Estate Plan: Making the Mistake of not Writing a Will

 I’m sure you’ve all heard the scary statistic on the number of people who don’t even have a simple will in place, but every time that fact enters my eardrums and hits my brain, I literally squirm in my chair. The  AARP reports that 41 percent of baby boomers and 71 percent of millenials don’t have wills. A simple estate plan that includes wills, durable power of attorney forms, and letters of instructions will typically cost less than $1,000 from a qualified attorney.  I get that it’s “just one of those things” that gets swept aside each year but, to be blunt, it’s simply foolish to not have these documents in place.  By not having these important forms drafted and on file, you are potentially creating an absolute nightmare situation for your family that includes extensive time, energy, stress and cost that could easily be avoided. 

Do I need a Trust?

I recently attended the Raymond James Trust School, an all-day educational seminar dedicated to the exciting world of estate planning!  While it may not be my personal favorite area of financial planning, it is crucial and essential to maintaining a well-rounded, solid financial plan.  Trusts may or may not be necessary in your personal estate plan, but a trust is a great tool to give you more control over assets and to avoid probate.  Clients are often confused as to what a trust actually is or what it truly accomplishes.  For more information, here’s a link to a brief whitepaper on some reasons why a trust may be appropriate for you.

When to review Beneficiaries

Another area that clients often forget about is keeping up with the beneficiaries on their accounts or life insurance policies.  We’ve had clients discover that ex-spouses are still listed on insurance policies and deceased family members are listed as primary beneficiaries on million dollar retirement accounts.  It is something we proactively check to make sure the correct individuals are selected when we initially set-up an account. However, there is a responsibility that falls on the client to keep us informed of life-changing events that would warrant a beneficiary change.  This is why we work together as a team with our clients to do everything we can to avoid such monumental mistakes. 

Designating Charities

One final thought that I found especially interesting were the numbers surrounding charitable giving.  Over $325 BILLION was given to charity last year – 72% of those funds were given by individuals.  This fact made me smile.  Although times are still tough for many, Americans are among the most generous in giving to those in need.  Charitable planning and giving is something very important to many clients and is something we help clients with often.  Please don’t hesitate to bring this topic up with us if you ever have questions or want to talk more about efficient ways to give your favorite charities. 

Nick Defenthaler, CFP® is a Associate Financial Planner at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. You should discuss any legal matters with the appropriate professional. C14-013998

We’re Moving to a New Office July 1st!

 If you have not already heard, the Center is moving closer to you! While our address will look significantly different, we are actually only moving two buildings to the east. You will still use the same entrance off of Telegraph Road that you currently do to get to us. Front of the office park, here we come! We’ll be closer to Telegraph Road so, indeed, closer to everyone!

Moving day is scheduled for July 1st.

Our new address will be 24800 Denso Drive, Suite 300 Southfield, MI 48033

We are really excited and proud of our new office and can’t wait for you to see it for yourself. Melissa Joy, CFP® and Laurie Renchik, CFP®, MBA have taken the lead the last few months on the design of our new space, making sure that it is perfect for both our clients and our team members. We will be increasing our square footage to better serve you, our clients, as well as to provide a productive new environment for our team members. Our new home will have a modern and rejuvenating atmosphere that radiates our Center personality. The conference rooms will be more spacious and include updated furniture, new technologies, and a great third floor view with floor to ceiling windows, giving it loads of natural light. Further into the office, you will find our new Center Café which further promotes our dedication to being a healthy workplace. We envision our team members putting the new break room to good use, both for eating lunch and having quick internal meetings at the large high-top tables or the more private booths. The new office also includes a private quiet area, where our team-members can rejuvenate, read, or brainstorm, providing support for creativity and relaxation. With all our added space, we have more room to hold client meetings as well as future client events. Plan on seeing it for yourself at one of our Open Houses in the coming months.

Other than you needing to remember where we are the next time you come for a visit, our move shouldn’t even be a blip on your service radar. We will be reachable by the office telephone number throughout the moving process. While the movers do the heavy lifting, we will be doing what we do best, serving the needs of our clients without missing a beat. Anyone who has been through a move knows that there is a certain amount of organized chaos, but we are working hard to make the transition absolutely seamless for you. You can keep up with our move progress on our Center Facebook page and Center Website where we’ll be posting the latest updates, announcements, and photos of the new office renovation. See you soon on Denso Drive!

Elder Care Planning: Dementia Rates and What They Mean to You

 Getting out of bed, getting dressed, feeding, and bathing … they are all simple acts that can become daunting, even impossible for millions of Americans struggling with Alzheimer’s disease and other dementias. As the population of those 65 and older continues to expand, so do the dementia rates.

According to the Alzheimer’s Association’s 2014 report, by 2050 half of the population 65 and older could have Alzheimer’s disease. The current statistics aren’t quite so startling, but they do shed light on the scope of the issue:

  • One in nine people age 65 and older (11%) has Alzheimer’s disease
  • About one-third of people 85 and older (32%) have Alzheimer’s disease
  • Alzheimer’s disease is officially listed as the sixth-leading cause of death in the United States

Alzheimer’s disease takes a heavy toll on women in two significant ways. First, almost two-thirds of Alzheimer’s cases in the country are women. The report attributes this to women living longer, on average, than men, and older age being the greatest risk factor for Alzheimer’s. Also, the burden of caring for someone with Alzheimer’s disease often falls on women. These unpaid caregivers are often immediate family members, but can be relatives or friends.

In 2013, these individuals provided an estimated 17.7 billion hours of informal (that is, unpaid) care, a contribution to the nation valued at over $220.2 billion. This is approximately half of the net value of Wal-Mart sales in 2012 ($443.9 billion) and nearly eight times the total revenue of McDonald’s in 2012 ($27.6 billion).” -Alzheimer’s Association 2014 report

Given the statistics, doesn’t it make sense to plan ahead for the possibility that your family might be affected?  The time is now to make sure that you have all of the important pieces of a plan in place:

  1. Make sure that there is a plan for financing future long term care costs
  2. Make sure all appropriate legal documents are in place
  3. Make sure that your family has discussed and intentionally planned for the kind of care and living arrangements that are preferred
  4. Make sure that you know and understand the resources that might be available

If your family doesn’t have those 4 bases covered, contact your financial planner to schedule a family meeting to discuss these and other important issues. 

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. C14-013764

Matthew Trujillo earns CFP®

 

He’s put in a lot of hard work and we are now excited to announce Associate Financial Planner Matt Trujillo’s diligence has paid off. Matt passed his certification exam and has earned the designation of a Certified Financial Planner®. According to the CFP® Board, the designation is for individuals who meet rigorous professional standards and agree to adhere to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. We have no doubt he will do all that and more!

In typical Matt fashion, he put all the hard work into perspective.

Two years of classes, 3 months of intense study, a 2 day/10 hour exam, and all I get is three letters on my business card? Seriously, I’m very happy and excited to join the ranks of those that proudly carry the marks and call themselves Certified Financial Planners®.”

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Sandy Adams attends Sudden Money Workshop

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Each Center client is unique, but some face similar life transitions. Dealing with the loss of a spouse, major health challenges, job changes, wealth transfers or sudden money windfalls … all can put you in the position of making important decisions about your financial plan. To help our clients through these transitions, some of our team members are going through a special training course called Sudden Money(R).

Center partner Sandy Adams, CFP(R) recently made a whirlwind trip to Miami to attend the Sudden Money(R) Institute's mid-year coaching workshop. She joined more than a dozen financial planners and founder Susan Bradley, CFP(R). "I have worked with several clients that have experienced unexpected transitions in their lives -- like the death of a spouse or a major illness.  This training is invaluable in assisting clients during these times of transition because it is providing me with tools and strategies to help them navigate the obstacles they face."

The workshop was a first step in the two-year quest to become a Certified Financial Transitionist(TM).  Sandy joins Center partner Melissa Joy in pursuit of this designation. Continuous education and personal growth are core Center values and these educational opportunities not only help us deepen our skills, but further assist our clients.

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What should I do with bonds if interest rates go up?

 Lately the bond markets have been making headlines.  It’s no secret that we, as a country, are in a historically low interest rate environment and, as a result, a lot of so-called “experts” are talking about rising interest rates in the near future.  These experts usually go on to state that if interest rates begin to rise and you have bonds you could face substantial losses.  Unfortunately, like many things in finance, this type of blanket statement is misleading because not all bonds are created equal! 

