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Archive for May, 2006
Ways to Avoid Probate
May 9th
by Eric Heckman
If you’re like most people, you’ve worked hard to accumulate assets, and expect to live your retirement years in comfort while leaving the balance of your estate to your heirs. If this is true, then legacy planning is vital for you.
When many first consider legacy planning, they immediately think of preparing a last will and testament. While wills have their advantages, they also have some drawbacks, such as probate. The probate process includes proving the authenticity of a person’s will, appointing an executor, identifying and inventorying a person’s property, paying debts and taxes, identifying heirs and distributing property.
There are alternatives to probate known as will substitutes. If you would rather be the judge of what happens to your estate, read on about substitutes and how they can avoid probate.
1. Assets held in a revocable living trust. The property you transfer into the trust passes directly to the trust beneficiaries after you die, without court involvement.
2. Balances of retirement accounts. When you open a retirement account, such as a traditional or Roth IRA, you are asked to name a beneficiary. Your beneficiary needs to provide identification and proof of your death to claim the funds.
3. Balances of tax-deferred annuities. The death benefit of an annuity passes the account value to a named beneficiary. Although the death benefit avoids probate, the value of the annuity is generally included in your estate for estate tax valuation purposes. Your named beneficiaries can choose to receive the funds as monthly income or a lump-sum payment and may be subject to ordinary income tax on the earnings portion of the proceeds.
4. Proceeds of an insurance policy where beneficiaries are named other than your estate. A policy owner contracts with the life insurance company to pay out a death benefit to a designated beneficiary.
5. Balances of payable-on-death bank accounts. Your financial institution will provide you with a form to name who you want to inherit the account(s). When you die, your beneficiary will need to provide identification and proof of your death.
6. Securities registered as transfer-on-death. Most states have adopted the Uniform Transfer-on-Death Security Registration Act that allows you to have someone inherit your stocks, bonds or brokerage accounts without probate.
7. Assets held jointly with your surviving spouse or with another person as joint tenants with a right of survivorship. Through right of survivorship, the surviving joint tenant immediately succeeds full ownership of the property upon the death of the other joint tenant.
Your loved ones will have enough to deal with emotionally and it’s wise to do what you can to make the inheritance process as simple and painless as possible.
About Eric Heckman
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. You can contact him at (408) 297-9800.
Why Many Aren’t Securing Their Financial Future
May 4th
by Brion Lau
I’ve wanted to write a review on Robert Kiyosaki’s (aka “Rich Dad”) concepts for some time. While it has been ages since I first read his bestseller, “Rich Dad, Poor Dad”, I’ve been able to catch some of his latest work through the Public Broadcasting System as well as the Learning Annex Real Estate Wealth Expo.
First, you don’t need to buy the book or attend the Expo to pick up some interesting nuggets. Instead, a free and easy method to become familiar with Kiyosaki’s
teaching is to read his bi-weekly column, “Why the Rich Get Richer”, hosted on Yahoo! Finance. If you read some of those articles, you’ll quickly get caught up on both the latest concepts as well as the old ones that he tends to repeat over and over again. Another simple method is to join the free Rich Dad discussion forum.
As you review his bi-weekly column on Yahoo!, you might want to check out his article, “Why Many Aren’t Securing Their Financial Future”. This article is a nice Kiyosaki starter and actually contains some valuable nuggets unlike other financial fluff floating around in public these days.
If you look closely at why Rich Dad is trying to teach, you’ll see there are some true words of wisdom. I hope you enjoy the reading and continue to build your own personal financial education.
Here’s to your wealth and success!
Counterargument: I also want to acknowledge that not everyone agrees with Kiyosaki. Many believe he is making his wealth off of his products rather than real estate investments, oild & gas, and hard metals. For a very thorough criticism of Kiyosaki, I found John Reed’s comment to be one of the most comprehensive criticisms.
