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Which Financial Documents Should You Keep On File?

March 27, 2017
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… and for how long?

 You might be surprised how many people have financial documents scattered all over the house – on the kitchen table, underneath old newspapers, in the hall closet, in the basement. If this describes your financial “filing system,” you may have a tough time keeping tabs on your financial life.

Organization will help you, your advisors … and even your heirs. If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your heirs. When you pass, they will be contending with emotions and won’t want to search through your house for this or that piece of paper.

One large file cabinet may suffice. You might prefer a few storage boxes, or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:

  • Investment statements. Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forego filing the quarterlies or monthlies.. In addition, you will want to retain any record of your original investment in a fund or a stock. (This will help you determine capital gains or losses. Your annual statement will show you the dividend or capital gains distribution.)
  • Bank statements. If you have any fear of being audited, keep the last three years’ worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts) it may be wise to keep more than three years of statements on file.
  • Credit card statements. These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.
  • Mortgage documents, mortgage statements and HELOC statements. As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus ten years (though your county recorder’s office likely has copies).
  • Your annual Social Security benefits statement. Keep the most recent one, as it shows your earnings record from the day you started working. Please note, however: if you see an error, you will want to have your W-2 or tax return for the particular year on hand to help Social Security correct it.
  • Federal and state tax returns. The IRS wants you to hang onto your returns until the period of limitations runs out – that is, the time frame in which you can claim a credit or refund. Keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange or liquidate it).
  • Payroll statements. What if you own a business or are self-employed? Retain your payroll statements for seven years or longer.
  • Employee benefits statements. Does your company issue these to you annually or quarterly? Keep at least the most recent year-end statement on file.
  • Insurances. Life, disability, health, auto, home … you want the policies on file, and you want policy information on hand for the life of the policy plus three years.
  • Medical records and health insurance. The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.
  • Warranties. You only need them until they expire. When they expire, toss them.
  • Utility bills. Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s, then get rid of last month’s bill.

If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file just in case your hard drive and/or your flash drive go awry.  All of this to say, organization is key in keeping financial documents on file.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

10 Financial Resolutions and Tax Changes to Consider for 2017

March 20, 2017
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The year 2017 promises to be a time of change. Based on Trump’s campaign promises and recent actions, we can expect substantial tax reform and a significant rollback of Obamacare in the first half of the year. We will address those changes as they come. In the meantime, here are 10 of the most critical current tax rules and changes for 2017 that affect every high-net-worth taxpayer.

1. Income taxes
For 2017, income tax brackets have widened slightly due to inflation, but tax rates haven’t changed.

The standard deduction did increase slightly:

  • Married couples get $12,700, plus $1,250 for each spouse if age 65 and up.
  • Singles get $6,350, and $7,900 (not surviving spouse) if age 65 and up.
  • Heads of household get $9,350, plus $1,550 once they attain age 65.

Personal exemptions stay the same at $4,050 for taxpayers and dependents

2. Dividend and capital gains tax rates were adjusted for inflation
Dividend and capital gains rates remain the same other than being adjusted for inflation.

Investors who are in the 39.6% income tax bracket will pay a 20% tax rate for qualified dividends and long-term capital gains. The 20% top rate on dividends and long-term gains stays the same, but begins at higher amounts for:

  • Singles with taxable income above $418,400
  • Heads of household with taxable income above $444,550
  • Joint filers with taxable income above $470,700

Investors who fall between the 25% to 39.6% tax brackets will pay a 15% tax rate on qualified dividends and long-term gains. Investors in the 10% and 15% tax bracket will pay 0% tax on dividends and long-term capital gains.  Non-qualified dividends and ordinary income from taxable bonds will be taxed at an investor’s ordinary income tax rate.

3. IRA contributions always make sense when allowed
Contributions remain the same for 2017. For both traditional and Roth IRAs, investors can contribute $5,500 if they are under age 50, with a limit of $6,500 if they are over age 50. Note that the deadline to make an IRA contribution is April 18, 2017 for tax year 2016.

There are income limits for being able to deduct traditional IRA contributions, and these income limits have increased for 2017 as follows:

  • Singles and heads of household who contribute to a workplace retirement plan can claim a fully deductible contribution if their income falls below $62,000.
  • For married couples filing jointly, a spouse who contributes to a workplace retirement plan can claim a full deduction if their income falls below $99,000. From there, the deduction phases out between $99,000 to $119,000. If you can’t make a deductible IRA contribution, consider a nondeductible contribution.