Traditional Bonds

First, let’s dissect their argument to understand why an investor might lose money in a rising interest rate environment. Bonds are typically issued by a government, a municipality, or a corporation.  These entities need money for a variety of purposes and one way they can get that money is by taking a loan from investors.   In exchange for an investor loaning that money to these entities, there is a promise to pay back the original loan amount (principal) as well as an interest rate paid on that principal over the life of the loan.  The challenge and the risk to current bond investors is that if interest rates begin to rise, the traditional bonds they hold might not look as attractive to new potential investors.  If you think about it, why would I, as a new potential investor, want your bond paying an interest rate of 3.5% when I can buy a new bond from the same company (or government/municipality) paying 4.5% today?  Assuming all else is equal except the rate of interest, then I think the answer is pretty clear. It would be silly for me to purchase a bond paying 1% less. 

So how does the bond holder with the unwanted 3.5% bond get rid of it?  The answer is he has to sell it at a reduced price.  This reduction in price is the big risk that experts keep referring to.  It’s important for investors to remember that if you hold individual bonds you will get your principal back at maturity as long as the company stays in business and doesn’t default.  Regardless of what your statement says the bond is worth at any given time, that value or number only applies if you choose to liquidate the bond at that exact point in time.  

Hopefully, this very simplistic example helps you understand the inherent risks involved with more “traditional” bonds and a rising interest rate environment.  As I said, not all bonds are created equal, and some types will probably benefit from a rising interest rate environment. 

Floating Rate Bonds

It’s probably clear by now that the biggest issue, in a rising interest rate environment, is the fixed rate of interest that “traditional” bonds pay.  If rates started to rise, and the interest rate on your bond rose along with it, then you probably wouldn’t have to discount your bond much, if at all. 

So are there bonds out there that can rise as overall market rates rise?  Yes! They are called floating rate bonds.  A floating rate bond typically “resets” its interest rate annually, although some will reset more frequently.   Because of this “reset” floating rate bonds can be a very attractive investment option when overall interest rates are projected to rise in the near term.  Please keep in mind that floating rate bonds aren’t without risk of loss…the point is just that they typically maintain their secondary market value even when interest rates rise.

Now that you have read this, the next time you see the headlines that claim bonds are bad and to avoid them like the plague, you should have a good sense of what type of bonds they are referring to.  Also, know that it is still possible to make money in bonds in a rising interest rate environment!  Floating rate bonds may or may not be suitable for your portfolio.  In order to make that determination you would need to perform a total portfolio analysis in coordination with your financial professional.

Matthew Trujillo, CFP®, is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

As with any fixed income investment, there is a risk that the issuer of a floating rate investment will be unable to meet its payment obligations. In addition to the risk, floating rate bonds also face the following risks:

Reference rate risk: While the market value of a floating rate bond under normal circumstances is relatively insensitive to changes in interest rates, the income received is, of course, highly dependent upon the level of the reference rate over the life of the investment. Total return may be less than anticipated if future interest rate or reference rate expectations are not met. It is also important to note that since short-term rates are usually lower than long-term rates, the initial coupon of a floating rate bond is typically lower than that of a fixed-rate bond of the same maturity.

Call risk: A floating rate bond may be issued as either non-callable or callable. If a callable floating rate bond is called by the issuer prior to maturity, the investor may be unable to reinvest funds in another floating rate bond with comparable terms. If the floating rate bond is not called, the investor should be prepared to hold it until maturity.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning Inc. and not necessarily those of RJFS or Raymond James. C14-013999

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A Timely Reminder About 529 College Savings Plans

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With school now out for most universities, who would want to talk about college planning?  But I couldn’t pass up 5/29 without discussing 529 plans!  All corny jokes aside, a 529 college savings plan is a fantastic vehicle to utilize for higher educational costs and something that all parents that plan on sending kids to school should at least consider.   

A 529 is a state sponsored educational savings account where the money in the account grows tax-deferred.  One of the major benefits of the account is that the funds are not taxed upon withdrawal (even growth), as long as they are used for qualified educational expenses (tuition, room & board, books, etc.)  A 10% penalty and ordinary income taxes would apply to any earnings portion of non-qualified distributions.  Many states (including Michigan) also offer a state tax deduction on contributions, up to a certain limit, which is an added bonus for the owner of the account.    

