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How to Prevent Identify Theft Damage with a Credit Freeze

By Jay Dunnuck

 

Identity theft is something everyone wants to avoid. The problem is, there is no way to prevent it with 100% certainty. Our confidential information rests within computer databases that are all subject to crafty computer hackers.

 

There are services available for purchase to monitor your credit report and alert you to suspicious or abnormal activity. In addition, there is identity theft insurance to help restore losses and/or help pay for legal costs to restore the integrity of your identity with credit reporting agencies. Unfortunately, each of these services only activate once your identity has already been stolen. They are only damage control devices. They do not do anything to prevent damage from occurring in the first place.

 

One tool you can use to avoid damage to your credit due to identity theft is a Credit Freeze. A credit freeze instructs credit agencies to "freeze" or "lock down" your credit. This restricts any and all organizations from being able to obtain your credit information. It also prevents anyone from being able to open a new credit account in your name. Therefore, an identity thief with your information cannot use it to open a credit card in your name. This can help avoid damage to your credit report because of identity theft.

 

The downside to this tool is it also restricts you from being able to open credit accounts for yourself. If you need to obtain credit, such as a car loan or apply for a store credit card, you must first unfreeze or "temporarily lift" your credit freeze. Once the freeze lift is in place, you can apply for the credit you are seeking. Some people feel this is a hassle.

 

There are 3 credit reporting agencies: Transunion, Equifax, and Experian. To freeze your credit, go online and establish a credit freeze with each of the three credit agencies. Then if you want to lift the freeze, you once again need to go online and place a "temporary lift" of the credit freeze to allow an organization to access your credit report. You can accomplish placing a freeze and lifting a freeze by a phone call or regular mail (which will of course take longer).

 

I have found when I need to lift a credit freeze for myself, I can access each of the three credit agencies online and temporarily lift the credit freeze in about 15-20 minutes total. Each of the three credit reporting agencies give you the ability to lift the freeze temporarily and then have it automatically freeze again with a time period you set. For example, you can lift a credit freeze for a week, and then set it to automatically freeze again once the week is complete.

 

While establishing a credit freeze can help prevent a thief from opening credit in your name, it cannot deter one of the other major problems caused by identity theft, false tax returns. With your confidential information, a thief can still file a false tax return in your name and seek a refund to steal.

 

There are many questions you may have about locking down your credit with a credit freeze. Below is a link to a page for Frequently Asked Question on the Federal Trade Commission's website. This resource has served me well and should answer any further questions you may have:

 

https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

 

The Planned Giving Office of One Mission Society is ready to help you with any questions you might have. We invite you to contact us to learn more about protecting and using your wealth to build God's Kingdom. Call us today!

 

3 Reasons Why I am Updating My Will Today!

By Jay Dunnuck

 

Like many people, I had been putting off creating my will. I was 33 years old, I had young children and had no will. I was 10 years into a career as a financial advisor, yet I had not taken the time to act on my own advice to have a will done. One day, after witnessing an event that made me deeply consider my own mortality, I decided it was time I stopped procrastinating. I now had a family to take care of, I needed a will. I contacted an attorney and my wife and I sat down to discuss the decisions that needed to be made. A short time later we had our wills completed and signed. That was 9 year ago.

 

I routinely give people the advice to consider updating their will every 5 years, and guess what? Here I am once again in violation of my own advice! So right now I am going to pause my writing of this article and I am going to send an email to an attorney to get the process started. Please don't go anywhere, I'll be right back...... There, done. I emailed my attorney and told her that I'll be sending copies of my existing estate planning documents to her for her review along with some changes my wife and I would like to make. Other than taking my own advice, why am I updating my will? Here are three reasons I discovered after I reviewed my own will:

 

1. Our children are growing older: When my wife and I first completed our will 9 years ago, we only had 3 children. Now we have 4. The kids were all very young, now they are older and approaching the age of attending college. The choices we made to name a guardian was at a time when our kids would have needed lots of time and energy in order to care for them. They are all older now and would require much less supervision. We may want to change who we named as Guardian based on this new reality.

 

2. We live in a different state: We have moved to a new state since we signed our original will. This means should my wife and I pass away, our estate is now governed by the laws of a state different than the state in which the documents were created. Since I am not an attorney, I don't fully know what impact that might have on our situation. It could potentially impact our power of attorney selection for our durable and health care powers of attorney. In addition, our living will needs to be updated for the state of our current residence. This will give us the best chance at having any medical procedures withheld or included according to our desires.

3. We have become more charitably inclined: Over the years, we have become more aware and willing to consider including a charitable bequest as part of our will. When we first put our wills together 9 years ago, we did not give this much thought or consideration. We may want to include a bequest to a charity now that we have a stronger interest in this area.

