinion, that is!).
So, I’ve recently read up on J. Paul Getty — at one point, the richest man in the world. Here’s a distillation of his wisdom, based on my reading…
James Pantzis Reveals The Billionaire’s 4 Keys to Success
“Character isn’t something you were born with and can’t change, like your fingerprints. It’s something you weren’t born with and must take responsibility for forming.” – Jim Rohn
J. Paul Getty became the richest man in the world during his time by practicing a few basic principles of risk-taking and reward throughout his life. I’ve gathered them for you — and regardless of whether or not you run your own business, they apply.
1) Know How To Assess A Decision
Whenever J. Paul Getty was considering a business decision, he would ask, “What’s the worst possible thing that could happen in this situation?” Then, when he was clear about the worst possible outcome, he focused all of his attention on making sure that it didn’t happen. You should apply this technique to every risk situation or investment you ever make.
2) Consider Murphy Sub-Laws
Remember Murphy’s Law: “Whatever can go wrong will go wrong.”
Per Getty, there are several secondary laws to Murphy’s Law, such as “Whatever can go wrong will go wrong at the worst possible time” and “Of all the things that can go wrong, the most expensive thing will go wrong at the worst possible time.”
Another sub-law is “Everything takes longer than your best calculation.” In advising, Getty would take the very best estimate of break-even for any business venture, and then triple it to arrive at a more realistic number.
3) Always Add A Fudge Factor
Another sub-law is “Everything costs more than you can possibly anticipate in advance.” In minimizing risk in any venture, always add a “fudge factor” to account for the degree of uncertainty.
Having learned from Getty, whenever I now do a business plan, I always add 20 percent to the total of all costs that I can identify, to come up with the probable cost. Anything less than this, whether in business or your personal life, is likely to be an exercise in self-delusion and to open you up for some unhappy surprises.
Once you have identified the worst possible things that could go wrong, make a list of everything that you could do to offset these negative factors. Engage in “crisis anticipation.” Look down the road, into the future, and imagine every possible crisis that could arise as the result of changing external circumstances.
4) Do The Things You Fear
Getty wrote that one of the very best ways to develop your ability to take intelligent risks is to consciously and deliberately do the things you fear, one step at a time.
A very good way to overcome the fear of risk-taking is to set clear, written, measurable goals for yourself, and then to review those goals regularly. When you have clear goals and plans, and you continually work on them and evaluate your progress each day, you will see what you’re doing right and how you could improve your performance. You’ll feel more competent and capable, and will feel better about yourself. You’ll become more thoughtful and reflective and willing to take on even greater challenges. You’ll feel like the “master of your fate and the captain of your soul.” And your likelihood of success will become greater and greater.
Now, here are three steps you can immediately take to put these ideas from Getty into action:
First, take any worry situation in your life today and ask, “What is the worst possible thing that could happen?” Then go to work to make sure it doesn’t occur.
Second, look into the future in your life and determine the worst things that could happen.Engage in “crisis anticipation” regularly, and continually be taking steps to guard against your worst-case scenarios.
Third, work from clear, written goals and detailed plans. Review them regularly. Consider alternatives, and always look for ways to increase the likelihood of your success.
If some of these concepts seem “tried and true” … well, they are.
And there’s a reason for that. Maybe this should be the day you tried them anew.
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
This is mid-term elections week, and as is my practice, I’m putting this post together on Monday morning, so we don’t yet know the results. I’m sure I’ll have a comment or two once the dust settles from that, though.
Regardless of the make-up of Congress, however, what *is* probable is that the legislators will be “very busy” again this year … and the tax code changes will come to us late, once again.
Which is why it (quite literally) pays to have someone in your corner who is watching things like a hawk, so you don’t have to.
So in between now and the end of the year, I’ll be giving you some insights into how you and your family can prepare NOW, so that your tax bill is as low as it can possibly be.
This week though, I’ll be speaking about a different kind of “planning”.
James Pantzis’ 6 Steps to Estate Planning Done Right
“A year from now you may wish you had started today.” – Karen Lamb
Over 50% of adults do NOT have a will or other estate planning instruments in place to protect themselves and their family. And, perhaps even worse, over 69% of parents have not yet named legal guardians who can raise their children if something happens to them.
Those are scary numbers. Estate plans provide great peace-of-mind for a family … and, of course, they can create a bunch of headaches if not handled correctly.