To maximize the benefits of a 529 plan, young parents can establish the account early for their children to allow for many years of potential growth. Typically, as the child approaches the first year of college, the plan becomes more conservative.  If other family members would like to assist with college expenses, they too can open an account for the child.  The child is the beneficiary of the account and the account owner or “custodian” is the person in charge of the account.  Unlike an UGMA or UTMA (which used to be a very popular savings account for school), the child does not automatically have access to the account at age 18 or 21. The custodian has complete control.  The beneficiary can also be changed on the account at any time, but typically this occurs if the child gets a scholarship or decides to not attend college.  This provides flexibility so the money can still be utilized for educational expenses for another child or family member.

As with any financial planning decision, a 529 may or may not make sense for your personal situation.  However, it is a great tool and resource to consider when taking on the challenge of saving for college.  If you ever have any questions about college planning or would like to dig a little deeper, don’t hesitate to contact us. That’s why we’re here!

Nick Defenthaler, CFP® is a Associate Financial Planner at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement. The official statement is available through your financial advisor, and should be ready carefully before investing. Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of any investment in a 529 plan before investing. C14-015839

Should anyone under 40 be counting on Social Security?

 Younger professionals often ask, “Should I even bother including social security benefits in my retirement plan projections?”  Unfortunately, it’s hard to give a direct answer.  There is certainly a valid reason for concern and a strong argument to be made for not including social security retirement income in your overall plan if you are under the age of 40.  Let’s dig deeper into social security to look for some possibilities about the future of the program itself.

According to the Simpson Bowles bi-partisan report of 2010, when social security was first enacted back in 1935, the average life expectancy was 64 and the earliest you could collect benefits was 65.  If most people die before they are eligible to collect benefits, then the program is fairly easy to maintain. In today’s America, people are living longer (average life expectancy of 78) and they are eligible to collect benefits at 62 (three years earlier).   Not to mention that in 1950 there were 16 people working for every 1 person collecting whereas today the ratio is 3 people working for every 1 person collecting benefits.  Is it any wonder the social security trust fund is projected to be fully depleted by 2037? 

The Simpson-Bowles report further goes on to explain that unless changes are made soon, by the year 2037 there will only be enough revenue coming in to pay approximately 75% of the benefits owed.  That could mean either everyone gets their benefits reduced or some people don’t get any benefits at all. 

The Simpson-Bowles Report offered solutions that could impact the sustainability of the program:

  1. Increase the Full Retirement Age from 67 to 68 for those born after 1970, age 69 for those born after 1980, and age 70 for those born after 1990.  Also, increase the early eligibility age along with the full retirement age so that those born after 1970 would have a full retirement age of 69 and the earliest they could collect benefits would be 63.  This approach seems like a very reasonable way to address the increasing life expectancy of Americans. As a young professional I’m certainly not thrilled about the idea of having to wait longer to collect benefits, but I would much rather have to wait than to receive no benefits at all.
  2. Get rid of the wage cap on the social security payroll tax. Currently the social security wage tax is 6.2% on earnings up to $117,000.  Lowering the payroll tax to 4% and lifting the cap would theoretically bring in more revenue because you are taxing a lot more dollars at a lower rate.  This approach may be more politically palatable than just simply lifting the cap and keeping the tax rate the same.

  3. Use the chained CPI approach for cost of living adjustments rather than the standard CPI approach that is now in use. For further discussion on this subject please see the following link:  http://www.advisorperspectives.com/dshort/commentaries/Chained-CPI-Overview.php

Certainly there are other ways to fix the system, and hopefully lawmakers can all agree that it’s a useful program and it is worth fixing. So what’s my answer when a young professional comes to me and says, “Matt, should I or should I not include social security retirement benefits in my retirement projections?” I say that there seem to be strong indications that the program will probably be there in some fashion. It’s unlikely that you will be able to collect a full retirement benefit at age 67, and it’s also unlikely that you will be able to collect at age 62.  To be cautious, it may make sense to plan on collecting a reduced benefit at age 70.  If the program is healthy and you are able to collect sooner, then your plan will work out even better.

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-010819

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