 

These are my 3 reasons in updating my will. In his book, "Provide and Protect", Charles Schultz outlines his 10 reasons for updating estate planning documents. I'm guessing one or more will apply to you. They did to me.

 

1. New Children, Grandchildren or Other Heirs

2. Move to a Different State

3. Sale or Purchase of a Major Asset

4. Reaching age 70 1/2

5. Your Selected Beneficiary is Deceased

6. Divorce or Remarriage

7. Substantial Change in Value of Your Assets

8. Adding a Major Property to a Living Trust

9. Selected Executor or Trustee Not Available

10. Passage of Time (recommendation to consider an update to estate plan every 3-5 years.)

 

If any of the 10 items listed applies to you, give us a call. The Planned Giving Office of One Mission Society is ready to help you with any questions you might have. We can help you decide if an update to your estate plan is in order and connect you with competent attorneys who can help. Give us a call today!

October 13, 2018

4 Ways to Place a Burden on Those You Name in Your Will*

By Jay Dunnuck

 

I remember sitting down with our attorney when my wife and I put together our first will. We had small children and the attorney asked, "Who do you want to name as Guardians for your Children?" Whoa! There it is! The question hit it me right between the eyes. Who do we want to have the responsibility of caring for our children if both my wife and I died? We both paused, looked at each other, then looked at the attorney, then looked back at each other again. We continued to pause, as if at some point one of us would be struck with some form of divine wisdom to answer such a question!

 

The experienced attorney had witnessed this scene befoand I'll never forget his guidance. He said, "Remember, there is no one here on earth who will love your kids as much as you do, so don't worry about trying to think of someone. Instead, think of someone who you believe will love your kids as close to how much you love them and choose them."

 

This wise attorney also suggested we think about the people we were naming in our will from their perspective. Were we inadvertently placing too high a burden upon them? Realizing the responsibilities carried out at your death is always going to have some level of burden attached to it, here are 4 ways you may have inadvertently made the burden greater than you realize.

 

1. Job Fatigue: I've seen many people who have named the same person to do all the jobs in their estate plan. Every single one: personal representative, trustee of a trust, guardian of children, health care power of attorney, and durable power of attorney. Naming the same person to do more than even one job can lead to that person being overwhelmed by all the decisions and responsibility. Each job requires special attention and time. In my opinion, it is a good idea to consider how much time the people you are naming have available to devote to these tasks. Naming the same person to do 1 or 2 jobs is fine, but if you name the same person to do more than 2 jobs, then that person must have a large amount of time to devote to these tasks.

 

2. Out of State Personal Representative: The person you name as personal representative (formerly known as executor/executrix) has the responsibility of pulling together all your assets and distributing them according to what your will says. The biggest time commitment for this job is going through all your personal items in your home. Your clothes, furniture, collectibles, car, everything stored in your closets, attic...etc. You get the idea, it is a big job that takes A LOT of time. If your personal representative lives far away, then the travel only adds to the time for this job. Ideally naming someone who lives close to be your personal representative makes this much easier as they do not have to be gone from their home overnight or for multiple days.

 

3. Lack of Clairy with Health Care Power of Attorney: If you have made elections in your living will that you would like certain life sustaining medical procedures withheld, you owe it to the person you have named as Health Care Power of Attorney to explain this in advance. Being in a position of making decisions for someone else to have some type of life sustaining procedure or equipment withheld is stressful. While the Health Care Power of Attorney document can be made very specific, many are written so the health care power of attorney has latitude and flexibility in how to interpret your wishes. If the person you have named for this job does not know your specific wishes, they may feel ill equipped and burdened carrying out your wishes. Schedule a time to sit down with the person you have named for health care power of attorney. Discuss your thoughts and desires regarding the decisions you have made in your living will. Talk through various "what if" scenarios so they have a better feel for how you feel about this issue. It is impossible to discuss every possible situation. However, talking about your thoughts and desires will better prepare your health care power of attorney to make the best decisions and lessen their burden in doing so.

 

4. Under-Resourcing Guardians of Minor Children: This only applies to families with minor children still living at home. As I mentioned in the opening paragraph, naming a guardian is always a tough decision for a parent. Once you name a guardian for your minor children, think about the home the guardian(s) live in. Do they already have minor children? What will the addition of your children in their home mean for the comfort of the new family? Would it help if the guardian(s) had the financial resources to add on to the home to make it larger to accommodate the addition of you children? Would the family need to upgrade to a larger vehicle with the addition of your children? These questions can be answered by creating a trust for the care of minor children. The assets from your estate would be placed into the trust to help pay for their care and future college education. You would also designate your life insurance to fund the trust for the care of your minor children. This is where you can greatly increase the resources available to your guardian(s). You could increase your life insurance such that there are adequate financial resources available to not only fund your children's future college education, but also to help the guardians pay for any needed home expansion project or additional vehicle purchase.