Income limits pertaining to Roth IRA contributions have increased as follows:

  • Single filers earning less than $118,000 can make a full Roth IRA contribution, but contributions are eliminated for filers earning more than $133,000.
  • Married couples filing jointly can make a full contribution to a Roth IRA if their combined income is less than $186,000. However, they are ineligible to contribute if their income exceeds $196,000.

4. Maximize 401(k) contributions whenever possible
Contribution limits for 401(k), 403(b), and 457 plans remain unchanged for 2017. If an investor is under age 50, there’s an $18,000 contribution limit, with an additional $6,000 catch-up contribution limit if the investor is over age 50. The cap on SIMPLE plans remains at $12,500, and $15,500 for individuals age 50 and above. The base pay-in limit for defined contribution plans increased to $54,000.

5. Beware! Medical expense deductions and long-term care deductions have changed
Limits for deducting long-term care premiums have increased. Listed below is how much taxpayers can write off based on their age:

  • Age 71: $5,110
  • Age 61-70: $4,090
  • Age 51-60: $1,530
  • Age 41-50: $770
  • Age 40: $410

6. Health savings accounts still provide nice perks and long-term opportunities
In 2017, any health care plan with a deductible above $1,300 for individuals and $2,600 for families classifies as a high-deductible plan. For single coverage, a contribution of $3,400 can be made to an HSA. For family coverage, a contribution of up to $6,750 can be made. Investors age 55+ can make a catch-up contribution of $1,000 to an HSA.

7. Education savings can make a difference for parents and grandparents
You can contribute up to $14,000 annually to a 529 plan for a student without having the contribution count toward the gift tax. An up-front contribution toward a 529 Savings Plan can be made up to $70,000 on behalf of an individual, but this method eliminates further contributions for the next five years. The contribution doesn’t count toward gift tax. Keep in mind that there is a lot of flexibility with these accounts; the owner can transfer the funds to different family members. And if the account is not used, it can be transferred down to the next generation, which is great for estate-planning purposes.

8. Gift and estate taxes
The lifetime exclusion amount for the estate tax increased to $5.49 million per individual and portability is still available. The highest gift and estate tax rate is 40%.If taxpayers incur heavy estate-tax liability, they may qualify for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, $596,000 of tax can be deferred, and the IRS will charge only a 2% interest rate.

9. Good news for small businesses
Small businesses can once again use pretax funds to reimburse workers for health care costs, especially premiums for individual and family coverage. In a little noticed move, Congress late last year reauthorized Health Reimbursement Arrangements for businesses with fewer than 50 employees. As a result, these firms won’t risk large penalties on payments they provide to workers who purchase their own health insurance. Many of these firms don’t offer group health plans, and this law enables them still to offer a health care benefit.

10. Filing deadlines have changed
The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday—April 17. However, Emancipation Day, which is a legal holiday in the District of Columbia, will be observed on that Monday, pushing the nation’s filing deadline to Tuesday, April 18, 2017.

The following are a few other important deadlines to keep track of in 2017:

  • Taxpayers are able to request an additional six months to file their returns.
  • Employers are required to file W-2s with the federal government by January 31.
  • Partnership returns are due two-and-a-half months after year-end, and March 15 for calendar- year firms. Corporations can request a five-month extension.
  • The filing date for owners of foreign accounts has moved up to April 18.

There is one thing that we can count on. This year is sure to be filled with surprises. We will keep you updated once these changes surface.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

The Top Tax Frauds

March 19, 2017
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A look at the IRS list.

Have you heard of the “dirty dozen?” Each year, the IRS lists the top recurring federal tax offenses – frauds, cheats, feints and schemes that ethically challenged taxpayers, tax preparers and crooks try to perpetrate. Watch for these scams in all seasons, not just tax season.

