Americancapitalplanning's Blog

It’s all in the family

American Capital Planning, LLC — Tue, 29 Jun 2010 14:59:58 +0000

It’s All in the Family
By Bonnie A. Hughes, CFP®
When planners work with families, a lot of storytelling goes on. The family tells their financial stories of how they got to this place in this time and planners will often share their own stories and anonymously, they may share the hard won experience from other client cases. Every family is different and most of us have a preference for the tone and tenor with which we like to share things inside a family. With that in mind, let’s explore some basic conversations that are helpful to have in every family.
It can be true that children learn what they live. So as parents, first take a look at your own money history. What did you learn about money that you may, for better or worse, be teaching your children? We can model what we want them to learn.
An early discussion about both parents’ contribution to the household seems appropriate to helping children understand that everyone is pitching in. If one spouse works inside the home, recognizing this person’s contribution is important. And for those working outside the home, that contribution should also be recognized. When financial strain hits a family, it can be instructive to talk about its impact and make it easier to support each other until things get better.
The families that I’ve seen are the most successful when transferring knowledge about financial stability and success are those that have enough conversations around money that a lot of the mystery around it is dissolved.
Even in a capitalist society we do not infuse our K-12 curriculum with financial education so if it doesn’t happen at home, it’s not likely to get covered. That can mean some very rough sledding ahead for those who do not have the benefit of a lifetime’s worth of conversations on all things financial.
Other conversations that may be helpful to have throughout childhood could include:
 What does ‘being wealthy’ means to you
 Choosing your own path vs. what neighbors and friends might choose
 when to get a first job
 what to expect from those early jobs
 when you work those early jobs, can the family match your earnings so you can contribute to a Roth IRA?
 What advanced schooling is appropriate for each individual child
 Where that schooling will take place (community college, state college, an elite private school)
 How to pay for that school (will the student work, can an employer pay, will the family be able to help, are loans or scholarships available)
 Once adulthood is reached, what is a good savings rate to insure financial security down the road?
 Emphasize ‘doing the math’ (it’s been surprising and disappointing how many financial decisions are made on hunches or rules of thumb vs. sitting down and crunching the numbers)
Once the concept is understood that money doesn’t know or care who owns it, but that our choices can affect the degree to which we obtain it, use it, share it, and enjoy it; we can move money in the direction of our own dreams. Taking away the taboo of talking about money increases our chances of gaining and keeping perspective around it.
So bottom line, keep talking!