 

Choosing people to take on the various jobs in your estate is a tough task. The choices you make have an impact not only on the people you choose, but also their spouses and families. The Planned Giving office at One Mission Society is available to help answer any questions we can. Give us a call today!

 

*Please note that Jay Dunnuck is not an attorney and any recommendations written in this post are for example use only. Please consult with an estate planning attorney for your unique situation.

September 29, 2018

3 Assets Your Will Does Not Control

By Jay Dunnuck

 

You know you need a will, right? Most people, whether they have a will or not, know the importance of having a will. You also know you need to sign it for it to be a legal document in the state where you live. Unfortunately, most people stop at the point of signing their will and believe their estate plan is complete. Did you know there are assets you likely have that your will does not control?

 

Here are 3 assets your will does not control at your passing:

 

1. Retirement Plans: Do you remember signing up for your employer's retirement plan? You may recall filling out a couple forms or signing a payroll deduction form for how much you wanted to contribute. Do you remember signing a beneficiary form? Any employer retirement plan such as a 401k, 403b, Simple IRA...etc requires you to choose a beneficiary to receive the balance of your retirement account at your passing. This beneficiary designation acts independently of your will. You can state in your will you want everything to go to your children, but if you name a charity as beneficiary in your retirement plan, then the charity will receive the money in your retirement plan, not your children. This is true for any asset requiring you to name a beneficiary. Other examples include life insurance policies, annuities, IRAs, and Roth IRAs.

 

2. Assets Owned Jointly: There are three types of joint ownership your will does not control. They are Joint with Rights of Survivorship (JTWROS), Joint Tenants in Common, and Joint Tenants by the Entirety. These types of joint ownership are known as "concurrent ownership" or ownership by two or more people. The idea is when one person passes away, ownership automatically transfers to the other person. This is a common type of asset ownership for married couples. I'll focus primarily on ownership of Joint with Rights of Survivorship as it is the most common.

 

When you own an asset as Joint with Rights of Survivorship with your spouse, each spouse has the right to sole ownership of the property when the first spouse passes away. According to this type of ownership, when one spouse passes away, ownership of the entire property automatically transfers to the other spouse. This is all done outside of your will. For example, if you owned your home with your spouse as Joint with Rights of Survivorship, then at your passing, your spouse will automatically own the entire home. In another example, if you are single and own your home as Joint with Rights of Survivorship with a sibling, if you passed away, your sibling would then own the entire property.

 

3. Assets owned in a Trust: If you have a trust and you have transferred ownership of an asset to the trust, then your will does not control the passing of that asset. For example, you may establish a Joint Revocable Living Trust with your spouse and transfer ownership of your home to the trust. In this example, the trust owns the home and your will does not govern any assets owned by a trust. In the Joint Revocable Trust, you name beneficiaries to receive the trust assets at your passing, so the trust document naming the beneficiaries would govern how your home owned by the trust would pass, not your will.

 

A will is still your most important estate planning document and if you don't have one, a will should be the first document you should establish. When establishing your will, it is good to keep in mind, not all your assets may pass according to what your state in your will. It is important to be aware of who you have named to receive assets via your beneficiary designation in retirement plans and life insurance as well as any beneficiaries you have named in any trust you may have established.

 

Now is a great time to remind yourself of who you have named as beneficiaries in your retirement plans and life insurance to make sure who you have named still works well in your overall estate plan. The Planned Giving Office at One Mission Society is here to help. Give us a call and we'll walk you through this process to make sure all your assets pass according to your desired wishes.

September 14, 2018

4 Reasons You Should Have A Trust*

By Jay Dunnuck

 

We've all heard about trusts, yet they remain the black box of the financial planning world. Ask any financial planner, "Do I need a trust?" and you will never, ever, ever get a short answer....ever.

 

Trusts are simply financial agreements people make to allow another person to hold assets for the benefit of the beneficiary. Broadly defined, they are a legal tool to be custom made for your unique situation. Just like a skilled mechanic will have a workshop full of many different types of tools, your attorney can help you create many types of trusts to solve your estate planning needs.

 

Here are 4 reasons why you may need a trust.