That’s why it always helps to have someone in your corner.
Here are some important things to keep in mind, whether starting a new plan, or working from an existing one…
1) Have an up-to-date plan. Too many people either fail to prepare an estate plan, or let their plan become outdated. Changes in the law occur frequently. As Will Rogers said, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
Plus, your circumstances can change. Toward the end of your life they seem to change faster. Between ages 40 and 65, have a new estate plan drawn up every decade. In your 70s and 80s, consider revisions every 12 months.
2) You have unique circumstances that your estate plan must address. Everyone does. As a result, there are very few “simple estate plans.”
For example, a friend related to me the story of a man who wanted a so-called simple estate plan drawn up for him and his wife. In the first 15 minutes, the estate planner learned that the client was a citizen of the UK, his 25-year-old son had bipolar disorder, and the son was actually not his biological or adoptive child, although he and the young man’s mother had been married for 23 years.
In another case, a very wealthy man was seeking “a simple estate plan” for him, his wife, and his family. But he was in a second marriage, had three children from his first marriage, his new wife had four children from her first marriage, and one of his daughters was in a prison for kidnapping.
You are unique. Here are some of the questions you may answer in a unique way:
* Do you donate regularly to charity?
* Or make substantial gifts to family members?
* Do you want those gifts to continue if you lose capacity?
* Do you own a business?
* Do you own property that should not be sold?
* Do you have a beneficiary who is likely to cause trouble or owes you money?
* Do you want to provide for the continuing care of a pet?
* Do you have a working farm, or farm animals?
* Do you want to be cared for at home regardless of the cost?
Your estate plan should be carefully crafted to address your specific needs and circumstances. The more tailored your plan, the less room there is for family disagreements.
3) Be careful not to change your plan inadvertently. Suppose, for example, you have a will that provides for your estate to be distributed equally among your three children, and you have named your daughter Sally as your executor.
To make it easy for Sally to access your bank accounts in the event of a medical emergency, you have added Sally’s name to all of them. What you have done without realizing it is to change your plan. Under some states’ laws, those bank accounts will belong to your daughter at your death and will not be shared by your other two children. As a result, your estate might be distributed differently than you intended. It can also result in family feuds or adverse tax consequences.
Before doing any self-help planning–even something as simple as adding a child’s name to a bank account–check with your legal advisor to see how it impacts your plan.
4) Make sure your fiduciary/executor gets adequate help. The actions of your executor, trustee or agent under a power of attorney are subject to a rigid and sometimes unforgiving legal standard. It is easy to unintentionally run afoul of those rules. If you name a child to serve in these capacities, introduce him or her to your legal adviser. Make it clear in your legal documents that your fiduciary is authorized to pay for that help from your estate.
5) Check that the person you choose is willing to act as your fiduciary before naming him or her in your legal documents. You may find an unwillingness or a reluctance related to some concerns that need to be addressed. For example, a child may never feel comfortable giving consent to take you off a ventilator, even knowing that was your wish.
6) Use your discretion, but consider telling your family in advance what arrangements you have made. Explaining your plan to your family upfront gives you the opportunity to address any concerns, answer questions and clear up misunderstandings. Once you lose capacity or die, it is too late. Many family fights could have been avoided with an open and frank discussion, so everyone is best prepared to handle a loved one’s loss of health or life. Eliminating surprises helps eliminate family fights.
In summary, most people who plan do indeed pay enough attention to concerns such as probate and estate tax avoidance. But the best estate plans are drafted with family harmony as a priority.
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
Last week, I wrote to you that we would be giving some attention to “tax planning”.
If you’re not entirely familiar with the term, it’s the process by which you make moves NOW (before year-end) that can pay off in significant savings by the time we actually fill out your tax returns for you in the winter or spring.
Believe it or not, you can do many (MANY) things to help — and they have to be addressed before December 31st.
So, to get your wheels cranking (and now that we’re past the October 15th extension deadline), I wanted to give you some information.
But before I get there, I also want to address those of you who did NOT have us prepare your taxes this past year — or those who may have good friends who did not.
Whether through neglect, not keeping up with tax code changes, or simple caffeine deprivation, your 2013 tax returns may not have been everything you would have hoped. If that’s the case, let us fix them, even now.
