Financial planning

Estate Planning 101- How to Avoid Probate

by Michael Goodman

Estate Planning 101 video

My favorite class while getting my degree in Financial Planning was the class on Estate Planning and how to avoid probate. You can really get lost in all the different types of trusts, and I strongly recommend having a legal specialist prepare any trust you need. But there is one rule that should be followed with or without an attorney.

The first rule of estate planning is to AVOID PROBATE!

Why Avoid Probate?

Probate is:

1. Expensive

2. The records are public (so anyone can see the details)

3. Assets may be sold for less than full market value

4. Property may not end up where you wanted it to go because a third party (the judge) will make the final decision.

How to Avoid Probate With Estate Planning

You can avoid probate fairly easily with a little planning.

There are basically 3 types of property that are exempt from probate:

1. Funds in a POD (Payable On Death) or TOD (Transfer On Death) financial account that allows the naming of a beneficiary. Examples of this are bank accounts, investment accounts, and life insurance.

2. Real Estate owned with a transfer-on-death deed. The precise deed can vary by state. In California, examples of this are property owned as “community property” or “joint tenancy with right of survivorship.” In other states, it might be “tenancy by the entirety” with a spouse.

Depending on the state, other personal property (like cars or boats) MAY be excluded from probate; as may other community property. Check with the state in which you live to be sure.

3. Property transferred to a trust, like a Living Trust.

The Bottom Line for Estate Planning

Property that is not protected or excluded from probate must go through the process and any financial assets may not be available until probate has been completed. However, if you do this right, very little property will have to go through probate and many states now have a simplified process for small estates (this varies by state).

An Example of the Benefits of Estate Planning

Now that you know this, here is one example to consider: (from an article on

“An estate consists of a $400,000 house that’s jointly owned, a $200,000 bank account for which a payable-on-death beneficiary has been named, a $100,000 IRA with beneficiary named, and a solely owned car worth $10,000. The estate has a value of more than $700,000.”

Question: How much of the estate must go through probate?

Answer: You are correct if you said the only probate asset is the car—and its value ($10,000) qualifies it for the small estate procedure in almost every state.

Congratulations! You just passed the simplified class on Estate Planning 101 and know how to avoid probate!

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How Much Will Income Tax Rates Rise, and When?

by Michael Goodman

As you can see from the chart below, current income tax rates are on the low end compared to the highest rates in history.

Historical Income Tax Rates

Part of this is the result of the tax reductions passed in 2017 and effective in 2018. However, the 2017 law will expire in 2026 and rates will jump back to previous levels for individuals.

However, the Biden Administration is not planning to wait for current rates to expire. They have plans to spend money and assume they can get it by raising taxes.

According to Allianz, here are some of the goals that the Biden campaign discussed –

Personal income taxes

  • Raise the top individual income tax rates from 37% to 39.6%.
  • Taxpayers with more than $1 million of taxable income would pay ordinary income tax rates on capital gains and qualified dividends (instead of the lower capital gains tax rate).
  • Impose Social Security taxes on taxable income above $400,000. Currently this only applies to income above the Social Security wage base (set at $142,800 in 2021).
  • New $5,000 tax credit for family caregivers (those meeting the cognitive or physical needs of a family member).
  • New tax incentives for the purchase of long term care insurance (details not specified).
  • Changes related to contributions to qualified retirement plans to “equalize” the tax benefits for all levels of income (details not specified).
  • Repeal the $10,000 cap on SALT deductions (deduction for state and local taxes). However, another proposal would limit the tax benefits of itemized deductions to 28% of value for those making over $400,000. For example, a taxpayer making over $400,000 who has $50,000 of itemized deductions would be limited to using $14,000 of those deductions.

Estate and gift taxes/taxes at death

  • Decrease the applicable exclusion amount for estate and gift taxes. Exclusion in 2021 is $11.7 million ($23.4 million for a married couple). No official figure has been proposed, but exclusion likely to be reduced to $3.5-$5 million ($7-$10 million for a married couple).
  • Repeal of the step-up in basis rules at death. Basis of deceased owner would carry over to heirs. It’s uncertain if death would trigger the tax, or if the tax would be triggered when the asset was sold by heirs. Also, it’s not certain if appreciation prior to repeal of step-up basis rules would be grandfathered in.

Business and business owner taxes

  • Raise the corporate tax rate from 21% to 28%.
  • Phase out of the 20% qualified business income deduction for taxpayers with taxable income above $400,000.
  • Revise the tax-free nature of 1031 exchanges (exchanges of commercial real estate) such that it applies only to those with taxable income under $400,000. This has not been promoted heavily by the Biden campaign.
  • Impose a 15% corporate minimum tax on book income (applicable only to companies with $100 million or more of net income but which owe no U.S. income tax).

The GOP will try to block some or all of these changes. What do YOU think will happen?