 

1. You Have Minor Children: If you have minor children still living at home, you need a trust. Most people have written in their will if something happens to them, their children will equally receive all their wealth. If you have minor children, that can't happen because they are not adults. You should establish a trust to receive all the wealth in your estate. You also name a trustee to manage the trust wealth for the benefit of your children. The trustee's responsibility is to pay for the needs of the children out of the trust assets until the children reach an age where they can manage their share of the wealth themselves. You can decide the age(s) when the trust pays out to the children. Depending on the potential size of the trust and number of children, you may want to write into the trust language to delay the distribution of the trust assets until the children are mature and can handle the responsibility of their share of the trust wealth. It may be prudent to delay distribution until the children reach the age of 30 or older. I like the idea of delaying distribution to the children to receive 1/3 at age 25, 1/3 at age 30, and the final amount at age 35. I like this because at age 25 your children will probably be in the process of establishing a home and could use some of the money as a down payment on a first home. Then waiting until age 30 and 35 for the rest of the distribution gives them some time to continue to mature and make better decisions when they receive their share.

 

2. You Prefer Privacy: Financial advisors will typically mention how using a trust avoids probate. Probate is the legal process through which a person's estate is settled via their will. It is a public process through the courts. Anyone can visit the local courthouse and look up the court records regarding the probate courts and see exactly what wealth transferred via your will. If the idea of someone looking up the court records on how much was in your estate and who received the inheritance causes concern, then you should consider establishing a trust. Wealth owned by a trust transfers to the trust beneficiaries outside the probate process. Using a trust is private, only the trustee knows how much is in the trust and who the beneficiaries are that receive wealth from the trust. There is a cost to this privacy. Trusts cost more for a lawyer to create, and there is more complexity because you need to title your assets to be owned by the trust. A financial advisor can help guide you through this process. It is not difficult once you know what you need to do. If privacy is a concern, trusts can be very useful.

 

3. You Own Property in Another State: If you own real estate in more than one state, you should investigate having a trust. As previously mentioned, without a trust your will must go through a process called probate. The probate process must be completed for assets owned in each state. Therefore, if you own real estate in a state other than the state where you live, your personal representative would need to open a probate proceeding in that state also. This is called ancillary probate. Having multiple probate proceeding going on in separate states is time consuming and expensive for your estate. Having a trust own your property located in another state allows your personal representative to avoid the need to go through probate in another state.

 

4. You Have a Special Family Situation: Families in which the children face unique issues should consider a trust. Examples include children with special needs, physical limitations, mental, and emotional concerns. Also, if children struggle with addictions a trust could be the answer to protect them and their future security. If you have a child with special needs, a special needs trust can help provide for the child's needs in the future. It is best to choose an attorney who specializes in creating special needs trusts as they will have the breadth of experience needed to best handle your situation. If your concern is your child struggles with emotional challenges or addictions, then setting up a trust in which you choose a trustee to make decisions on their behalf is a good idea. In addition, delaying the distribution to children struggling with emotional problems or addictions gives them time to seek treatment or mature to better handle the responsibility of receiving wealth.

 

These 4 reasons are usually the most common when people decide to use a trust. However, this only scratches the surface of the many ways in which trusts can be used as a tool to accomplish your goals in transferring your wealth to your heirs. If you are thinking you may need a trust, call your financial advisor or attorney to explore your potential need for a trust. If you do not have an attorney, the Planned Giving office of One Mission Society is here to help. If you have any questions, please feel free to call us anytime. No strings, no cost. We're here to serve.

 

* Please note that Jay Dunnuck is not an attorney and any recommendations written in this post are for example use only. Please consult with an estate planning attorney for questions about your unique situation.

September 1, 2018

3 Reasons Updating Your Will is Easier Than You Might Think

By Jay Dunnuck

 

Early in my financial services career, I received some training on the best methods for selling life insurance. With bold enthusiasm the instructor declared at the start of the training: "No one wakes up in the morning and says to themselves, 'Today I need to buy life insurance!'" I have come to realize the same sentiments apply to estate planning. During my time working as a financial planner, not a single person came to me and said, "You know Jay, I just woke up this morning and decided I need to update my will!"

 

I've asked myself many times, why it seems so difficult for people to get started on updating their estate plan? My conclusion is, updating your will involves many things people generally want to avoid. Things such as confusing legal documents, strange vocabulary, and contemplating their own death. People don't like to imagine this world without them in it!

 

The truth is updating your estate plan is rather simple. Here are 3 reason why I think updating your will is easier than you might think.

 

1. 2nd Step Momentum: The old saying, "The first step is the hardest." is spot on with this topic. Have you ever had to help someone push their disabled car off the street? You have to really get down, bend your knees, grab onto the bumper with a firm grip and push hard to get the car moving. Once the car is rolling, it is much easier to push. In this case all it takes is one communication. One phone call to your financial planner. One email to your attorney. Just do it! Decide on a day, put it on your calendar or move it to the top of your daily agenda. Make the call or send the email. After that, the car is rolling and the following steps are much easier.

 

2. Professionals Love to Help You: As a financial planner, I enjoy digging into the complexity of financial details. You may think I have a strange illness, but it is fun for someone like me. Financial professionals will be ready and willing to help you. We love it when someone expresses interest in updating their estate plan. Why? Because we know how important it is and we want you and your family to be served well with a thoughtfully executed estate plan.