And THEN, we can take a look at this …
James Pantzis Discloses The Starting Point For Tax Planning
“Worry often gives a small thing a big shadow.” – Swedish Proverb
As a trusted Brooklyn tax firm, the very first thing we would do with any client who wants to get ahead of their tax bill is to first figure out what their tax bill would actually be, if all things remain the same.
While there are a lot of variables that come into play, we can get a good grasp of things by looking at the tax brackets. We’re still waiting for Congress to finalize many 2014 tax laws (an annual exercise this time of year), but the seven ordinary income tax rates are the same, starting at 10 percent and topping out at 39.6 percent.
And the IRS inflation adjustments last fall told us what income ranges will be taxed at those various rates. And, so you don’t have to go searching, here they are in the table below.
|Tax Rate||Single||Head of Household||Married Filing Jointly
or Surviving Spouse
|Married Filing Separately|
|10%||Up to $9,075||Up to $12,950||Up to $18,150||Up to $9,075|
|39.6%||$406,751 or more||$432,201 or more||$457,601 or more||$228,801 or more|
Keep this handy, as it WILL be useful in the process of planning ahead.
Remember, even if your annual salary falls in the 39.6 percent bracket, that doesn’t actually mean that you pay that rate on every dollar you earn.
This is because the U.S. tax system is what is known as “progressive”. This means that you pay the top rate, or whatever bracket your income tops out at, on the “last” dollar you earn. The rest of your money is taxed at the lesser rates leading up to your top tax bracket.
So every federal taxpayer pays 10 percent on the first $9,075 of taxable income that he or she receives. That’s $907.50. Then we pay the 15 percent rate on our earnings that fall into that tax bracket and so on, until all our money is taxed at the proper rate.
These tax calculations mean that while your income may be in the 39.6 bracket, your “effective tax rate” will be less.
All of these considerations go into what moves we make, and when we make them, when we create a tax plan for clients.
And it’s no surprise that wealthier taxpayers also have to worry about some added taxes.
There’s the 3.8 percent Net Investment Income Tax, or NIIT, as well as the additional 0.9 percent Medicare payroll tax on top of the 1.45 percent all of us already have withheld from our paychecks.
These added taxes are applied if you make more than $200,000 as a single filer or $250,000 as a married couple filing jointly.
All these considerations are why it’s better to start thinking about your 2014 taxes now, instead of next April.
Which is why, it’s a very good idea to send me an email or give us a call: (718) 858-9864
Let’s get started on getting your 2014 taxes as low as legally and ethically possible, shall we?
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
If there’s anything we can all agree on during this internet and information-saturated age it’s that people LOVE to point out others’ failings.
Truly, there are entire businesses/websites devoted to the practice … and I’m pretty sure they pull in a healthy profit.
But one thing is also true: we aren’t very good at applying the same medicine to ourselves.
Last week, I wrote about confronting the anxiety of our current world circumstances by taking a pro-active approach to our finances.
Well, this week is a bit of a corollary: in order to get our mind right, and our financial house in order, we need to be blunt with … ourselves.
By the way, this is also one of the cornerstones of proper tax planning — which is going to play a healthy role in my future posts over the course of the next couple of months.After all, when January 1, 2015 strikes … all that we can do is historical (with the exception of IRA contributions). Between now and January 1, however, we can be pro-active about what your tax file can include.
Let’s start here, though:
James Pantzis Takes On Confronting The Lies
“Any man can win when things go his way, it’s the man who overcomes adversity that is the true champion.” – Jock Ewing
Working with my clients’ finances over the years has given me a bit of a crash course in human behavior. Often, I’m floored by the generosity I see displayed by many clients — even those without significant means.
Other times … well, I think that we all could use the reminder that our human flaws show up very clearly in our family’s finances. The fact is that we ALL lie to ourselves, from time to time, about what’s really happening in our wallets.
This habit of lying to ourselves threatens our financial stability. Instead of spending $10, we spend $30. Instead of recognizing that we *want* that new shirt, car, or fine dinner at a restaurant, we lie to ourselves until we are convinced that, for one reason or another, we *need* that new shirt, car, or fine dinner. The credit crunch of 2008-09 can partly be blamed on a nation full of people who convinced themselves that a $800,000 home was necessary — even though a $350,000 home was more than sufficient. We must learn to live within our income … and this sometimes means that we must stop lying.