Love is in the air – planning past the wedding

American Capital Planning, LLC — Tue, 29 Jun 2010 14:59:09 +0000

Love is in the Air – Planning Past the Wedding
Have you noticed the magazine covers this month? Not that one – Sports Illustrated notwithstanding, you are probably looking at several wedding covers on the magazines in your grocery checkout line. If you have young adults in your family, chances are you’ve experienced the wedding vortex on some level or may soon. If you are a young adult you may be planning for this or have friends who have been through it. Noting that this one day party leads (hopefully) to a lifelong marriage, we want to take a look at what young couples might discuss before the big day and how they may prepare for a mutually satisfying financial life together. If a wedding takes up to 16 months or so to plan, it seems reasonable that some of that time could be spent learning more about the financial habits of the person you intend to spend the rest of your days with. It is interesting to me that almost every media mention of a wedding includes the strong recommendation to hire a wedding planner but you rarely see it mentioned that the couple should hire a financial planner first. Let’s take a look at just some of the things that might be revealed by working with a financial planner as you set up your lives together.
I am working with a young woman now who was already a client and now that she is getting married, she is asking great questions about her future financial life with her fiancé. My client inherited some money at a relatively young age and she is wise to seek counsel regarding how her financial life as part of a couple will be different. Our last quarterly meeting included the announcement of her engagement to me, her planner, and her fiancé will be in our next quarterly meeting as they develop their plans.
Everyone has a financial personality. There are varying degrees of course, but bottom line; people are either a spender or saver to some degree. And everyone has a money history. That money history often informs how someone deals with money today. If we declare neutral ground (the planner’s office), and lay some ground rules; there are no wrong answers, only discovery, our purpose is to learn about each other and share each person’s history and needs and wants.
Money History:
1) When you were growing up, did you believe your family had enough money, not enough money, lots of money, or it never came up?
2) When you grew older, was what you believed about the money in your family true?
3) Was money discussed in your family? How, how often, in what context?
4) Were you given any instruction around money as a child? (Save for a rainy day, tithe, work odd jobs for pay or ‘don’t worry your pretty little head about that, Daddy’s got it covered’)
5) Did you receive allowance as a child?
6) Did you perceive your parents were similar in their money habits or different?
7) Did you identify with one parent over another in the way they handled their money?
Financial Personality:
1) Do you think of yourself as a spender or a saver?
2) Do you have a checking account and if so, do you balance it monthly?
3) Do you pay for most things with cash, credit card, debit card, or a check?
4) How many credit cards do you have and how many do you use?
5) Do you carry a balance on any of them?
6) Have you ever maxed out your credit cards or made late payments?
7) Do you know your credit score? If so, what is it?
8) Do you research major purchases?
9) Do you track your expenses?
10) Do you make many impulse purchases?
11) What are the terms (rate, term, payment, total amount owed) of the debts you have?
12) Do you understand each line of your paystub?
13) Do you have health, disability, and life insurance?
14) Do you have any outstanding debt collection issues (taxes, liens, past due accounts)?
15) Do you own any investments?
16) Are you working with a financial planner?
Going forward, together?
1) Would you be willing to work with a financial planner to let them to establish a relationship, collect all our data, work with us to develop our mutual goals, develop recommendations for us, implement those recommendations on our behalf, and then help us monitor our plan going forward?
2) Is either of us planning additional schooling?
3) What is our approximate timeline for starting a family if that is in our plans?
4) What are our mutual goals (owning a home, starting a business, travel)?
5) What constraints are we facing (one of us may have to re-locate; one of us may have to assist an elderly relative)?
6) Is either of us expected to inherit money? This can be a source of sharing resources but the couple will want to explore legal options for keeping the inheritance separate from shared monies.
Exploring these conversations with the person you care most about can enrich your futures in ways that will allow each of you to enjoy your mutual and shared resources throughout your lives together. When you think about hiring the wedding planner, make sure you make an appointment with your financial planner first. Then you can get out there in the world together and go in the direction of your dreams.

Risk it now

American Capital Planning, LLC — Tue, 29 Jun 2010 14:58:03 +0000

It’s 2010 And Later Than We Think – Risking it Now
Everybody gets to decide for themselves what goals they pursue, how they spend their resources (time, money), and they get to choose the life they want to live. Recently, there’s been a well known sports figure who for reasons known to him, was perhaps not living the life he apparently wants. It can be terrifying to do the hard work of figuring out the life you want, choosing it and then supporting it through your resources (time, money). And what if your life is really about porn stars and clubs and not spending time with the family in the family home? How hard is it to stay inside boundaries that don’t fit us? Everyone reveals themselves eventually – whether they mean to or not.
There is an old tug of war – what we think we’re supposed to do with our resources and what actually reflects us. Who’s to say which is ‘right’? So a person might give up money from one set of sponsors – and replace it with money from another – there’s money in porn and clubs too. Choosing the life you want can be risky on many levels.
Most of us when we look in deep won’t face the bright lights over our decisions. But if we really reflect, decide, and then act, we might be rocking a boat that makes everybody around us really nervous. It’s the kind of radical act that can send friends fleeing, loved ones questioning our sanity, and colleagues deriding our stability. Sometimes the price of living inside boundaries that don’t fit can be that time will pass, facades will cement, and we might get lost. The rewards for taking the risk though, include being at peace with the connection of your resources to who you are. For some it may not be pretty, but for most it will be freeing; allowing passion to blossom. They are likely to inspire others to inch closer to their own dreams.
It also calls our bluff. So, it’s 2010 and are you satisfied you are in the life you were meant to live? If the biggest downside risk is that someone else might not approve, you’ll need to weigh that against you knowing you are in the wrong life and agreeing to stay there for the comfort of others.
The connection between how we spend our time and how we use our money to support that has never been unimportant. Here we are at the cusp of another new year. How will you spend this one? How will you spend the rest of your summers, your springs, your autumns, and your winters? With whom? Where? Time is short, it’s always later than we think and I invite you to discover for yourself the life you were meant to live. Risk it now.