 

3. There Are Only 4 Steps: All that language you read in legal documents is confusing. The vocabulary for wills and trusts is strange and there are multiple words that refer to the same thing. Updating your will may sound like a long, arduous project that will take months to complete. There are only 4 steps to this process. They are: Call, Discuss, Draft, Sign. That's it! Let's break this out:

 

- Call: This is you initiating the process. A phone call or an email to a financial professional such as a financial advisor or attorney. This is the fastest, but most difficult part of the process. Here, you are overcoming inertia, you're pushing the disabled car from being stopped to rolling forward. But all it takes is 5 minutes and the hard part is over.

 

- Discuss: Here you discuss your current situation with your advisor and/or attorney and tell them your wishes. They may ask you to fill out some paperwork to gather some information about what you own, how you own it, and how you would like your estate to pass to your heirs. While this does take time, you'll be surprised how smoothly it goes now that you have the process underway. You have also engaged a professional and they will help you stay accountable and keep the process moving forward.

 

- Draft: This is the work your attorney does. Your attorney will put together draft documents for you to review. You may have a little back and forth after reviewing the documents to correct any errors, or fine tune how the documents need to read. This is quite easy since you have already made the necessary decisions. You are just reading through everything and confirming the attorney heard you correctly. Your financial advisor should also read the document as a second set of eyes to minimize errors.

 

- Sign: The easy part. The documents are finished and all you do is show up at your attorney's office with a pen. The attorney will probably have another employee of the firm join the meeting to witness your signatures. It only takes 10-15 minutes and you're done!

 

I encourage you to make the call today. If you don't have a financial advisor or attorney, our team in the Planned Giving office of One Mission Society is ready and willing to help. Just give us a call and we will walk you through all 4 steps. Call us today, we are happy to step in beside you and start pushing the car to get it moving!

 

Also, if you have included One Mission Society in your will or trust, please let us know! We'd like to include you in the One Mission Legacy Society to thank you for your generosity in remembering OMS in your estate plan. We'll also send you a free gift of a leather bound prayer journal as a thank you!

 

Remember, the first step is the hardest, after that everything becomes much easier.

 

Call us today to get rolling!

August 18, 2018

5 Reasons to Read Your Will to Your Children.

By Jay Dunnuck

Right now consider this question: Where is your will?
You have probably placed it in a file, safe, or your bank lock box. You may have also informed your children of its location so that they can find it easily when you pass away. However, have you stopped to consider the value of reading your will to your children?

You might ask, why would I need to read my will to my children? You may think "It is none of their business. or They are going to find out anyway when I'm gone."

Here are 5 reasons to read your will to your children before you pass away.

 

1. Understanding and Clarity - Attorneys do their best to write documents that are clear and leave no room for argument. You and I may read them and easily get confused with all the "here-to-withs" and "therefore hence-forths", but to lawyers and courtroom judges they are actually clearly written. Have you ever had to learn something well enough to teach it to someone else? The same applies to your will. You can be certain that you fully understand your will if you can explain it to your children. Also, reading your will to your children gives them an opportunity to ask questions and for you to be able to explain why you set up the transfer of your estate the way you did. Any questions and concerns can be addressed by you personally. Your children will walk away with a thorough understanding of what to expect at your passing.

2. Pass on Charitable Passions - If you have made a charitable designation in your will, you can explain to your children why you chose the organization. Giving your children the full story of what the organization means to you and why you are leaving a significant bequest helps transfer those ideas better to your children. They may even be intrigued and explore adopting your charity as their own and giving to your desired charity during their lifetime. The best way to pass on your charitable passions is to fully explain in person the importance of the charity to you and why you strongly support their work.

3. Avoid Surprises - We all know in many cases perception is reality. Your children may have the perception you have more money in your estate than you do based on your lifestyle choices or your level of giving. Your children really don't know how much money is in your estate unless you tell them specifically. Also, if you have made a large bequest to charity, your children may inherit less than they think they will receive. This can cause problems if your children believe they will inherit a larger sum and make lifestyle decisions based upon that belief. For example, they might save less for retirement or less for their children's college education because they believe they will receive a larger inheritance. Or they may choose to live in a more expensive home if they think someday they will inherit a certain sum of money. By reading your will and making it known to them exactly what they can expect, they can plan their own finances accordingly.

This of course could also work in reverse. If you live a very frugal lifestyle, but have a large sum of money in an investment account or retirement account, then revealing how much the children will receive in their inheritance might actually cause them to save less. They may have had the perception they were not going to receive much and now learn much more could be received.