The Decision to be Rich or Middle Class
May 2nd
by Ryan P. Allis
This article is an authorized excerpt from Zero to One Million by Ryan P. M. Allis, a book on how to build a company to one million dollars in sales based on the authors’ experience in doing just that in fourteen months in the nutraceuticals industry. Additional information on the book and an extensive entrepreneurship resource can be found at http://www.zeromillion.com.
Now that we know the difference between a high potential and lifestyle company and product and service-based businesses, let’s take a minute to analyze the key decisions that one must make in his or her life in order to start on the path toward becoming wealthy.
There is a certain mindset that an entrepreneur must have and certain things a person must know in order to become wealthy by building a business. In order to succeed, an entrepreneur must know the difference between assets and liabilities, re-invest much of his or her profits and capital gains to further grow the business, and understand the difference between being frugal and being smart, the difference between good debt and bad debt, and the relative value of time and money.
The large majority of persons (at least in the industrialized world) work at a job, earn $30,000-$60,000 per year and spend the nearly all if not more of their incomes each year. They go into debt for items they do not need, spend an hour cutting coupons and in the supermarket to save two dollars, and at the end of forty five years of working must live the last years of their life dependent on Social Security and anything remaining in their 401(k). Many of these persons are content with such a life. However, many are not. If you are not, then please study the following principles.
The rich, on the other hand, build assets, invest in assets, and have their assets work for them. They gain control over their expenses. The rich understand the principal of the Asset Spiral. They put off present consumption and purchase of luxuries like vacations, boats, and big screen televisions so they can invest in building an asset that will provide enough passive cash flow to buy twenty vacations, a cruise line, and a big screen television company in the future. They never go into debt for something that is for pleasure and not investment. They buy things like businesses, securities, options, bonds, and real estate. They intelligently use their businesses to pay most of their expenses, thus receiving numerous tax advantages. They use their expenses to make them richer, and have no fear of debt, as long as they are using debt to build an asset and not purchase unnecessary items.
The poor often live frugally, not realizing that time is more important than money. The rich realize that time is more valuable than money as with time one can make money but with money one cannot make time. They understand the principal of opportunity cost and do not hesitate to spend $500 for someone to paint their house if during that time they can make $1000 working at what they do best.
The rich have their money work for them. They do their due diligence and research and invest it in public and private companies, and then sit back while their money makes them more money. They build companies that make them money while they are sleeping. Most mornings they will wake up $10,000 richer than when they went to bed. They realize the importance of developing multiple streams of income and creating passive cashflow—money that comes in whether or not they go to work. They stay out of the middle and poor classes by waiting until they have consistent passive cashflow from their businesses and investments before they become married and have children. While they may have to start off making money through earned income, they realize the advantages of and focus on building passive income from investments. The rich also know that they cannot become wealthy quickly, and they invest the time, gain the knowledge, make the contacts, and take the actions needed to become successful.
The rich keep close track of their cash flow. They have accountants and in the early stages use programs such as QuickBooks, Quicken, and Money to keep track of all of their income and expenses, both personally and in their companies. They believe that it is better to work for years to build and increase the value of their own companies and assets rather than spend a whole life sweating blood and tears, being paid a wholesale rate, to increase the value of someone else’s asset.
The validity of the above principles is made clear to me each and every day in my life. There is a terrible disparity between the rich and poor, even in the streets of Chapel Hill, North Carolina. But this disparity is there for many reasons beside difference in education and opportunity. Much of this disparity exists because those who are poor did not follow the above principles. They work for others and not themselves, will spend more money than they earn and go into debt for unnecessary items, will never delay present consumption to invest, never take the initiative to improve their financial literacy and business education, and are married and have children before they even have a well paying job, let alone a stream of passive and portfolio income. Don’t let your life go down this path, and if it has, learn and apply the above principles in everything you do and you will make it through.
Robert Kiyosaki states in Rich Dad’s Guide to Investing that the secret to becoming rich is to “build businesses and then have your businesses buy other cash producing assets such as other businesses or real estate.” This statement captures the essence of the process needed to become extraordinarily wealthy. I would modify this statement slightly, however. I believe the following:
The secret to becoming extraordinarily wealthy is to build businesses and then use the excess cash flow from your businesses and the capital gains from a liquidity event to invest in early stage private companies, ventures in emerging markets, and other cash producing assets such as real estate.
Please reread this statement a few times. This is the path I will follow throughout my life. I am currently in the process of building a successful business. Once this is accomplished, I will use the funds to make additional investments in early stage private companies, build additional companies, invest in real estate, and explore investments overseas. I intend to make my first million by building companies. I’ll make my next one hundred million by investing in early stage private companies and real estate.
Ryan Allis, is the CEO of Broadwick Corporation, a provider of permission-based email marketing and list management software IntelliContact Pro (www.intellicontact.com) and CEO of Virante, Inc. (www.virante.com) a Chapel Hill, North Carolina based web marketing consulting firm. Ryan, who is 19, is on leave for a year from the University of North Carolina at Chapel Hill, where he is an economics major and Blanchard Scholar. Additional information on the author can be found at www.ryanallis.com.
Protect Yourself from Identity Theft
May 1st
by Eric Heckman
Identity theft, including the misuse of Social Security numbers, names, driver’s licenses, bank accounts, PIN numbers and credit/debit card numbers, is one of the fastest-growing crimes for all Americans, young or old. The Federal Trade Commission (FTC) received 246,570 identity theft complaints just last year. According to an FTC survey, an average of one in every 30 Americans became a victim of identity theft in a one year period, beginning in spring 2002.
The total cost of this crime approaches $50 billion per year, with the average loss from the misuse of a victim’s personal information being $4,800, according to the FTC. It can take years of frustrating effort to set the record straight. The potential toll on retirees with vulnerable income sources can be severe.
Arizona, Nevada, California and Texas had the highest rates of identity theft in 2004. Arizona had 142.5 fraud cases per 100,000 people. Regardless of where you live, take precautions. It happens everywhere. With just your name, Social Security number and birthday, identity thieves can clean out your bank accounts, apply for health insurance, get a driver’s license in your name, open credit accounts or go on a shopping spree using your existing credit cards.
So what can you do? Identity theft is still primarily a crime of opportunity, so make yourself a hard target. Protect yourself by taking preventive measures to block the theft of your identity and your financial security. Here are some things you can do:
1. Guard your Social Security number. Don’t give it out, don’t carry it in your wallet or purse and definitely do not have it printed on your checks. If your number is stolen, contact the Social Security Administration fraud line (800-269-0271) immediately to place a fraud alert on your name and Social Security number.
2. Buy a paper shredder. Don’t just throw your personal information into the trash where a thief can retrieve it. Shred all documents that have your name, Social Security number, birthday or other personal information, including bank statements, insurance forms and even those annoying credit card offers that come in the mail.
3. If you carry a wallet or purse, photocopy the contents. Copy both sides of each license, credit card, insurance card, etc. Put the photocopy away in a safe place. If your wallet should be stolen, you will have a record of everything that was in it, including account numbers and the phone numbers needed to call and cancel them.
4. Immediately cancel any credit cards that are lost or stolen. Most importantly, call the three national credit-reporting organizations, Equifax (800-525-6285), Experian (888-397-3742) and TransUnion (800-680-7289), as well as the Social Security fraud line. The alert will indicate to any company that checks your credit that your information was stolen. Also, file a police report immediately in the jurisdiction where the theft or loss occurred. This will prove your diligence to the credit card company.
5. Check your credit report regularly. Review your credit report at least once a year. Be alert for credit activity that you have not authorized. False transactions can be disputed and removed.
According to the FTC, identity theft is significantly smaller if the misuse of personal information is discovered quickly. It will be even less of a hassle if you take the necessary steps to guard your identity from thieves. If you believe your identity has been stolen, report the crime to authorities and the FTC (1-877-IDTHEFT). It can help save what you work your whole life for – your assets.
About Eric Heckman
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. Contact him at (408) 297-9800.