So, I’ve compiled a short list of ideas on how to stop lying to ourselves, and to instead face the truth when making purchase decisions.
1. Have (and stick to) a budget. Is this purchase in my budget? For example, your family budgets a certain amount each month to spend on clothing. You’ve agreed that this amount is sufficient to meet your needs. So you set this amount before facing a purchase decision. If during the month you want to exceed the budget because Kohl’s is having a fantastic sale, then you are now lying to yourselves. You aren’t saving money by exceeding your budget during a sale. In fact, now you have to dip into savings to pay for your overspending.
2. Set a per-purchase spending limit. A wise man said, “The four most caring words for those we love are, ‘We can’t afford it.'” Take some time with your spouse to set what I call a “What I can spend without having to ask my spouse if it’s okay” spending limit. Some spouses have decided that neither one of them is allowed to spend more than $100 at any given time without calling and asking the other one if it’s okay (this does not apply to groceries). Let me tell you right now, these limits have stopped many from making a lot of unnecessary purchases.
3. Replace bad habits with enjoyable, inexpensive activities. Shopping or overspending is a habit that we have likely formed over years. Since our brains are programmed to react in a certain way in specific situations, any change is met by resistance. The existing habit is simply more comfortable and natural. To help change your behavior, replace the bad habit with another activity.
For example, instead of going to the mall to pass time, go to a local park with a soccer ball and spend some time with family or friends. Start or re-start a hobby. Your new hobby might even be a low-cost home business where you make money!
4. Make sure that the reason you tell yourself you are making the purchase and the *actual* reason you are making the purchase are the same. Ask yourself, “Why am I really making this purchase?” Am I buying this dress for my wife because I love her and want to show my appreciation, or am I trying to prove to her and the world that I am a good provider? We lie to ourselves to cover our true motives. If the real reason you are making a purchase isn’t in line with your principles and budget, then don’t buy it.
5. Take stock of, and enjoy, everything that you already have! Develop gratitude for what you already have in your life. Purchasing new things is often a sign of ingratitude for what life has already afforded us … or a sign that we feel deficient in some area.
Overcoming bad habits and addictions is a process that requires concerted effort. Face each day one at a time, and stop lying to yourself! Don’t believe the story you’ve created in your mind that justifies unnecessary and financially harmful purchases.
To your family’s financial health!
James Pantzis, CPA, PC
First, I’d like to put out a little mini-fire that’s been raging on the interwebs a little: No — Federal tax refunds are NOT being delayed until October 15, 2015.
Sometimes, satire is so close to what’s *actually* happened that it takes on a level of “truthiness” that gives it legs. That’s what happened here. An article from a website called “The National Report” (which is a bit like The Onion) posted a headline that refunds were already being delayed. On top of the FACT that filing season has been delayed for the past two years … and that the IRS is being tasked with enforcing some of the mandates within the ACA … well, again, this recent scare seemed like part of the general trend.
But hear me clearly: If something like this were to ACTUALLY occur, I will let you knowdirectly.
Now … speaking of scares.
If you’re at all like me, you take a look at the recent (non-satire) news pages online, and on the covers of newspapers and magazines … and a niggling sense of anxiety begins to creep in.
The world certainly seems to be fraying at the edges a bit these days.
So with it, I recommend vigilance — and a sense of humor.
And, of course, all of this is wrapped up in how we think about our finances. The world economy certainly plays a part in interest rates, currency valuations, and a host of other factors that affect how truly “well off” we might be.
But when it comes to those finances, I’ve found that there really is an antidote to worry.
James Pantzis’ Top 5 Ways to Confront Worries
“Fresh activity is the only means of overcoming adversity.” -Johann Wolfgang Von Goethe
With all of the news about disasters, outbreaks and spiraling federal debt, it’s natural that Americans are taking a hard look at their own situation, and it sometimes leads to worry — even for those who are relatively secure.
Interestingly, my clients who have MORE cash in the bank often worry more. Funny, right? But it’s normal human nature….
You see, under all guidelines and measures, my finances are very solid. I’ve got a thriving firm which is more secure than most people’s jobs. I work with numbers and am very good at taming balance sheets.
Yet, I still sometimes worry about money.
After a lengthy time of thinking, discussion and some more thoughts into the matter, below are a few takeaways I’ve settled on which can help us ALL reduce our worries over money.
1. Realize That It’s Exaggerated – Worry is a funny feeling; it seems to exaggerate any problem. While there are certainly many people who actually run out of money, those are usually not the people that tend to worry.
2. Spend The Same Time Making Money Instead – If you are going to spend time worrying about money, why not use that time and get a side job instead? Maybe start a website (or two, or three). I know it’s easier said than done, but the more you work at it, the easier it gets.
3. Develop Your Confidence – Part of the reason why we worry about money is because of the lack of confidence in our own abilities to earn an income. How can we boost our confidence you ask? Confidence comes from success, and success starts from taking action. So try a few low-risk entrepreneurial ventures. If they bomb, see it as a laboratory: learn from it and try again.
But never (never) allow it to touch your identity as a person.
4. Consider Your Workplace – One’s workplace plays a big role in worry. Are your colleagues encouraging? Is your boss supportive? If not, then do something about it. Don’t get into the thinking of “I can’t find another job.” Yes, you can — especially if you HAVE a job right now. If you got this job, you can get another one.
5. Recognize That Worrying Can Actually Be Good – A little, measured worrying is actually healthy for us. It’s what drives us to be better. It’s what turns our energy switch to the “On” position. The right way to deal with it is to channel it into your work ethic, and your desire to be better.
How Do You Deal with It?
Of course, what I listed above is just the tip of the iceberg. How do you deal with worrying about the lack of money? Or do you? What has worked for you? I’d be interested to hear…
James Pantzis, CPA, PC
I wrote last week on estate planning, and well … the response was such that I’m returning to the topic today. This time, for some “bigger picture” words on the subject.
But before I get there, IMPORTANT TAX NOTE:
Personal returns that were extended back in “tax season” are due WEDNESDAY, October 15th.
That means that if you’re someone we’ve been working with on an extension, and we are waiting on something from you … well, this week would be a marvelous time to send it our way! And, of course, here in the James Pantzis, CPA, PC office we’re working like bees in a garden to get all of our extended clients finished with the excellence to which you’re accustomed.
Which is actually a great segue to what I want to write about today.
In our line of work (as with many, I suppose), it’s so easy to get hung up on processes and outcomes — and forget about the big picture.
And while we speak of preserving assets (both financial AND “intangible”) from being overly taxed, and developing good procedures and structures for emergency situations — some families (and their estate planners) can forget what’s most important in any sound estate plan.
Estate Planning’s Best Outcome, According to James Pantzis
“The secret of happiness is to count your blessings while others are adding up their troubles.” – William Penn
Even though I’m a tax professional, I’m keenly aware that the most important product of estate planning isn’t only avoiding probate or reducing estate tax exposure, it’s achieving family harmony. As a result, we must watch out for personal dynamics that might threaten disharmony when a person dies or becomes incapacitated.
First, think carefully when you choose your executor or trustee. Being selected to manage an estate for someone who can no longer do so because of death or incapacity is an implicit compliment. It shows you trust the person you’ve named to do the right thing in the right way.
But it is also a very big job. Unfortunately, it can–and often does–feel like a thankless one. And what’s worse is that lack of thoughtful planning too often results in irreconcilable family feuds.
We all know that someone must settle our estate when we die. But because people live longer these days, more of us will experience a period of incompetence before our death. We must plan for the possibility that someone will become responsible for our physical and financial well-being long before a final settlement of the estate can be made.
We often choose a close family member, who probably has no knowledge of what’s required of a “fiduciary” (the term used to describe a person to whom property or power is entrusted for the benefit of another). Taking on a new and unfamiliar task is stressful and difficult, especially if your life is already full.
Remember that serving as a fiduciary, whether as an agent under a power of attorney, an executor under a will, or a trustee under a trust agreement, is a post of honor, but it is not an honorary post.
Don’t name an oldest child just because he or she was born first. Ask yourself if your oldest has the traits of a good executor or trustee. Is he organized? Is she trustworthy? Will he see a job through to completion? Is she diplomatic and fair-minded? Might he abuse the position to settle old scores and wounds that are sometimes 30 years in the making? Is she sensible? Will he know when he is over his head and needs professional help?
In short, given all your available choices, is this child the best person for the job?
People sometimes want to name more than one executor, so that no child will feel left out. If you’re so inclined, ask yourself, “Am I putting two scorpions in the same bottle?” The administration of an estate is not intended to be a therapeutic exercise that will ameliorate 20 years of bad feelings between brothers.