The best solution here is to go ahead and read your will to your children, but tell them they should plan to fund their own retirement and education expenses for their children. They should be told to not expect the inheritance to pay for anything, because we never really know what will happen. An extended sickness or economic recession could cause the inheritance they think they are going to receive to be much less.

4. Job Notification - Reading your will to your children informs them if you have named them to fulfill a role in your estate plan such as personal representative, trustee, power of attorney for healthcare or power of attorney for your finances. This is important because if gives your children the chance to ask questions on what is expected of them in these roles. Particularly in the role of healthcare power of attorney, you can give your children your verbal instruction and reasons behind any life sustaining treatments you want to refuse. This conversation can really give your children comfort and confidence when or if the time comes where they need to make these tough decisions. They will be able to think back and remember when you told them face to face what treatments you do or don't want.

5. Legacy Transfer - We all have a legacy we want to leave our children. We want to be remembered favorably, positively, and warmly. Your estate documents are very good at the technical details of passing your estate to your children, but they do not do a good job of passing on your legacy. To pass on a legacy you need to be face to face communicating your heart, your desires, and your passions to your children. They need to hear it straight from you, in your own words so they can hear the passion, warmth, a caring in your voice. Words on a page cannot do this. If you read your will to your children and explain to them lovingly, warmly, and passionately the detailed thoughts behind your decisions, they will see in person the legacy you want to leave.

Deciding how to leave your estate can be difficult, time consuming, and emotionally draining. You may have strained relationships with your children that make it even harder. Perhaps your children have made poor life choices and you're not sure how to leave your estate to them. We are here to help walk you through those questions to find solutions. Give us a call to schedule a time to discuss how we can help you update your estate documents. No strings, no cost. We're here to help.

 

August 4, 2018

5 Questions to Ask your Financial Advisor

By Jay Dunnuck

Here are five questions every Financial Advisor should be prepared to answer.

1. How do you get paid?

Let's just tackle the elephant in the room right away, shall we? Knowing how your financial advisor is compensated helps you better understand if the financial strategies recommended are in your best interest. Financial advisors are generally either compensated with a commission for the sale of a financial product, or a flat fee such as a 1% fee for the assets they manage for you. Many advisors who used to be paid by commission only have adopted a fee structure in recent years so they can be paid as a flat percentage fee for large amounts managed for clients. However, advisors who have always charged a flat percentage fee usually don't ever charge a commission.
If the advisor is primarily paid by commissions, they will have an incentive to sell you some type of financial product, such as an annuity, insurance policy, or mutual fund. They only get paid when a sale occurs. One strategy this type of advisor uses to gain an audience is to offer to do a financial plan for free. By doing a financial plan for free, the advisor has the opportunity to learn more about your finances and identify gaps in which they will offer to sell you a financial product to fill the gap. For example, they may identify that you are under insured and recommend adding life insurance. Or perhaps you mention your desire for income security, this will typically lead them to recommend you purchase an annuity.
If the advisor is paid by a flat percentage fee, they usually will not have licenses to sell products such as life insurance, annuities, or mutual funds. Instead they will offer to "manage" your entire investment portfolio and charge a percentage fee annually to do so. Their goal is to manage as many assets as possible which will lead to their fee being larger. They will proactively make adjustments in your portfolio by buying and selling investments on your behalf. If they make good investment decisions and your portfolio grows, then you both share in the success. Your portfolio balance grows and so does their fee, a win-win situation.

2. Do you use an active or passive investment style in choosing investments to recommend?

An active investment style claims if you work hard, do great investment research, and find undervalued investments you can essentially "beat the market" and earn a higher investment return than the market. Financial advisors will go to great lengths to seek to differentiate their active investment style, theorizing how they are able to find undervalued stocks.
A passive investment style claims you can't "beat the market". Financial media instantly broadcasts all known information about investments, so when a new piece of news is known about an investment, its price instantly adjusts. Advisors using a passive investment style will recommend the use of ETFs or exchange traded funds. They will also seek to be broadly diversified among all types of investments and only make a handful of investment changes in any given year.
Personally, I side on the passive investment style as I do not see evidence that any financial advisor or fund manager has been able to consistently "beat the market" year after year. They may have a few good years, that are inevitably followed by a year or two of underperformance.

3. May I see your Form ADV?

Financial advisors managing investments must either register with the SEC or your state's securities authority. The Form ADV has two parts. Part I discloses information about the financial advisor's business, ownership, clients, employees, business practices, affiliations, and any disciplinary action against the advisor or their employees.
Part 2 is designed for the consumer and requires the advisor to prepare information written in plain English to disclose the advisor's services offered, fee schedule, disciplinary action, conflicts of interest, and the education/experience of key managers in the firm. This form is a required document the advisors should give you at the point when they start giving financial advice. While the vast majority of financial advisors are ethical people, you should definitely read and understand both Part 1 and Part 2 of the advisor's ADV Form and ask clarifying questions on anything you do not understand.

