Actions to Improve Your Financial Life in 2012

Golden Nest EggI recently received an email from The Kelly Group at Morgan Stanley Smith Barney with some good practical advice on a financial checkup that everyone should do once a year. The email resonated with me so I thought to share it with you by putting the text of it below.  My suggestion?  Take time over the next week to answer these questions for yourself.

Have questions once you go through this list? Reach out to your financial advisor.  As the Kelly Group puts it, your financial advisor should "love to hear from you and about you!"

Success always begins with a plan.

Here are some financial planning items that you can review after the hectic holidays and before the year gets into full swing:

  1. Review your debt.  How much do you really owe? What are the rates and terms?

  1. Check your employer retirement plan.Are you contributing the max? Have you rebalanced?

  1. Update your Annual Savings Goals. Are you paying yourself first?

  1. Simplify your financial life. Do you know where all your retirement savings are?

  1. Make sure you are adequately insured.

    1. Review you homeowner’s and auto policies. Check those deductibles and coverage.

    2. Evaluate your life insurance policies.

    3. Make sure you have an Umbrella policy.       

  1. Pull out those Estate Planning Documents. When were your will, trusts and powers of attorney were last updated?

  1. Rebalance Your Investments. Remember that we can help you rebalance your investments to remain in line with your goals, time horizon and risk tolerance.

  1. Weigh Investment Opportunities and Risks. Is your portfolio positioned for your future?

As attorneys, we are not financial advisors, but we work hand-in-hand with the advisors our clients rely on to help our clients reach their goals.  Our sphere of knowledge is the law and how it might be navigated to a person's advantage.  A financial advisor looks to what assets your have and how you can use them to reach your goals.  The world has gotten so complicated it really does take a team at times to make sure that you have all the information that you need to get to where you want your family to be to feel secure and meet your goals. 

What does your Credit Card say about you?

 I ran across this neat article at mint.com about how to "read" your credit card. Apparently all those digits mean something to the issuers, and tell a story about you.  It's best to read this one at the source, but some tidbits are:

  • The first digit shows if the issuer was an airline, bank or other institution
  • The first 6 digits are the issuer code

Most interesting, there is a math trick to see if a credit card number is "real", which can help you spot bogus cards.

What does the debt deal debacle mean to your life insurance coverage?

Many are feeling this week how the congressional quagmire has impacted their portfolios.  One other impact that many may be unaware of is that the downgrade of US credit rating has changed the credit rating of major life insurance companies (see below).

What action should you be taking to review your investment in life insurance?  If you have any kind of policy other than a term life contact your agent or company and request an "inforce illustration" showing a guarantee rate of 4%.  This is a new illustration/calculation of the health of your policy which takes into account your payments to date, the performance on those payments, and what would happen to your policy if you only got a 4% rate of return.  Look to see how long the death benefit lasts.  What you may learn is (1) your premiums are going to jump in the future, (2) you may be paying premiums longer than expected, (3) the policy is unsustainable.  You then need to speak to your insurance agent about what can be done now to make sure your insurance will still be in place when you need it.

Thanks to David Robinson of Lenox Advisors for bringing this to our attention in an alert email:

Following the downgrade by Standard & Poor’s of the U.S. sovereign credit rating on Friday, the credit rating agency also announced rating actions on 10 U.S. life insurers.

The following actions were announced by S&P this week:

• Five U.S. life insurers were downgraded from AAA to AA+ and removed from credit watch negative, with outlook remaining negative: Knights of Columbus, New York Life, Northwestern Mutual, TIAA and USAA.

• Five U.S. life insurers had their ratings affirmed and outlooks revised to negative: Assured Guaranty, Berkshire Hathaway, Guardian, MassMutual and Western & Southern.

• S&P's view of these companies' fundamental credit characteristics has not changed. The actions follow as a result of the downgrade of the U.S. sovereign credit rating on Friday from AAA to AA+ with negative outlook.

 

College Bound Checklist should include a Power of Attorney and Living Will...

GraduationThe Wall Street Journal recently reported five pieces of advice from financial advisors for families of college-bound children to consider. #5 on the list: Help children protect their health and finances from uncertainty and risk.

Veronica Dagher reports:

Once a child turns 18, parents no longer have the legal authority to access the child's medical records or make health or financial decisions for the child, says Laura Mattia, a Fair Lawn, N.J., certified financial planner. 

That loss of control over a child's care "is a hard thing for a parent to hear," she says, but families need to create a "game plan" to address the unexpected.

It should include three documents—a health-care directive, a HIPAA release and power of attorney—which together allow parents to access a child's medical records and make decisions on the child's health care and finances if necessary.

Ms. Mattia gave this advice to a client whose child was going to study in London for a semester. The client initially was shaken by the realization that she could no longer make crucial decisions on her daughter's behalf without taking legal action, Ms. Mattia says.

This is really good and practical advise.  Those who are long-time readers might recall that I have said from time to time there are situations where I refer people to legalzoom.com.  This is one of them because I tend to get a call the day before the child is leaving that these documents are needed right away.  While I suggest that it would be valuable for an attorney to help the family understand the importance and significance of these documents, something is better than nothing.

On a practical note, if you have a joint account with your child, you will be able to continue to access the account once the child turns 18.

Image: Ian Kahn / FreeDigitalPhotos.net

Frank Financial Candor a Key Ingredient to Successful Second Marriages

I was recently interviewed about the question of what conversations should couples entering into second marriages have?  In a second marriage, not only are you bringing more experience to the table, but also a potentially more complicated financial picture.  You could have financial obligations to a former spouse or your children.  Due to a prior divorce you may be more sensitive about protecting your assets in the event the marriage doesn't work out. You could have a strong financial picture and your new spouse could have debts.

In Financial Candor Makes Second Marriages Sweeter writer Judy Dahl combines my interview with other experts to produce a guide to the having an open financial conversation with you spouse to be.  While not the stuff of romance, considering these points can help develop a strong foundation for the new partnership.

  • What assets does each spouse have?  Who would be entitled to those assets in the event of divorce or death of a spouse?
  • What income does each spouse have or will have in the future?  How will each spouse's income contribute to household finances?
  • What debts does each spouse have? Who is going to pay them?
  • What does your day to day spending look like?  What are your long term financial goals?
  • Is a prenuptial agreement for you?

 

Protection for Seniors in new Financial Reform Act

The new sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act  signed into law on July 21 promises to be greatest change to the United States financial system since the Great Depression.  With the press covering how the changes will impact Wall Street firms and advisors, not much notice has been given to some very specific provisions effecting seniors.

Eisner, LLP put out a summary this week of the new law, that included the foll lowing about new protections for seniors.

With regard to older investors, the Act directs the SEC to establish a program of grants to states to (1) investigate and prosecute misleading and fraudulent marketing practices and/or (2) develop educational materials and training to reduce misleading and fraudulent marketing of financial products.

Of course, the question will be how will such a program be funded and effectively carried out.

User's Guide to Health Care Reform

AARP has put out a comprehensive and user friendly Guide to Health Care Reform that everyone should take a look at.  Regardless of what you think about the new health care legislation, the fact is that it will effect you - as an employer, a parent, a student, a worker or a retiree.  The reality of the health care legislation is further clouded by hype and various effective dates over the next 10 years.

So grab a cup of coffee, tea or water and skim through the User Guide.  Among lots of other useful information, you will find Five Things in the Law That May Surprise You;  and answers to questions if you are one of the 45 million Americans currently on Medicare.  The Guide is a "Must Read" and I encourage everyone to make time to become informed.

Image: jscreationzs / FreeDigitalPhotos.net

New Incentives to Retire Early - Government will offset Employers Paying Continued Health Care Costs

The Obama Administration reports today that they will subsidize employers who are providing medical benefits to "early retirees".  The issue is that Medicare kicks in at age 65.  Given the costs of private health insurance, older, and sometimes most highly compensated, employees are delaying their retirement because they can't afford to fully privately pay health care until age 65.  In order to incentivize these employees to retire early, a practice had been for an employer to continue medical coverage until age 65.  However, upward spiraling premiums have made this practice potentially uneconomic.  So here we are, employees can't afford to retire due to health care costs, and employers can't afford to offer retirement packages due to health care costs. 

The proposed solution is that is employers will now have an opportunity to be reimbursed for some of the health care premiums they add to retirement packages.  At its heart then, this is a job stimulus measure.  If older more experienced employees retire, it creates room for mid-level employees to move into new jobs (presumably at a lower salary) and frees up lower end opportunities for those out of work or moving into the workforce.

Effective next month, federal subsidies will allow employers to recoup a big chunk of the cost of medical claims for retirees ages 55 to 64 not yet eligible for Medicare, according to a White House official who spoke on condition of anonymity ahead of the official announcement expected Tuesday.

 

Collaborative Divorce - When Couples can Agree to Disagree

My colleague Don Vanarelli has a great post about what to consider when entering into a collaborative divorce.  I think of a collaborative divorce as when reasonable people have determined for whatever reason that the marriage is no longer working, and they are willing to work together to create a win-win situation for themselves in light of the changed facts.   Other advisors that will be involved include matrimonial attorney on both sides to represent each party (even though it is collaborative it needs to be fair), a financial planner to do the tire-kicking of if the split of the pie will support both parties lifestyles, and a perhaps a counselor to act in a mediator role.

My colleague Jody D'Agostini introduced me to the concept of collaborative divorce through her experience with it from the financial planning side.  She has a great interview with Fox 5 News about how this approach can save money and protect the family from devastating emotions.

For those considering a divorce, a collaborative divorce approach may work for you - or it may not. Before moving forward with anything you need to get your own independent legal advice about your situation.  This is  particular sensitive with seniors as if Medicaid deems that you have "given away" too much in the divorce, they may treat it a transfer that creates a penalty period.

New Credit Card Protections for Consumers

Starting today (February 22, 2010) all credit card companies must comply with new consumer protection rules issued by the Federal Reserve Bank.  Among these rules:

1. You must be given 45 days notice before an

  • increase in interest rate
  • change to annual fee, late fee, cash advance fee, etc.
  • other significant changes to the terms of your account

2.  Your monthly bill must show how long it will take to pay off the balance if you only pay the minimum monthly fee in a clear chart (i.e. you owe $3000, the monthly minimum is $90 at 14.4% - it will take 11 years and cost you $4745).

3.  No interest rate increases for the first year of the card

4. Rate increases only apply to new transactions, not existing balances

5.  Over the limit transactions will be restricted unless you advise your credit card company otherwise

6. Applicants under 21 must be able to demonstrate they can make payments (instead or luring in college students who have no source of income and then forcing them to declare bankruptcy)

7.  Standard payment dates and times 

8. Payments must be applied to higher interest balance

 

 

Thanks to Tonya R. Coles, Esq. (via Facebook) for sharing this important news).

 

 

Palimony Agreement must be in Writing - Concern for Caregiving Couples

My colleague, Judson Stein, Esq. has brought be my attention a new law that came into being in the last days of the Corzine Administration requiring that in order for a palimony agreement to be enforceable it must (1) be in writing, and (2) be executed with the independent advice of legal counsel.

 Stein advises in his announcement:

“Palimony” involves the right of an unmarried participant to a marriage-like relationship to seek support benefits when the relationship ends, whether because the couple breaks up, e.g., due to loss of affection or by reason of the death of one of the participants. Case law in New Jersey had allowed such claims of support – even if based only on implicit understandings derived from the circumstances of the relationship.

Now, as a result of the new law, such a claim will not be legally enforceable unless it is set forth in a written agreement made with the independent advice of counsel. Further, as the new law applies to those in a “non-marital personal relationship”, and as the new law makes no mention of civil unions or domestic partnerships, the impact of this new law on parties to civil unions or domestic partnerships cannot be stated with certainty.

Given that many couples are not legally married (and, New Jersey does not recognize common law marriage), it is now more important than ever for unmarried couples to consider, and make provisions for, the financial consequences of the termination of their relationship – whether while both are living or when one dies. This is especially true when one of the couple is more financially dependant than the other or when their finances are intertwined.

I also find this of particular concern for caregivers.  It is not uncommon for elderly couples to be in a relationship but not married.  One reason to avoid later life marriages is that spouses are fully responsible to spend their assets towards a spouses care before Medicaid will pay for long term care.   However, a long term couple may make promises to each other with regard to sharing in the estate for caring for a person.  These agreements must now be in writing with the advice of counsel to be enforceable.  Your typical couple will not be aware of this and I question if this law could now hurt caregivers since their agreements will normally be verbally and thus while morally binding, not legally. 

 

 

 

Could an Illness Wipe You Out? Bankuptcy Might Need to be Planned For

http://www.freedigitalphotos.net/images/view_photog.php?photogid=721 Christine Wilton has an insightful post "Are We Just One Injury or Illness Away From Bankruptcy?"  In it, she highlights the issue of what happens if you get ill, become disabled, and the insurance just isn't there.  If there bills are enough to completely wipe you out, what should you do?

This is particularly relevant to the retired.  This past week I got 2 separate inquiries about someone who either (1) did not sign up for Medicare at 65, or (2) didn't get a Medigap policy, all based on affordability issues.  They got sick, and now want coverage, but the coverage isn't there.  Both situations were not life threatening, but could wipe out the finances they had to provide for the rest of their lives.

First, what not to do.  Christine cautions against using credit cards or drawing down a home equity line to pay your medical bills.

If you're faced with medical debt, do not use your credit cards or home equity or any other financing to pay that debt. You're only adding interest to that debt and avoiding the most likely inevitable bankruptcy. What's worse is that if you use home equity, you could lose your home later if you fall behind on your mortgage."

Some things to do:

  1. Read your medical coverage and understand its limitations.  
  2. Use pre-tax dollars when possible to pay for care (at a 25% tax rate, this mean for every $100 you are spending the government is essentially kicking in $25 because you don't have to use the $25 for taxes).
  3. Try to settle your debt - the head in the sand approach won't make it go away.
  4. Speak to a qualified bankruptcy attorney to determine if that might be your best option, as well as all the drawbacks of going that route.

 Image courtesy of: http://www.freedigitalphotos.net/images/view_photog.php?photogid=721

Large Brokerage House or Independent Financial Advisor

It's your money -  who should be helping you invest it?  Alexis Leondis at Bloomberg reports today that there is a definite trend of dollars leaving the larger brokerage houses to be placed with independent financial advisors instead.

Almost 30 percent of the world’s millionaires withdrew assets or left their wealth management firms last year, and 46 percent lost confidence in their advisers, based on a survey released in June by Capgemini SA and Merrill Lynch & Co.

Independent registered investment advisers are expected to gain about $50 billion in assets this year, in contrast to full- service brokerage firms, whose assets are projected to decline by $189 billion, according to Boston-based consultant Cerulli Associates.

The difference seems to be in the compensation structure and the services offered. The article compares retail brokers who earn commissions on sales, to fee only wealth managers who charge a fee for assets under management.  

However, the larger houses seem to be following this trend towards wealth management.   "The business has “changed dramatically” from transactional to wealth management, said Charles Johnston, president of Morgan Stanley Smith Barney".

Also, the larger houses have security behind them.  After Bernie Madoff and other investment scandals, many still want the financial strength and compliance standards provided by a name brand".

While there are two different models, in my experience, different models fit different clients better. The take away is that you have options out their competing for your business, and if you don't think your financial advisor cares enough about your dollars, or has the security to back up their control of your dollars, there are other advisors out there who would be delighted to give you the service that your deserve.

Hybrid Long Term Care Insurance

Category: Elder Law, Financial Planning

The appeal of a hybrid car is more than greater bang for your buck - it is about making an investment you feel good about. When it comes to Long Term Care insurance, the only people who seem to feel good about the investment are those who have been caregivers, and have seen the devastating costs of spending every single penny of a person's savings (or at least down to the few last pennies) and it still not being enough to cover the costs of care. However, with the US's aging population, many more families are going to find themselves in the position of caring for loved ones, and asking the question of: Where does the money come from?

Long Term Care Insurance may be a solution, but in many ways it has a bad reputation. The premiums seem very expensive, especially as the people looking at it tend to have just retired and are on a fixed income. Unscrupulous people have taken advantage of seniors with the product, tarring all long term care insurance professionals with the same suspicious brush. Another common thought is that if you never get sick, you just threw a lot of money down the drain.

A possible solution I was recently introduced to? Hybrid Long Term Care Insurance. The basic idea is that you take a lump sum of dollars and purchase Long Term Care Insurance. The dollars buy several things:

  1. A total pot of greater dollars available to pay for long term care (a $100k investment might buy you $250k of long term care, depending on your age)
  2. A death benefit greater then what you paid in that is "returned" to you heirs if you die and don't use the policy (A $100k investment might buy $200k in death benefity, depending on your age)
  3. The ability to withdraw the lump sum you paid in at some point in the future if you need it (you get your $100k back)
  4. A lump sum payment is a fixed investment - no need to pay ongoing premiums from your fixed income (you pay and "forget" it)

The cost? The loss of use of the lump sum and the growth on the lump sum unless you use the long term care benefits or the life insurance benefits.

The Street.com examined these hybrid polices in Hybrid Long-Term Care Might Be Right for You and highlighted some points to consider:

  • You have significant liquid assets available. With a single premium payment ranging from $50,000 to $100,000, a hybrid policy is only for those with significant cash available that can be reallocated.
  • You understand the risk to your portfolio. Once you have accepted that you may need care someday and that this care may be very expensive, the next step is to take a good look at what that will mean to your retirement portfolio.
  • A stand-alone, long-term care policy is not an option. If you are not interested in paying premiums indefinitely on a policy you may never use, then the hybrid product -- with a death benefit built in -- may be an option.
  • You have been planning to self-insure. If you haven't already recognized the financial risk of the cost of long-term care, you are not ready for this product.
  • The ability to get something back for your premiums and retaining control of your money is important to you. You will, at minimum, get the use of your full premium either through long-term care benefits, a death benefit or by requesting a return of premium.
  • Simplicity is important. While the long-term care portion of the policy contains the same framework of coverage as a stand-alone policy, there are fewer bells and whistles to add -- or to complicate the deal.

How Long Should you be keeping Financial Documents

Category:Tax Law and Planning, Financial Planning

I met with a client yesterday to go through decades of files to answer the question of "what papers do I still need to keep?" This seems to come up often around tax time, so much so that the question was posted on Yahoo Answers today. Yahoo's answers with my comments are below:


Dear Yahoo!:
How long should you keep personal financial records like bank statements, receipts, tax statements, etc.?

Our first stop was a web page from Bankrate.com with the perfect title: "What financial records to keep and how long to keep them." The information is laid out in an easy-to-read table format. Here's a quick overview -- for details, check out the web page.

Taxes -- Seven years. The IRS has three years from your filing date to audit your return if it suspects good faith errors, and six years if it thinks you underreported your gross income by 25 percent or more. DWL adds - Keep your returns and all the supporting information (W-2, 1099, etc.) that you relied on to fill out the return.

IRA contributions -- Permanently. DWL adds - To "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

Retirement/Savings plan statements -- From one year to permanently. Keep the quarterly statements until you receive your annual summary; keep the annual summaries until you retire or close the account. DWL adds - Make sure the summaries are correct before you toss the interim. And remember that scanning is your friend.

Bank records -- From one year to permanently. Throw away checks that have no long-term importance, but keep checks related to your taxes, business expenses, and housing and mortgage payments. DWL adds - If you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Brokerage statements -- Until you sell your securities. DWL adds - If you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Bills -- From one year to permanently. In most cases, when you receive the canceled check, the bill can be tossed. However, you should keep bills for big purchases (e.g., jewelry, appliances, cars, collectibles, etc.) for proof of their value in the event of loss or damage. DWL adds - Again, to "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

Credit card receipts and statements -- From 45 days to seven years. Keep the statements seven years if they document tax-related expenses. DWL adds - Again, if you can get on-line statements and save electronically, you can back those up separately and rid yourself of the statements and checks.

Paycheck stubs -- One year. If your W-2 form matches your stubs, you can toss your stubs.

House/Condominium records and receipts -- From six years to permanently. DWL adds - Again, to "keep" does not mean you need paper files - an annual scanning program, with a copy back-up'ed elsewhere, is encouraged.

We found a couple of other helpful articles in the search results -- one from Kiplinger.com and another from BlueSuitMom.com. Kiplinger.com suggests you keep your tax returns forever, while the blue-clad mother says it's a good idea to routinely purge and file your receipts on a monthly or quarterly basis.

All the sites offer the same piece of advice -- whether you use a filing cabinet, shoebox, or desk drawer, find a system that works for you and stick with it.

Prevent Identity Theft

"How To Prevent Identity Theft, courtesy of Valeria and Carolyn Messina.

What is Identity Theft?

Identity theft is the unlawful use of another person's identification, and may take many forms. Common methods of identity theft include credit card or other financial institution fraud, phone or utility services theft, and the taking of government documents or benefits.

Unfortunately, every day thieves are finding new ways of using the identities of their victims. Identity thieves typically get this information from:

  • Stolen wallets and purses
  • Stolen mail
  • Unauthorized access to computers
  • Telemarketing scams
  • Sharing of passwords
  • Fraudulent e-mails
  • Dumpster diving (searching through your trash can)


How can I keep my identity safe?

  • Check your credit reports and scores on a regular basis.
  • Shred any documents and mail that contain your Social Security Number (SSN), account numbers and other personal information.
  • Don't carry your Social Security card in your wallet or purse. Memorize your SSN.
  • Check financial statements and bills as soon as they arrive. Report any unauthorized transactions to the companies immediately.
  • Lock your mailbox. Deposit outgoing mail containing checks in a postal box--don't leave it sitting in your unlocked mailbox or apartment lobby.
  • At home, secure sensitive information like bank and credit card statements, insurance records, etc., where they can't be seen by visitors or workers.
  • At teller machines (ATMs), shield the PIN keypad while entering credit and debit card passwords.
  • Try to keep an eye on your credit card when you give it to a merchant or waiter.
  • When you order new checks, look out for them. Make sure they are delivered to a locked mailbox.
  • Change your passwords regularly and do not share them with anyone.
  • Nver respond to requests by phone or e-mail for personal information, no matter how urgent the request seems. Find the number of the company online and call to ask if the request is legitimate.
  • Don't give out personal information on the phone, through the mail, or on the Internet unless you've initiated the call or you are absolutely sure you know the company or person you're dealing with.
  • Read your bank's privacy notice so that you understand how it uses your information for marketing. If you don't want to get preapproved credit offers, call 888-5OPT-OUT (567-8688) to stop them.
  • Be careful about giving away information about yourself. Question why a business needs your SSN, mother's maiden name or other information.
  • Monitor your mail for missed bills, credit card statements and other mail that you expected. A missing bill might mean that a thief has taken over your account and changed your billing address.
  • Investigate mysterious purchases, charges, bills or collection calls immediately. If you receive a credit card you didn't apply for, find a strange charge on your credit card or get calls or letters from debt collectors about bills you don't recognize, call the companies immediately to address the problem.
  • Question credit offers. If you know you have good credit but your application for a new credit card is denied, it could signal identity theft. When you are denied credit, you can get a free copy of your credit report from the credit bureau used by the lender.

Changing your 529 Investment - Not so Fast

I learned something new this week - 529 plans (Qualified Tuition Plans under Internal Revenue Code Section 529) only allow one (1) investment change a year.  So, if you reallocated in February, you can't do it again in September.  Now, prior to the recent market turmoil, I don't know if many parents gave it much thought.  With the recent market turmoil, I am sure the performance of 529 Plans has become a priority conversation topic at kitchen tables round the country.  One possible solution offered - transfer the 529 Plan to a plan operated in a different state, so you can have "new" investment options.

Is your Life Insurance Rated due to Travel?

Category: Financial Planning

Life insurance companies are allowed to "rate" policies, i.e.: charge higher premiums, based on factors such as health or lifestyle. Up until yesterday, in New Jersey, one of those lifestyle factors was travel. However, Governor Corzine just signed legislation prohibited insures to rate policies based on travel.

From Scott Goldstein at NJBiz - Corzine Signs Bill Ending Life Insurance Denial Based on Travel

Life insurance companies can no longer charge higher premiums to people based on past and future travel plans to places like Israel and Indonesia, according to a bill (A-1586) signed into law yesterday by Gov. Jon Corzine.

The new law, which takes effect immediately, prohibits companies from determining premiums or denying insurance "based on an individual's intent to travel abroad, unless the decision is based on sound actuarial principles."

What does this mean to you? If your present policy was rated for travel (which applies to many New Jersey executives of global companies) you may want to look at replacing the policy as you may get a lower premium.

Long Term Care Insurance Premiums on the Rise

Category: Elder Law, Financial Planning

Just like in the mortgage market where making mortgages too cheap in years past is making them more expensive today, the Long Term Care insurance market is in the midst of an upward adjustment. While many people may think that Long Term Care insurance is expensive, having to pay out of pocket for long term care is much more so ($100k - $120k a year is not unusual in northern NJ). When insurance companies began underwriting Long Term Care Insurance policies 10-15 years ago, they didn't have a great pool of actuarial data to set the premiums. And unlike life insurance, where there is a fixed cost to the insurance company (the set death benefit), there is no known fixed cost to Long Term Care. Add to that the fact that insurance companies are in business to make money for their shareholders, it should come as no surprise that Long Term Care insurance premiums are on the rise.

What has come as a surprise to some people, however, is that even "guaranteed fixed premiums" are subject to change if the insurance company goes back to the banking and insurance commission of the state to show that all their underwriting assumptions were wrong. This can lead to either an unanticipated increase in premiums (hard to swallow on a fixed income), or a reduction in scheduled benefits.

What should you do? If you have Long Term Care insurance, call your insurance company and ask for a current benefits statement. Check that against your original policy so you can speak to the issuing agent about any discrepancies. If you don't yet have Long Term Care insurance, the price is only going to go up as you get older and the insurance companies readjust their prices.

For more, see Long-Term Care Insurance Giant Raises Premiums on Existing Customers for First Time at elderlawanswers.com.

Credit Crunch and the Mortgage Industry - How did this happen?

Category: Financial Planning

Courtesy of Valerie & Carolyn Messina at Millenia Mortgage (973-575-5557) an excellent summary, in plain English, about how we got to where we are in the mortgage industry today. They take us back 8 years so the lightbulb will go off about how the mortgage industry created the credit crunch of today.


The TRUTH about what's happening in the mortgage industry today!

It seems obvious to state that much is happening within the mortgage industry of late. We get an incredible amount of emails and questions each day about the state of our industry, so we thought we would take a few minutes to try my best to break down what has occurred and focus a little on how Valerie and I are situated and going to adjust to this rapidly changing environment.

Basically, to understand what has occurred we have to go back more than 8 years. It all started in the late 90's with the dot.com crash. Following the bursting of the tech bubble, there was a filtering of funds out of stocks into other investment tools in search of higher returns. The best opportunity for a significant increase of returns was to invest in the real estate market, which remained rather stagnate since the early 90's. So, money began pouring out of the stock market to the real estate marked in record amounts. People began buying speculatively, investing in properties, holding them a few months, and selling them for a quick profit.

Then a tragic day in the history of the United States happened; after September 11th, the economy basically nose-dived into a recession. This prompted the Federal Reserve, trying to spur economic growth, to begin lowering the Fed Funds rate which ultimately leveled off at an unprecedented level of 1% in 2003. This led to the lowest rates in the mortgage industry in 40 years. What this did was further exacerbate the already rising interest in the real estate and mortgage market. Mortgage volume hit an all time high in 2003 with 3.8 trillion dollars funded, well above the original high set in 1998 of 1.8 trillion in mortgages.

We obviously know what happened next, the interest in the real estate market exploded. