Thursday, May 31, 2012

Estate Planning Essentials

Wills and trusts are two different types of estate planning devices that allow you to look into the future and determine how you can protect your children and your assets if something were to happen to you.

Dan Danford, CFP® and Founder/Chief Executive Officer of Family Investment Center, says that many people use the terms wills and trusts interchangeably even though there are major differences between the two.

In the video below, Danford explains the disparity and in what situations people are more likely to need a will or a trust. He also suggests that any asset protection estate planning document should be handled by an attorney. According to Danford, a small fee can ensure a lifetime of peace of mind.

Wednesday, May 23, 2012

Mrs. Lentz was right: I am disruptive. Clients love me for it, though!

Hold up your hand if you like disruptive innovation! If you love your iPhone or enjoy a flat screen television, you are one of millions who benefit from dramatic changes in the marketplace.

Telephones and televisions have been around for decades, of course, but the old ones are nothing like the new ones. In fact, in a few very short years, traditional models are forever gone. Consumers – folks like you or me – love new products and services. Businesses, especially ones steeped in those old products and service models, don’t share our giddiness.

Banks and brokers are slow to adapt. Rapid changes in technology make some inroads, but ATM machines and on-line banking haven’t replaced the branch bank on every urban corner. Brokerage firms (well the ones that have survived, anyway) still manufacture investment products and rely on captive brokers to sell them to investors. Debit cards haven’t replaced checking accounts, and the sales commission still reigns as king of the brokerage compensation model.

Twice, I’ve been part of disruptive innovation in my home town (St. Joseph, Missouri). Both times, we changed some things forever, but not enough to satisfy me! The first time was in the late 1980s, when four of us founded an independent trust company. Trust services are a specialty financial service, and you probably don’t remember or care about the details. Let’s just say that other banks in our city and region weren’t especially pleased with our early success.

Ten years later, I left that trust company to start Family Investment Center. I grew frustrated because we couldn’t keep up with consumer-friendly technology (even in a firm I founded, for crying out loud). That was 1998 and our investment clients didn’t have on-line access, checking/debit privileges, auto-deposit or withdrawal to other accounts, or a host of other things we take for granted today. I could see them coming, just couldn’t provide them through the trust company platform.

So I left to start something better and, again, the bankers weren’t happy. This time, however, the brokers weren’t happy either. The RIA model we adopted was both commission-free and highly-regulated, putting us in direct competition with both groups. It was disruptive to the status quo and I discovered quickly and painfully that many important people in St. Joseph had financial and social ties to that old order!

Funny thing, though. Consumers loved us from the very start. One former colleague famously predicted that “Dan won’t last six months in the business.” That was 1998, and we never even looked back. The truth is that we’ve grown progressively over years where many traditional providers have lost clients, lost support staff, and lost quality professionals. Today, we are the only independent, locally-owned, commission-free, registered advisory firm in this city. No locally-owned bank trust departments or brokerage firms, either.

That’s nice and it makes us proud. What makes us even prouder is that consumers put us here. We’ve enjoyed little institutional support in building this company. Many of the groups and businesses who ordinarily support entrepreneurial effort have financial or social ties to our older competitors. No worries, though, consumers love us and that’s all we needed to thrive. National newspapers, journals, and trade groups appreciate us, too, and that has helped spread the word.

It turns out that disruptive innovation is pretty popular with the people who really matter – clients.

Tuesday, May 22, 2012

Tips to create financial success

Evidence suggests a person's behavior has more effect on financial success than income, and no matter how much money you make, most people wish they earned 10% more.

In the video below, Dan Danford, CFP®, Founder and Chief Executive Officer of Family Investment Center, shares tips to create financial success and how to overcome the three money disorders that impact a person's ability to achieve their financial goals.

Wednesday, May 16, 2012

Effective tax planning requires forethought

Q: When I finished preparing my tax return for this year, I discovered I owed the government close to $10,000, which was far more than I thought I'd have to pay. How do I avoid future surprises like that?

A: Sometimes the situation you describe can't be helped. Maybe your practice had an especially good year or you earned a large one-time consulting fee. Even those of us who don't see payments like that face occasional tax surprises. Those surprises are maddening, but you can use a few tricks to keep them tolerable.

Effective tax planning is done in real time. It's done with a bit of research, good record-keeping, and deliberate decision-making. Most taxes are saved by not incurring them in the first place.

Retirement plans provide a good example. They come in a variety of shapes and sizes. Some are suited to sole proprietors, whereas others to partnerships or corporations. But most require some set-up and adoption before tax year-end. A bit of forethought sends dollars to retirement, not Uncle Sam.

The same principle holds true for charitable giving. In general, gifts given by December 31 count toward that year's tax. Because taxes usually aren't prepared until April (much of the required paperwork doesn't come until late January of after), it's difficult to measure tax effect without some late-in-the-year projections. Talk with your accountant each December to "mock up" that year's income obligations. Then you can make informed decisions about giving.

Remember these three steps: research, record-keeping, and deliberate decision-making. Useful tax-related information is available on the Web, or at the library or bookstore. If you don't want to do the research yourself, hire an adviser or ask your accountant. The point is, don't wait until your taxes are prepared or until they are due before acting.

Q: My wife died last year, leaving assets of less than $5 million. Must I file a federal estate tax return?

A: It is not required, but for your beneficiaries to enjoy the benefit of both your and your wife's exclusion at the time of your death through "portability," you are required to file a Form 706 (the federal estate tax return). This form generally is due 9 months after the death of a spouse. If your spouse died in the first half of 2011, however, the Internal Revenue Service has permitted retroactive extensions, giving you 15 months from the date of death to request an extension and to file Form 706.

Q: Because my children are the beneficiaries of my estate, does it make sense to name my estate as my individual retirement account (IRA) beneficiary?

A: Generally, it does not. Even if your children are beneficiaries of your estate, if they are not the direct beneficiaries of the IRA they must take distributions based on your life expectancy, not theirs. Designating the children individually as beneficiaries allows them to spread the withdrawals over their own life expectancies, producing lower annual withdrawals and continued deferral of taxes.

Q: What happens if an individual retirement account (IRA) owner who is older than 70 1/2 years dies without having taken a distribution for that year? Is the heir required to take a distribution by December 31?

A: If you are past age 70 1/2 and die before taking the current year's withdrawal, your IRA beneficiary must take a distribution by the end of that year. The distribution is based on your life expectancy and should be reported as ordinary income on your heir's own tax return. Most custodians require that the beneficiary set up an inherited IRA account and move the assets into it before taking the current year's withdrawal.

Q&A session published in the May 10, 2012 issue of Medical Economics magazine. Questions answered by Dan Danford, CFP(R) and Principal/Chief Executive Officer of Family Investment Center, and Medical Economics editorial consultant David Schiller, JD, of Schiller Law Associates in Norristown, Pennsylvania.

Wednesday, May 9, 2012

Maximizing your 401(k) and retirement plan earnings

Dan Danford, CFP® and Founder/Chief Executive Officer of Family Investment Center, has been advising how to invest 401(k) and retirement plans for years. In the video below, he answers this question about what to do when dissatisfied with your 401(k) funds:

I want to shift my money to different funds within the plan. When making this decision, which do you think I should focus on more: the funds' expenses or the returns the funds have earned?

Danford explains why you should focus on expenses first, but that there is an important caveat when it comes to ensuring you are comparing apples to apples with different 401(k) funds.

Thursday, May 3, 2012

May is Financial Life Planning for Women Month

This month, Charles Schwab & Co. is putting the spotlight on financial life planning for women. In this article, Schwab's senior vice president of Community Services Carrie Schwab-Pomerantz interviews Naureen Hassan, senior vice president of Schwab Advisor Services. We thought you’d like to listen in on their conversation.
Click here to read the interview.