Now don’t get me wrong. Co-executors can be a good way to go. But ask yourself first if they are people who can work together. Will they help or hinder each other?
Second, think through how you are leaving your estate behind. Family disharmony provisions are all too common.
For example, if you are in a second marriage, it’s sometimes hard to be fair both to your spouse and to the children of your first marriage. In one situation, a 50-year-old man had concerns about his father’s will. His dad left virtually everything in trust for his second wife. Such a trust commonly provides limited amounts of income and principal to the spouse during the surviving spouse’s lifetime. When she dies, the assets pass to his children from his first marriage.
But because the stepmother is 55 years old, Dad effectively disinherited his kids. Don’t set up a plan where your children are waiting for their stepmother to die to get their inheritance. Think of creative ways to be evenhanded to your present spouse and your children when you die. And there could be problems naming either the stepmother or the children as trustee.
Another planned disaster is leaving real estate equally to all your children. In many states, real estate drops like a rock through probate. It’s not like money you can divide up equally. If your kids can’t agree unanimously on what to do with the real estate, it can be a serious problem, as often the only remedy the law provides is a partition suit. To keep the peace, provide an enforceable mechanism for either one child to buy out his or her siblings or for an executor to sell the real estate and divide the net proceeds up among the children.
Here is another dilemma that requires special consideration. You might recognize the need for one of your children to have his or her inheritance left in trust because of a poor credit record, mental instability, financial instability or a bad marriage.
Suppose that child resents the arrangement, which is quite possible. Who are you going to name as trustee of that child’s trust? Are you going to name a sibling as the trustee of another sibling’s inheritance? How will that decision affect the sibling relationship?
And if you name a professional trustee, such as an attorney or bank, are you putting your child at the mercy of that professional trustee? What if they provide poor service after you die? Or raise their fees? All those problems go away if you give someone you trust–such as the child you were thinking about naming as trustee–the unlimited power to fire the professional trustee and appoint a new one. It’s no surprise how much better professional trustees perform when they know they can be replaced at any time.
Estate planning begins with selecting the trustee who will handle it best. Probate and estate tax avoidance can be easy (with the right expert on your side). But selecting the best trustee is critical.
So be sure you structure everything legally in a way that will create unity, not animosity. Make that decision well, and you are halfway to drafting your estate plan with family harmony in mind.
And, of course, we’re here to help.
James Pantzis, CPA, PC
I’ve recently received some emails expressing confusion about the current estate tax situation, and implications for elderly parents.
The facts are that many people will be caught uninformed about *exactly* what their options are for their families when they deal with caring for the elderly, esp. as it relates to their finances and estate. One of the biggest problems is that many folks are confused about the terminology involved — and why it matters.
I hope to clear up a bunch of it in this week’s Note…
Will, Trust, Or Nothing: James Pantzis Helps You Weigh Your Options
“Failing to plan is planning to fail.” – Effie Jones
When a person with assets over $100,000 passes away, their assets will be handled in one of three ways:
(1) if they had no will, their assets will be distributed as mandated by the state probate code through a court proceeding called probate;
(2) if the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will; or
(3) if the person had a valid living trust (and their assets were re-titled in the name of their living trust), their wishes would be carried out in private, without the court’s involvement.
So … why does it matter to you?
The answer to this question depends on how much you care about what your loved ones have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it.
If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friends/creditors who petitions the court will make these decisions on your behalf through a process called probate.
Why do you care about probate? Often, the probate process can take 12-16 months, can be extremely costly, and the process is completely public. The probate process can often lead to squabbling between family members and sometimes airs the family’s dirty laundry.
If a person leaves a valid will, it will still have to go through the probate process described above, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you), the court will pass on your assets to the specific people you have identified in your will.
Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.
A living trust (that has been properly funded), on the other hand, gives you more control. If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, and WHEN and HOW they get it without the court’s involvement. Even better–with a living trust, it is a private administration and can generally be handled in a short period of time.
You may be asking yourself: why would someone ever do a will instead of a living trust?
Typically, a person will choose a will over a living trust for one of two reasons:
(1) they don’t know the difference between the two, or
(2) the (perceived) “cost” of doing a living trust.
There are some obvious advantages to doing a living trust over a will, but starting with something is better than nothing. If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point.