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U.S. sets new standard for financial advisors and agents (like me!)

posted by Michael Goodman

(The article below discusses the new rule being set by the U.S. Labor Department that will require financial advisors to put the needs of the clients first. My first reaction is – why did it take so long to create such a rule? In my practice, I ALWAYS put the needs of clients first and never offer any products or services that are not just suitable for the client, but which satisfy a particular objective.)

Labor Department rule sets new standards for retirement advice

By Jonnelle Marte

(view the original article HERE)

The Labor Department announced sweeping rules Wednesday that could transform the financial advice given to people saving for retirement by requiring brokers and advisers to put their clients’ interests first.

The long-awaited “fiduciary rule” would create a new standard for brokers and advisers that is stricter than current regulations, which only require that brokers recommend products that are “suitable,” even if it may not be the investor’s best option.

At a time when mom-and-pop savers are increasingly being put in charge of their own retirement security, the rule is meant to add a new layer of protection to guard workers from poor or conflicted investment advice. The rule is supposed to improve disclosures and to reduce conflicts of interest, such as cases when a firm is paid by a mutual fund company or other third party for recommending a particular investment.

“This is a huge win for the middle class,” said Thomas Perez, secretary of the Labor Department. “In far too many places and on far too many issues, the rules no longer work for working people.”

Proponents of the rule say it should cut back on cases of retirement savers being steered into complicated and pricey investments, leaving them with more savings in their pockets. While the new rule won’t ban commissions, brokers may have to explain why they are recommending a particular product when a less expensive option is available, and they could face scrutiny if they recommend complicated products. Conflicted investment advice costs savers $17 billion a year, according to an estimate from the White House Council of Economic Advisers.

“Hard workers need every dollar to work for them,” said Sen. Elizabeth Warren during a press event Wednesday announcing the rule.

It’s too soon to know exactly how the rule will play out, but the change could lead savers to invest more of their money in low-cost index-based funds, analysts say. Some investment firms could also lower their fees. For instance, LPL Financial said last month that it would allow savers to hold accounts with smaller balances and that it would cut the fees for some funds by up to 30 percent.

Another potential impact of the new rules, which affect people saving in individual retirement accounts or rolling money over from a 401(k) plan to an IRA, is that retirement savers might end up switching accounts or investment firms. Some investors may have conversations with their brokers and advisers over the next several months about whether they should be moved into a different kind of account or work with a different firm altogether.

“We’re definitely going to see investors that are forced to change how they interact with the investment services industry,” says Michael Wong, an analyst focusing on brokerages and exchanges for the fund research firm Morningstar.

Some firms may decide to move investors from commission-based accounts to fee-based accounts, where an investor’s costs may be structured as a percentage of assets invested, Wong said. The move would put savers into accounts where what brokers and advisers are paid would not depend on the type of investment product they sell, he added.

Those fee-based accounts are already subject to fiduciary standards but some financial professionals have said it may raise costs for investors who rarely make trades and are more likely to hold on to investments for the long term.

For some savers, particularly those with small account balances, the new regulations could require them to take on a bigger role in how their money is managed – particularly if they lose the advisers they’re working with now. Some companies facing higher administrative costs may feel pressure to drop clients with low account balances, say below $50,000, which may no longer be as profitable with fewer commissions. Some firms may try to transfer savers into stripped-down, online-based accounts, where they may pay lower fees but also receive less personalized advice.

Members of the financial industry said Wednesday that they were still reviewing the details of the rule but expressed initial worries about how the regulations would affect their relationships with customers.

“We remain concerned that the [Department of Labor’s] rule could force significant changes to current relationships, which may leave clients without the help they need to prepare for retirement,” said Kenneth Bentsen, president and chief executive of the Securities Industry and Financial Markets Association, a trade group for broker dealers and other financial professionals.

The shift could also encourage more people to use discount brokerages or online investment accounts dubbed “robo-advisers,” which typically use algorithms to help people create portfolios, according to a Morningstar report. The online options can often be more affordable than working with a financial adviser, in part because they often using index-based investment options.

Judy Barfell, a 67-year-old retiree near Daytona Beach, Fla., was surprised to learn a few years ago that her IRA savings were invested partially in emerging market funds, high yield bonds and other risky investments. After talking to her adviser about the portfolio and doing some other research, she also realized she was paying roughly twice as much in investment fees each year as she thought she was.

“You trust the people that you put your money with and then this happens,” she said.

Last year, Barfell moved her savings into an account with Rebalance IRA, an online based account where her advisory and investment fees add up to about 0.7 percent of her savings, down from the close to 2 percent in fees she was paying before. She said she is glad the rule will require advisers to put investors’ interest first, something she had previously assumed was required.

“You spend a lot of time in your career cutting out the money to save,” Barfell said. “It’s hard when you have your life … to put all that money aside. And then you save it and to have someone take advantage of you is really disheartening.”

The Labor Department also says educational information offered to retirement savers about types of investments would still be allowed under the new rules. But investment firms consulting savers on whether they should keep their money in a 401(k) or roll them over into an IRA would be required to meet the new standard on any advice they offer. Financial firms would have until January 2018 to get into compliance.

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