4. What investments do you own in your personal portfolio?

I worked as a Financial Advisors for over 10 years. The firm where I worked encouraged us to own the same investments recommended to clients by the firm. The Chief Investment Officer used the phrase, "We need to be willing to eat our own cooking".
While a financial advisor has the right to keep their investment choices confidential, they should at a minimum do two things:
1. If they hold the same investments as they recommend, they should place any buy/sell trades in client accounts before they place them in their own account(s). This prevents the firms trading volume from pushing the price up or down and the financial advisor benefiting financially from placing trades in clients' accounts. This is also known as maintaining a "Fiduciary Standard of Care".
2. If they do not own the same investments as they recommend, they should at least provide a reason. Perhaps they are younger and want to take more risk in their portfolio since they have a much longer time horizon to retirement. Or perhaps they are very conservative and don't want the additional risk inherent in owning stocks.
The bottom line is, if your financial advisor is investing in ways substantially different than they are recommending to you, you should dig deeper.

5. What credentials/experience do you have?

Unfortunately the financial industry does not clearly define who can call themselves a "Financial Advisor" or who can hold themselves out to the public as a "Financial Planner". You should work with someone who has at least achieved a minimum accreditation such a certified fund specialist (CFS), or a chartered financial consultant (ChFC). One of the most challenging credentials for financial planners is the certified financial planner (CFP®) designation. This designation requires a minimum education requirement and passing a comprehensive exam in which many different financial planning concepts and their application are tested.
Other accreditations such as certified public accountant (CPA), or juris doctor (JD) are nice but are more specific to accounting and practicing law, respectively. Financial Advisors with various licenses such as Series 7, 24, 51, 63, 65, 66 and insurance licenses enable advisors to sell financial products, but do not testify to their ability to provide good financial planning advice.

In Summary, asking these initial questions can give you more confidence in engaging and beginning a good relationship with a qualified and competent Financial Planner.

July 21, 2018

Seven Estate Planning Documents Everyone Needs*

By Jay Dunnuck

 

1. Will

This is the main document for your estate. In your will you describe how you would like your estate to pass to the people you name as your heirs. You also name the people you want to serve in the following roles:

Personal Representative (also known as Executor and Executrix): This is who will carry out the decisions you make in your will and distribute your estate. Ideally the personal representative should live nearby, be detailed, patient and have organizational skills.

Guardian of Minor Children - If you have minor children, this is who you want to take care of them in the event of your passing.

In naming heirs in your will, most people will name their children to receive their estate in equal shares. If you do not have children, then you can name other family members or close friends to receive shares of your estate. The will is also where you would name any charities you wish to receive shares of your estate.

 

2. Durable Power of Attorney

This document grants power to another individual to make financial decisions for you if you become unable to make decisions for yourself while you are living. Once you pass away, then the will governs your financial matters (your estate). An example of this could be your involvement in a car accident in which you are in a coma for several weeks. The person you name as your Durable Power of Attorney would step in and pay your bills and make other financial decisions as needed. This person does not make any health care decisions - that is handled by the Health Care Power of Attorney.

For the role of Durable Power of Attorney, ideally you want to choose someone with financial knowledge and/or money management skills. This person should also be able to devote the time needed to this role. It can take a significant amount of time for someone to step into another's financial life and figure things out to make sure all bills are paid and financial matters are maintained.

You should also name a contingent and 2nd contingent Durable Power of Attorney. The person named as contingent takes over if the primary person you name is unable or unwilling to fulfill the role. The 2nd contingent person named is a "back-up to the back-up" or takes on the role if the 1st and 2nd person you name are not able to fulfill the role.

 

3. Health Care Power of Attorney

This document is similar to the Durable Power of Attorney, but instead names the person who you want to make health care decisions for you if you are unable to make them. Again, using the car accident example from above, this person would step in and make health care decisions including medical treatment plans.

For the role of Health Care Power of Attorney, you want to name someone who knows you very well and would be able to decide (to the best of their ability) what kind of medical treatments you would desire or decline.

As mentioned for the Durable Power of Attorney, it is a good idea to name a contingent and 2nd contingent Health Care Power of Attorney for the same reasons.

 

4. Advance Care Directive (Living Will)

This is the document where you spell out in detail what health care treatments you do or do not want to have. You can articulate how far you want doctors to go in seeking to extend your life. For example, you can state that you do not want any artificial means of life support such as a feeding tube or a ventilator. This document is meant to give the Durable Health Care Power of Attorney guidance and definitive proof that their decisions are in line with your wishes.
 