In addition to giving the court direction about how you want your assets distributed, a will-based estate plan should also include your advance health care directive (which identifies the person(s) that will make health care decisions for you, if you’re incapacitated) and a durable power of attorney (which identifies the person(s) that will make financial and legal decisions, when you can’t).
While we all care about what happens to our assets, every person over the age of 18 needs to have an advance health care directive and durable power of attorney.
Don’t forget — we’re only a phone call or email away, and here at James Pantzis, CPA, PC, our consistent question for you is this: “What more could we do, to help you?”
James Pantzis, CPA, PC
Health insurance is set to now become part of our tax preparation process. This is the opening salvo.
If you have friends who received one of these notices, we can help. Send them our way: (718) 858-9864
But moving on, I wrote a few weeks ago about the hidden financial mistakes which even some of our wealthiest clients fall into. Thanks for your kind feedback on that one — and, so, I have a few more to share.
These are gleaned from my years working directly with families in the Brooklyn area — in their finances, and, of course, in saving them money on tax. In so doing, I’m hopefully offering some advice which isn’t the “same old, same old”.
My goal is to help you think about how you’re handling your finances a little differently. People don’t often talk about the psychology behind financial issues … and it can hurt you if you don’t consider it.
This doesn’t fully explore the rich topic, of course, but it should help …
James Pantzis Reveals 2 More Of Your Money Mistakes In Plain Sight
“Become addicted to constant and never-ending self-improvement.” – Anthony J. D’Angelo
As I wrote last week, you pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.
But perhaps you’re still not getting ahead.
Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and hurt us.
So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. Last week, I gave you two:
Subconscious Mistake #1: Inappropriate Mental Accounting
Subconscious Mistake #2: Manipulative Price Anchoring
Now here are the rest…
Subconscious Mistake #3: Loss Aversion Costing You
Definition: Our consistent tendency to avoid loss, rather than acquiring gain.
Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.
Cure: Don’t think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:
* Tax deduction (which can really help!)
* The other side of opportunity cost: opportunity GAINED (i.e., you can better utilize that money elsewhere)
So, don’t check your portfolio so often. If you don’t know you’ve lost money, you don’t experience the pain. (And riding the roller-coaster of your portfolio’s value is a waste of emotional space.)
Since stock prices go up in the long-run, the longer you go without looking at your portfolio, the greater chance of seeing a gain.
Sometimes taking that loss really is the best thing you can do.
Subconscious Mistake #4: Following the Herd
Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.
Typical Example #1: Buying when prices are high because everyone else is.
Typical Example #2: Selling when prices are low because everyone else is.
Cure: Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.”
Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e., gold, silver, real estate), then do the opposite.
In the financial investment world, if it seems too good to be true, then it usually is.
Write yourself an investment policy statement or contract.
Include factors such as:
* Investment objective
* Investment goals
* Desired asset allocation and diversification
* Summary of your risk tolerance
* Rebalancing schedule
Before making any changes, consult with this contract.
You can also take advantage of our inherent tendency to do what’s approved by others, to affect positive behavior in yourself. For example, let’s say you are trying to pay off debt. Tell your 3 closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high, relative to the pain of breaking your behavior if you went about it alone.
Don’t forget — we’re only a phone call or email away, and our consistent question for you here at James Pantzis, CPA, PC is this: “What more could we do, to help you?”
James Pantzis, CPA, PC
In the course of our daily work here at James Pantzis, CPA, PC, we not only work with tax forms and legal/financial documents a TON … but we also get a regular crash course, via those documents, on how people (our clients, mostly) have arrived to the place where they actually have something to *protect*.
In short, we get to be around a great many well-accomplished families.
So, perhaps it’s odd to you, but I’ve learned to pay attention to the subconscious lessons I can learn from my clients, and from people of means around the country.
I’ve discovered a few things along the way about what keeps people from the kind of accomplishment and means which they are looking for.
So I’ve decided to channel my inner Clark Howard today and deliver some advice which isn’t the “same old, same old” — and which can help you think about how you’re handling your finances a little differently.
Even many of my clients make some of these mistakes … and they can hurt you. Especially because we hardly ever think about them.
James Pantzis Uncovers Your Money Mistakes In Plain Sight
“Leadership is practiced not so much in words as in attitude and in actions.” – Harold Geneen
You pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.
But you’re still not getting ahead.
Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and bite us in the keister.
So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. All it takes is thinking a little differently…
Subconscious Mistake #1: Inappropriate Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.
Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.
Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.
Cure: Funnel income, no matter the source, into one savings account.
For any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.
As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one monthly bucket.
Subconscious Mistake #2: Manipulative Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.
Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.
Typical Example #2: A realtor will tell you that “in 2011, this house was going for $500,000 – and is now listed at only $350,000!” … causing you to think this house is undervalued.
Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.
For everyday purchases, avoid looking at the MSRP or sticker price.
Can I afford this today?
What do I really want to spend?
What is this really worth to me?
Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.
There are a few more big ones, but for the sake of brevity I’ll save those for another week. But do let me know: is this helpful to you? And what more could we do for you, to help?
James Pantzis, CPA, PC
It’s FOOTBALL SEASON (apparently). And, of course, colleges are getting back into the swing of things.
For better or worse, often our college-aged children haven’t been “burned” enough by the real world (I mean, of course, as opposed to the weird social media world many of them inhabit) for them to understand how financial complacency can lead to ruin.
So this week’s post is a public service for families in the Brooklyn area with children starting college — or those with children already there. I put it together because I’ve seen too many kids get underwater, and too many parents unknowingly enable them.
Before I get there, a couple of tax reminders:
1) Monday, September 15th is the estimated tax payment deadline for the third quarter.Our existing clients were given coupons to make it easy (albeit never fun), so let us know if you need any quick input there…
2) Corporate extensions are also due that Monday. This really only applies to you if we handle your S- or C-corp returns (which, of course, we do for a variety of our individual clients and friends). We’re on top of this on your behalf, if that’s you.
Now … onto my Animal House advice…
James Pantzis’ Useful Financial Guardrails for College Families
“If we wait for the moment when everything, absolutely everything is ready, we shall never begin.” – Ivan Turgenev
Financial independence training is a short-term pain, for a long term gain. But it’s terribly important because “untrained” college students are sitting ducks for unscrupulous financial service companies and their own lack of financial sense.
So, with that in mind, here are some off-the-cuff guardrails to consider for your son or daughter who is entering or continuing on through college…
1. Make a definite plan to leave college with no consumer debt. And I’m talking a realPLAN. Credit cards, car loans — college kids are ripe for the plucking. Consumer debt is a killer, simply because it depreciates so much. In a short matter of time, these items lose their value, but the payments and interest continue to inexorably pile up.
So set up a clear budget for travel, late-night snacks, and other miscellaneous lifestyle expenses (heck, going through the process might even prompt some lifestyle evaluation!). Tell your child: “You should have an exact answer if I ask about your weekly spending limit.” And have them try to earn enough over the summer that they can afford to skip the part-time job during the fall and spring semesters.
2. ATM bank fees are killer. Moving to a new city often means the local debit card will be charged from $1.50 to $3.00 for every withdrawal from a foreign ATM. Consider an online bank account that reimburses all ATM fees or a local bank with easy ATM access, or moving accounts to a bank local to the school, or a mega-national bank.
3. Overdraft fees are as common as hangovers for the college kid — avoid both. A recent Pew Foundation study found that the median overdraft penalty fee is $35; an additional $25 accrues if this overdraft is not repaid in seven business days. The average bank allows up to four of these overdrafts to occur in one day for a total fee of $140 or more per day. However, if you open a savings account in addition to your checking account, you can use the overdraft transfer protection. You might even set up a situation where the college student controls the checking account — but you control the savings.
4. One cell phone bill gone awry can swamp you. New routines in college will likely mean that data habits will change. If your child doesn’t have an unlimited plan, have them make it a habit in the middle of each billing cycle to review their account’s data usage for the month. By the way, this is a very good expense to NOT pay for as a parent.
5. Avoid gimmicky credit card offers. Often the first credit card is awarded at a football game where so-called “free” T-shirts are being handed out. Again, college kids are ripe targets. Shop online for the best rates and terms and purchase a dozen dress shirts with the money saved by finding a card with less onerous terms for interest rates and late fees. Focusing on the so-called “rewards” which credit card companies give you is a distraction in your financial life. Like a casino, credit card companies win most of the time — which is why they stay in business.
And, of course, having children enter into adulthood sometimes changes your tax considerations. Let us know if this applies to you — we’re here to help!
James Pantzis, CPA, PC