ACP talks with Olivia Mellan

American Capital Planning, LLC — Fri, 20 Nov 2009 17:40:18 +0000

ACP talks with Kim Hamilton of InKnowVision

American Capital Planning, LLC — Fri, 20 Nov 2009 17:08:09 +0000

ACP talks with Courtney Pullen of Pullen Consulting Group

American Capital Planning, LLC — Fri, 20 Nov 2009 17:02:48 +0000

Prepare now for moves on estate tax

American Capital Planning, LLC — Fri, 20 Nov 2009 16:36:45 +0000

Prepare Now for Moves on the Estate Tax
The nonstop discussion this year of health care reform and the economy crowded out discussion on the estate tax, which was scheduled to expire December 31. But as of this writing it appears that the estate tax will be continued at 2009 levels through 2010, which means that the 2010 top rate will likely be 45 percent and the exemption will be $3.5 million per person.

For now, the Republican dream of killing the estate tax seems to be dead, at least through 2012 as federal spending continues to expand. That means it’s a good time to talk to tax and financial experts about the best ways to pass your holdings to the next generation no matter what happens with the future of the “death tax.”

If you suspect your estate or the estate of relatives you might inherit from may fall prey to the estate tax, it makes sense right now to enlist the help of experts. Assets may be expected to grow over time, and your estate may turn out to be larger than you may think. You should be talking to estate and tax specialists as well as financial advisors such as CERTIFIED FINANCIAL PLANNER™ professionals.

Here are some things to keep in mind as you prepare for those conversations:

Give during your lifetime: You can now give $13,000 per calendar year per recipient without paying gift tax or affecting your 1 million dollar lifetime exemption. You can also pay someone’s tuition or medical bills directly, or give to a charity, without paying gift tax on the amount, thereby reducing the size of your estate and your eventual estate tax bill after you die.

Check whether your state charges an estate tax: Roughly half of all states charge estate tax, and that’s a recent thing. States previously received a slice of the federal estate tax, which no longer happens, so it’s important to consider the state’s impact when making an estate plan.

Think about a life insurance trust: Whether you need it for estate liquidity or for other purposes, an irrevocable life insurance trust can be created to keep the proceeds of the insurance out of your taxable estate. An added benefit is that such trusts may permit spousal access to the cash value of the policy. Yet note the word “irrevocable” – it means a decision that cannot be changed.

Know if your assets are expected to increase: A grantor-retained annuity trust, or GRAT, is an irrevocable trust that is popular among families with assets that are expected to increase, because such appreciation can be passed on to heirs with minimal tax consequences.

November 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bonnie A. Hughes, CFP® , a local member of FPA.

Kiddie Condos

American Capital Planning, LLC — Fri, 20 Nov 2009 16:35:03 +0000

While Real Estate is Struggling, Now’s a Good Time to Consider That Kiddie Condo

For parents with investment dollars to spare in deflated college-area real estate markets, there’s never been a better time to invest in condos or single-family homes to house a student during their undergraduate or graduate years while providing tax breaks and potential investment appreciation for the folks.

But, it’s very important to consider pros and cons because the potential rewards of buying housing for a student carries many risks. Over the past decade, the once-galloping real estate market made condo and home purchases in college areas attractive to parents looking for an actual return on the room and board expenses they would otherwise throw away to their kids’ schools. With the double-digit home appreciation of the 1990s, parents looked at buying property as a way to essentially house their kids for free.

Today, in most markets, home values have fallen, which makes for a better investment proposition. But it’s critical to talk to tax and financial experts such as a CERTIFIED FINANCIAL PLANNER™ professional. As a starting point, parents need to consider the following:

How responsible is your kid?
If your kid thinks you’re buying them a crash pad or party palace, you’re already in trouble. He or she will have to be responsible enough to act as an onsite landlord making sure the interior and exterior of the property stay in livable and salable condition. That’s not a job that every child can handle, so unless you can afford housekeeping and maintenance help, any doubts on your part should dissuade you from such a purchase. Also, if you have ANY suspicions that your child might drop out, take a break or transfer from her chosen school, do you want to risk becoming a landlord yourself or paying for an empty property?

How’s your cash flow?
If you are already a homeowner, you know what owning a home costs – mortgage payments, property taxes, insurance, homeowners or condo association dues, maintenance costs – can you cover these things in a remote residence (including emergencies) without batting an eye? And keep in mind those costs are going to be considerably higher for your kid’s property in downtown Chicago than they would be in Omaha. Also, keep in mind that it will cost considerably more to insure this property because even though it’s your kid, you’ll essentially need to be insured as a landlord based on the damage that can occur in rental properties.