5. Letter of Intent (Memorandum)

This document is generally referenced in most wills. It gives you the chance to specifically state to whom you would like to give certain personal items. For example, you could state you want your daughter to have your grandmother's wedding ring, or you would like your collection of tools to go to your son. You can be as detailed as you wish and name as many things as you want with this document. It is meant to be attached to your will.
 

6. Beneficiary Change Forms

Any financial asset you have where you are asked to name a beneficiary is an asset that your will does not direct. Assets such as life insurance, annuities, and retirement plans such as 401k, 403b and IRA accounts will ask you to name a beneficiary. These assets pass to beneficiaries regardless of what your will states. For example, you could name your children to receive your estate, but indicate you want your IRA to go to a charity. The fact that you named your children to receive your estate will not change the fact that you named a charity to receive your IRA.

Because these types of assets are not governed by your will, it is very important that you are diligent in making sure your beneficiary designations are up to date and reflect your wishes. A great time to update all accounts where you must name a beneficiary is when you update your will so that you can coordinate everything.

 

7. Trust - Only in certain situations

A trust is a special document that establishes a separate entity for ownership of some or all of your assets. You remain in control of the assets and can use them for your needs, but the ownership is with the trust. Trusts can be setup for a variety of reasons to accomplish various goals. Most people don't need a trust, but still choose to do them to help their estate transfer more smoothly at their death. The main need for a trust is to avoid possible Federal Estate Taxes. Historically, this was a bigger issue for many people, but recent legislation has made it such that the majority of people do not have a concern about their estate needing to pay Federal Estate Tax.

Other reasons to use a trust would be for privacy or if you own real estate in another state. Seek additional counsel if you think you might have an interest in establishing a trust.

 

*Please note that Jay Dunnuck is not an attorney and any recommendations written in this post are for example use only. Please consult with an estate planning attorney for the documents needed for your unique situation.

July 7, 2018

5 Common Mistakes People Make When Planning Their Estate

By Jay Dunnuck

 

Please find below 5 of the most common mistakes I have witnessed in guiding individuals and families through planning their estate. This list is not exhaustive, but does represent the majority of common errors.

 

1. Failure to update beneficiary information

 

When new estate documents are signed or current documents are updated, the attorney should provide recommendations on how all beneficiary designations should be made. Assets with beneficiary designations include: IRAs, 401k, 403b, life insurance, and annuities. You must contact your provider to obtain a beneficiary update form. For example, if your life insurance policy is through One America, you need to contact One America to obtain their beneficiary change form to sign and return. In many cases this can be done online using your unique login and password credentials. The important point here is the attorney's office will not do this for you, it is your responsibility to complete this follow-up.

 

2. Failure to fund trusts

 

If your attorney recommends the establishment of a trust, then the trust must own assets in order to function as intended. I have seen many estates in which trust documents were drafted and signed, but ownership of assets was never transferred to the trust thereby, rendering the trust documents useless. Again, the attorney's office will not do this for you and you need to own the follow-up to make sure this gets done.

 

3. Not taking time to review draft documents

 

Attorneys and attorney assistants are human and do make errors. Most attorneys use their own "standard" document for drafting estate documents. The legal assistant adds or plugs in your information. The attorney then adds to or removes sections of their "standard" document for your unique situation. Mistakes are rare, but they are common enough that your careful reading and review of the draft documents is important. Ask questions about whatever language you do not understand. The documents need to be as accurate as possible when you sit down to sign them.

 

4. Not informing heirs of your estate plan

 

In many families, discussing money is taboo and unfortunately many children have no idea what their parent's estate documents say. Adult children may make decisions based on what they think the documents say, only to be surprised when they actually find out. If it is appropriate for the family relationships involved, it can be good to have a "family reading" of the estate documents. This gives everyone involved a chance to hear what is in your estate plan and ask questions. It is better to do this when you can explain your desires and intent rather than have the children/heirs guess what your intent was when you signed the documents. This is also a great way to explain any charitable bequests you are making, and why you are making them. This will help pass on your intended legacy to the next generation.

 

5. Failure to name people for contingent and 2nd contingent responsibilities.

 

The people you name in your estate documents to perform various duties also need to have "back-ups" and even a "back-up to the back-up". For example, if you name someone to take care of your minor children, also called a guardian, you would want to name a contingent guardian to take care of your children if the first person you name cannot. Likewise, it is good practice to name a 2nd contingent guardian as a "back-up to the back-up". Life situations never turn out as we think they might. You never know what might be going on in the life of the person you name that makes them think twice about performing the duty you have named them to perform. Having 2nd and 3rd people named provides assurance that someone you want will perform the job. Naming people for contingent and 2nd contingent responsibilities are needed for personal representative (or executor), guardian of minor children, trustee of a trust, durable power of attorney, and health care power of attorney.