  • Identity theft. Casually discarded or displayed personal information is an open invitation to criminals. Even when we are vigilant, multiple firewalls and strong passwords can fail to protect us.
  • Criminals posing as “tax professionals.” Each year, taxpayers get help with their 1040’s at tax preparation businesses. As the IRS notes, nearly all of these businesses are legitimate. Exceptions do exist; however, sometimes a fraudster will rent a storefront with a mission of collecting SSN’s and other personal information pursuant to claiming phony refunds.
  • Unwarranted or excessive refunds. Annually, some taxpayers and tax preparers claim refunds that are embellished or wholly unjustified. A preparer may tout that it will get you a big refund but then claim a percentage of it. Worse yet, they may ask you to sign a blank return.
  • Phishing. This is tax fraud via email. A scammer will send a message mimicking communication from the IRS or the Electronic Federal Tax Payment System (EFTPS). If you get an email like that, forward it to phishing@irs.gov. Neither the IRS nor the EFTPS has a policy of initiating contact with taxpayers through email.
  • Threatening calls. Crooks will sometimes target elders or immigrants with phone scams, pretending to be the IRS or another federal agency. (Sometimes even the caller ID will suggest this.) They will assert that the other party owes thousands in back taxes. The only solution, they contend, is immediate payment through a pre-loaded debit card or a money order. The caller may even know the last four digits of their Social Security Number or volunteer what is supposedly an IRS employee badge number to make the con more believable. A follow-up call from “the DMV” or “the police” may be next. Such behavior can be reported to the Treasury Inspector General for Tax Administration at (800) 366-4484 or the IRS at (800) 829-1040.
  • Sham charities.  A specious charity may ask you for cash, your SSN, your banking information and more. If anything seems fishy, ask for visual proof of the organization’s tax-exempt status, and check it out further at irs.gov using the Exempt Organizations Select Check search box.
  • Tax shelter schemes. Tax evasion is different from legal tax avoidance. Some unprincipled tax and estate “consultants” seem to confuse the two, much to the chagrin of their clients who run afoul of the IRS. Watch out for aggressively marketed “tax shelters” that seem too good to be true or sketchily detailed.
  • Hiding taxable income. How many taxpayers file fraudulent 1099’s? Any hint of bogus documentation to cut taxes or boost refunds becomes especially egregious when a paid preparer attempts it.
  • Inventing income that was never earned to get credits. The IRS notes that some of the shadier tax prep services sometimes convince clients to try this. It is fairly easy to disprove.
  • Claiming unwarranted fuel tax credits. Few taxpayers can legitimately claim these, yet some try thanks to urging from third-party preparers. Most taxpayers don’t own farms, mining or fishing businesses or companies whose vehicles operate mostly on local roads.
  • Frivolous arguments against income tax. Assorted seminar speakers and books claim that federal taxes are unconstitutional and that Americans have only an implied obligation to pay them.

One thing to remember in light of this list: you are legally responsible for the content input into your 1040 form, even if a third party prepares it.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Tax Season Phone Scams

March 18, 2017
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Beware of crooks calling you up & claiming to be the IRS.

Every year, con artists posing as the Internal Revenue Service perpetrate scams on taxpayers. Their weapon is a telephone, and they use it to leave thousands of households poorer. These gambits can seem very convincing, but you need not fall prey to them if you are informed.

The IRS will never call you up & demand money. Nor will the IRS contact you by phone to discuss your refund. In addition, it will not use social media, text messages or emails out of the blue to talk about tax matters with you. Not everyone knows this, and these criminals exploit that fact. In particular, these crooks target immigrants and elders. They presume that these demographic groups do not understand tax law and tax collection proceedings as well as others. Sometimes the caller ID will even suggest the “IRS” to further the scam.

What are the telltale signs of a bogus IRS call? The classic sign is the demand for an immediate payment of “taxes” when no bill for delinquent taxes has been sent to you by the IRS to begin with. The IRS nearly always makes initial contact with taxpayers by mail.  Another common move is asking for a credit or debit card number. In one common scam, the caller alleges that you have unpaid back taxes that can only be settled by buying a prepaid debit card (and by supplying the card number to the caller).

Bullying is another red flag. In another prevalent scam, a message may be left saying that this is a “final notice from the Internal Revenue Service” and tell you that the IRS is filing a lawsuit against you on a business or personal tax issue. Threats of arrest, deportation or losing your driver’s license may be made. The caller may also tell you that you have no way to appeal, no chance to plead innocence – you are guilty and must pay taxes owed now.

How can you report frauds like this? If you know for a fact that you do not owe any back taxes, call up the office of the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 and report what happened to you. (TIGTA is on the Web at tigta.gov.) Alternately, go to FTC Complaint Assistant website maintained by the Federal Trade Commission (FTC) and file a complaint there (click on “Other” in the right-side menu, and then click on “Imposter Scams”). Start your notes with the phrase “IRS Telephone Scam.” If you think you actually might owe some back taxes, call the IRS instead at IRS at 1-800-829-1040 as that really should be resolved; IRS staffers can assist you with such a matter. Watch out for these calls, and let others know about their tactics so that they may avoid becoming victims.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

 

Estate Planning for Your Digital Assets

February 27, 2017
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Have you addressed this issue?
Social media and email accounts. Creative works, photos and keepsakes kept on home computers, the cloud or external storage drives. E-commerce accounts. Domain names. These are all examples of digital assets. You will manage them closely as long as you live, but what will happen to them once you aren’t here?

will-testament-337Have you talked about it with those you love? In a recent survey of baby boomers, antivirus software provider AVG Technologies found that only 16% of respondents had thought about what would happen to their digital assets after their deaths. A mere 3% had alerted or prepared their loved ones in regard to this issue. If you have a will or a revocable trust, you must plan for the transfer and/or administration of digital assets just as you have for tangible assets. Your digital assets may or may not be of great financial value, but they need protection against exploitation as well as abandonment. Distributing digital assets is part of fiduciary duty. That is what makes articulating your wishes so important. A financial professional or financial firm acting in a fiduciary role on your behalf has an obligation to distribute your digital assets, but many social media and e-commerce websites will not readily allow this without the permission given by the user or his or her heirs.

How about social media and email accounts? Facebook has a legacy contact feature for its users. You can appoint a custodian for your page after you are gone: your legacy contact will be able to respond to friend requests, change your cover photo and profile picture, and write a notice of your memorial service or funeral; he or she will not be permitted to log in with your password or username, read messages sent to you or modify your account settings. Alternately, you can simply tell Facebook that you would like to have your account immediately deleted at your death. Google has an Inactive Account Manager option that will let you leave instructions for what should be done with your Google Drive docs or Gmail account once you are deceased.

As for LinkedIn, a loved one fills out an online form on behalf of the deceased, which is reviewed by LinkedIn pursuant to getting in touch with that person. The notifying party will need to supply your name, profile URL, email address and date of death plus information on the company you last worked for and a link to your obituary. Twitter handles accounts of the deceased in similar fashion, and it can also remove images in a person’s account per request; the Twitter account is frozen at death, with access barred even to immediate family.

Computer files. Your executor or trustee should be provided with the location of your computers, tablets or e-readers after your death and the passwords to them if you have set password protection. Locating backups may also become crucial. Remember that annual fees for antivirus programs and website hosting may no longer need to be paid; the executor or trustee will need to be informed about those user agreements.

E-commerce accounts. Most of us have eBay, iTunes or PayPal accounts and these accounts can serve as pathways toward banking and credit card information. What if your idle e-commerce account is hacked after your death? What if the account balance is drained or the cybercriminal uses the account to go on a shopping spree? What if your username and password could be stolen and used at other websites you have accessed? These what-ifs need to be considered and addressed during your lifetime and in your estate plan.

Domain names. How can you keep a website going after you die? One way is to pay for a decade (or more) of hosting or domain name ownership with such URL longevity in mind, and letting your trustee or executor know just how to renew the agreement. Only that trustee or executor should have access to that knowledge, unless you want business partners or a future owner to know how the arrangements work.

Does your will or trust need amending? Language regarding your digital assets is essential. At the very least, you want to tell your executor or trustee where digital assets are stored. Even better, the amendment should give your executor or trustee the authority to administer, archive, alter or destroy digital assets in addition to the power to direct them to heirs or other named beneficiaries. That means turning over your online passwords to your executor or trustee at your death, or having them access password management software used to create them.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Leaving a Legacy Plan

February 26, 2017
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We will all leave this world sometime. Why leave unanswered questions with those we love?

We all want to live a significant, successful life. Yet how many of us realize that our important, positive contributions can last long after we are gone? Two things are certain: death and taxes. Some of us grasp that reality early, so we create wills, living trusts and estate plans. Others deny this reality and leave their heirs with perplexing questions, added stress and even anger when they pass away. The truly farsighted among us opt for a full-fledged legacy plan.

How does a legacy plan differ from an estate plan? An estate plan determines a destiny for your assets. A legacy plan does that and more: it communicates your values, wishes and memories as well as financial directions. If you ask someone about the “why” of estate planning – that is, why should you have an estate plan in the first place – the instant response is “to avoid estate tax.” That is certainly a good reason to create an estate plan, but it may not be the best one.

A legacy plan can convey your values and wishes when it comes to the following matters:

  • The distribution of the estate – selecting a steward, showing that person how these assets are to be managed according to your values and outlook.
  • The future of a family business – you can share the knowledge only the owner and founder has, you can establish who will own it after you, who will manage it and who will benefit financially from it.
  • Protecting your business (and your estate) from “predators and creditors” – taking steps to insulate the business (and your heirs) against lawsuits, debts outstanding, and intrusions of relatives or past associates.

While basic estate plans establish where assets go, they don’t often communicate the personal and practical details that can aid heirs in the case of an unexpected loss. A legacy plan communicates more than financial details, it expresses your values, your final wishes and the life lessons you want to pass along. It conveys knowledge that may make things smoother for your heirs and your company at a time of grief and crisis. It imparts wisdom that your successor may use to guide inherited assets in the future, so that these assets might endure for more than a generation.

In other words, it gives your heirs your business some answers to the questions, “what do we do now” and “what would he/she have wanted us to do.” Legacy plans are built taking many factors into account. The first factor is you. What are your goals, financial and otherwise? A legacy plan should first respect your wishes and intentions. The second factor is family. Different people define “family” in all kinds of different ways. A good legacy plan respects your definition, and is created with an understanding of it and your particular “family” dynamics. Only after this should the tax and financial strategies of the plan be determined. We have seen some plans that are not designed to hand down the experiential wealth and wisdom that should accompany the assets. A good legacy plan transmits values, instructions and guidance to ease a family’s burden when it comes to settling financial and business issues at a time of grief.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Estate Planning After a Second Marriage

February 25, 2017
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Special considerations for a complex situation.

Marrying again makes estate planning more involved. How do you provide for everyone you love? Should you provide for everyone you love? How do you arrange to transfer wealth in a way that won’t hurt the feelings of certain heirs?

If you have not planned your estate yet, take inventory. Spend a half-hour and jot down the assets you own, major and minor. Who should own these assets after you die? Your spouse should do this, too and you should talk about your preferences. It may not turn out to be the easiest conversation, but agreement now may preclude family squabbles and legal challenges down the line. (If you have a prenuptial agreement in place, you may have already discussed some of these matters.) You should also consider two scenarios – what happens if you die first and what happens if your spouse dies before you do.

If you and/or your spouse have children from prior marriages, there may be some dilemmas for each of you. If you die, there is a real possibility that your current husband or wife will not elect to provide for your children from past marriages. So what might you do to prepare for that possibility? You might make a child the primary beneficiary of a life insurance policy, or set up a trust for your kid(s), or place certain real property under joint ownership with a child.

If you have already written a will, it will probably need revisions. They could be considerable. You want to be extremely specific about which heir gets what; you need to state bequests convincingly, because the more convincing your bequest, the less ambiguity.

How up-to-date are your beneficiary designations? Out-of-date beneficiary decisions are an Achilles heel of estate planning. Be sure to review them; you may want to revise beneficiary forms for retirement plans, investment accounts, and insurance policies. As you consider these revisions, pay particular attention if you have been divorced. Divorce may actually preclude you from changing beneficiaries in certain cases. Turn to a lawyer and show the lawyer a copy of your divorcee decree; ask if revising your beneficiary designations will violate it. Should you be unable to make beneficiary changes to your life insurance policy, you may want to buy another one in consideration of your new spouse.

Take a look at irrevocable trusts. They can be used to provide for your spouse as well as your kids. Some people establish a separate property trust to provide for their spouse after their death while directing most or all of their real property to their children.

Alternately, parents create irrevocable trusts to direct assets to particular children. They are attractive estate planning vehicles for a number of reasons. A trust agreement is a private mechanism for wealth transfer, while a will is a public document (and some parents who have remarried would rather their wills not be made public). Assets within irrevocable trusts are shielded from creditors, and also from inheritance claims of spouses of the adult children named as heirs. An irrevocable trust represents a “finalized” estate planning decision, one that ensures that particular assets transfer to a parent’s biological children. Irrevocable trusts are also rarely undone. It typically takes permission from beneficiaries (and a judge) to reverse them.

Those aforementioned pre-nups can play an estate planning role as well. They allow you to designate personal assets (such as assets within a college savings account) for existing rather than future children. Post-nuptial agreements (similar to pre-nups, but drafted after a marriage) can also accomplish this. Some states do not view pre-nup and post-nup agreements as legally valid, however – and sometimes carrying out the terms and conditions of these agreements is up to a judge.

Be sure to consult legal & financial professionals. When estates become this complex, collaboration with professionals having a thorough understanding of estate planning and tax issues is essential.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

7 Ways to Know if You Need an Estate Plan

February 13, 2017
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Some people say they are not able to bring themselves to prepare when it comes to estate planning, or think estate planning doesn’t apply to them. Creating an estate plan allows for you to determine how your estate will be distributed if something were to happen to you, rather than allowing the laws in your state to determine the distribution. Not having a proper will or estate plan is an invitation for confusion and can invite turmoil down the road if your wishes are not followed.

Simply stated, estate planning is creating a plan to determine how to distribute your property during your life and at your death. It is the process of developing and implementing a master plan that facilitates the distribution of your property after your death and according to your goals and objectives. Preparing a solid estate plan can ensure financial stability and peace of mind for a surviving spouse, preserve assets for children and grandchildren, minimize taxes and expenses and ensure your wishes are carried out.

You may need to plan your estate, especially if any of the following apply:

  1. You have children who are minors or who have special needs
  2. Your spouse is uncomfortable with or incapable of handling financial matters
  3. You’re a business owner
  4. You have property in more than one state
  5. You intend to contribute to charity
  6. You have strong feelings about health-care decisions
  7. You have privacy concerns or want to avoid probate

Proper estate planning may help to make sure that your loved ones are provided for or additionally, avoiding probate or reducing taxes. Estate planning can be as simple as implementing a will (the foundation of any estate plan) and purchasing life insurance or as complicated as executing trusts and exploring other sophisticated tax and estate planning techniques. Estate planning is extremely important if you are wealthy or have a smaller estate. In fact, estate planning is more important if you have a smaller estate because final expenses will have a greater impact on your overall estate and financial picture. Misusing even a single asset may cause your loved ones to suffer from lack of financial resources.

With planning, HFG Wealth Management can help make sure you are prepared for many of life’s challenges. At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

A Primer for Estate Planning

February 12, 2017
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Estate planning is a task that people tend to put off, as any discussion of “the end” tends to be off-putting. However, those who leave this world without their financial affairs in good order risk leaving their heirs some significant problems along with their legacies. No matter what your age, here are some things you may want to accomplish this year with regard to estate planning.

Create a will if you don’t have one. Many people never get around to creating a will, even to the point of buying a will-in-a-box at a stationery store or setting one up online.  A solid will drafted with the guidance of an estate planning attorney may cost you more than a will-in-a-box, and it may prove to be some of the best money you ever spend. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity.

planningComplement your will with related documents. Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items. You should know that a living will is not the same thing as a durable medical power of attorney. A living will makes your wishes known when it comes to life-prolonging medical treatments, and it takes the form of a directive. A durable medical power of attorney authorizes another party to make medical decisions for you (including end-of-life decisions) if you become incapacitated or otherwise unable to make these decisions.

Review your beneficiary designations. Who is the beneficiary of your IRA? How about your 401(k)? How about your annuity or life insurance policy? If your answer is along the lines of “Mm … you know … I’m pretty sure it’s …” or “It’s been a while since …”, then be sure to check the documents and verify who the designated beneficiary is. When it comes to retirement accounts and life insurance, many people don’t know that beneficiary designations take priority over bequests made in wills and living trusts. If you long ago named a child now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die – regardless of what your will states. Time has a way of altering our beneficiary decisions. This is why some estate planners recommend that you review your beneficiaries every two years. In some states, you can authorize transfer-on-death designations. This is a tactic against probate: TOD designations may permit the ownership transfer of securities (and in a few states, forms of real property, vehicles and other assets) immediately at your death to the person designated. TOD designations are sometimes referred to as “will substitutes” but they usually pertain only to securities.

Create asset and debt lists. Does this sound like a lot of work? It may not be. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

  • One list should detail your real property and personal property assets. It should list any real estate you own, and its worth; it should also list personal property items in your home, garage, backyard, warehouse, storage unit or small business that have notable monetary worth.
  • Another list should detail your bank and brokerage accounts, your retirement accounts, and any other forms of investment plus any insurance policies.
  • A third list should detail your credit card debts, your mortgage and/or HELOC, and any other outstanding consumer loans.

Think about consolidating your “stray” IRAs and bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

Let your heirs know the causes and charities that mean the most to you. Have you ever seen the phrase, “In lieu of flowers, donations may be made to …” Well, perhaps you would like to suggest donations to this or that charity when you pass. Write down the associations you belong to and the organizations you support. Some non-profits do offer accidental life insurance benefits to heirs of members.

Select a reliable executor. Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a stark possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person?  Your executor should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.  

Talk to professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing. Many people have the idea that they don’t need an estate plan because their net worth is less than a certain amount. Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Will You Avoid These Estate Planning Mistakes?

February 11, 2017
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Too many households commit these common blunders.

Many people plan their estates diligently, with input from legal, tax and financial professionals. Others plan earnestly, but make mistakes that can potentially affect both the transfer and destiny of family wealth. Here are some common and not-so-common errors to avoid.

Doing it all yourself. While you could write your own will or create a will or trust from a template, it can be risky to do so. Sometimes simplicity has a price. Look at the example of Warren Burger. The former Chief Justice of the United States wrote his own will, and it was just 176 words long. It proved flawed – after he died in 1995, his heirs wound up paying over $450,000 in estate taxes and other fees, costs that likely could have been avoided with a lengthier and less informal will containing appropriate language.

Failing to update your will or trust after a life event. Relatively few estate plans are reviewed over time. Any life event should prompt you to review your will, trust, or other estate planning documents. So should a life event affecting one of your beneficiaries.

Appointing a co-trustee. Trust administration is not for everyone. Some people lack the interest, the time, or the understanding it requires, and others balk at the responsibility and potential liability involved. A co-trustee also introduces the potential for conflict.

Being too vague with your heirs about your estate plan. While you may not want to explicitly reveal who will get what prior to your passing, your heirs should have an understanding of the purpose and intentions at the heart of your estate planning. If you want to distribute more of your wealth to one child than another, write a letter to be presented after your death that explains your reasoning. Make a list of which heirs will receive particular collectibles or heirlooms. If your family has some issues, this may go a long way toward reducing squabbles and the possibility of legal costs eating up some of this or that heir’s inheritance.

Failing to consider what will happen if you & your partner are unmarried. The “marriage penalty” affecting joint filers aside, married couples receive distinct federal tax breaks in this country – estate tax breaks among them. This year, the lifetime gift and estate tax exclusion amount is $5.45 million for an individual, but $10.9 million for a married couple. If you live together and you are not married, it is worth considering how your unmarried status might affect your estate planning with regard to federal and state taxes. As Forbes mentioned last year, federal and state taxes claimed more than more than $15 million of the $35 million estate of Oscar-winning actor Phillip Seymour Hoffman. He left 100% of his estate to his longtime partner, and since they had never married, she could not qualify for the marriage exemption on inherited assets. While the individual lifetime gift and estate tax exclusion protected a relatively small portion of Hoffman’s estate from death taxes, the much larger remainder was taxed at rates of up to 40% rather than being passed tax-free. Hoffman also lived in New York, a state which levies a 16% estate tax for non-spouses once estates exceed $1 million.

Leaving a trust unfunded (or underfunded). Through a simple, one-sentence title change, a married couple can fund a revocable trust with their primary residence. As an example, if a couple retitles their home from “Heather and Michael Smith, Joint Tenants with Rights of Survivorship” to “Heather and Michael Smith, Trustees of the Smith Revocable Trust dated (month) (day), (year)”. They are free to retitle myriad other assets in the trust’s name.

Ignoring a caregiver with ulterior motives. Very few people consider this possibility when creating a will or trust, but it does happen. A caregiver harboring a hidden agenda may exploit a loved one to the point where he or she revises estate planning documents for the caregiver’s financial benefit. We believe the best estate plans are clear in their language, clear in their intentions, and updated as life events demand. They are overseen through the years with care and scrutiny, reflecting the magnitude of the transfer of significant wealth.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

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Copyright © 2017. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]