When would you have to sell?
Most people think in terms of owning a kiddie condo for four years – the term of a standard degree. A decade ago, that was a relatively easy commitment to make as housing prices were skyrocketing and buyers always seemed to be circling. Today, however, owners have to consider that it may take them considerably longer to sell the property at a profit with necessary investments in maintenance along the way, and a big 5 to 6 percent slice off the top to pay a selling broker.

Location, location, location:
Buying a property in the immediate vicinity of campus might be great for your kid who rolls out of bed late for class, but bad for you if you’re expecting your property to appreciate. In most markets, on-campus real estate is notoriously low on appreciation (think how you’d feel buying next door to Animal House). This is why investors do better buying in established, off-campus residential areas or developments that are near but not on campus. Your child will have to miss the experience of living with their peers, though, and that’s a big consideration.

Can the property do double duty?
Students are pretty possessive about their space and privacy in college, which is why you don’t see many parents crashing in their kids’ dorm rooms for the weekend. But if you have regular business or vacation plans in the city where your kid goes to school, see if that might be one more incentive to invest as long as it doesn’t cramp your style or your kid’s.

Might your investment become your kid’s investment?
Again, this requires sensible planning and the full cooperation of a responsible child, but if your child is planning to stay in the city where they’ve graduated, parents might consider a plan to sell the property to their kids at graduation. This could give the grad a great start on their finances during their first earning years.

Sudden Money talks to American Capital Planning

American Capital Planning, LLC — Thu, 01 Oct 2009 21:37:21 +0000

Sudden Money Talks to American

Capital Planning

Inheriting Good Fortune!

American Capital Planning, LLC — Tue, 15 Sep 2009 14:48:21 +0000

“Never say you know a man until you have divided an inheritance with him.”

Johann Kaspar Lavater (1741-1801) Swiss theologian and poet.

Sept. 17^th, 2005

“For his 21st birthday, Britain’s Prince Harry received a £2.5 million inheritance — about $4.5 million — from his late great-grandmother, the Queen Mother.”

Sept. 9^th, 2009

“Prince Harry set to inherit millions from Diana’s estate

Changes agreed to the will in December 1997 meant that, upon reaching 25, William and Harry would be entitled to the whole of the income of their share.

Before the age of 25, income could be paid at the trustees’ discretion.

The trustees can pay over capital at any time, but when the princes turn 30, they can ask for their share of the capital in full.

The princess’s estate was made up of stocks and shares, jewellery, her multi-million pound divorce settlement, dresses and personal items from Kensington Palace.”

The last few years have been financially rewarding for Prince Harry. Most 25 year olds that are in the headlines aren’t there because of the money they’re coming into. Without knowing all the particulars of Harry’s inheritance, we know the folks who prepared his mum’s and his great grandmother’s estate papers had the foresight to put in place holds and restrictions on both the income and principal the prince ultimately receives.

This shows their understanding of youth and it’s limited perspective. Prince Harry is also expected to work, which he does in the army. There are many ways to lose an inheritance of course. You could have relatives who decide to give it all to charity, you could lose it to the government through taxes and poor planning, you could lose it through changing family dynamics like divorce. If you have inherited money and are married or expect to be, talk with your estate planning attorney about how to protect that by not co-mingling those funds or through whatever tool they believe works best in your state.

There are relatively simple ways to insure that a planned inheritance makes its way to the intended person. First is to have your estate documents in order which includes a will for the state you reside in and addresses any property you own outside that state. Second is to have named beneficiaries on all your accounts. Third is to make sure these are up to date.

The sometimes larger problem of distribution of an inheritance is where things can get sticky. There are a few deadlines after a death which can be a time of extreme stress for survivors who are not usually tied in to the necessity of the few decisions that must be made regarding certain accounts. Annuities are paid to survivors in one of three methods, but the method must be decided within a specified time frame by the survivor. Failure to make this decision can result in the annuity sum coming out more quickly and taxed more heavily than the deceased would have planned. IRAs need to be planned out in advance if they are to be “stretched” – meaning distributed over the longer life span of the beneficiary.

Of course, you can always lose an inheritance by acting out as someone very different than the person with money believes you are (check recent celebrity stories where lifestyle choices meant losing millions).

Working with your advisor, make sure your paperwork is in order. If an inheritance is in your future, let your advisor know about it and try to have discussions around the expectations that come with it from the person sending it your way. It can be a huge leg up to receive unearned money if that gift is understood and utilized within the context of your life goals.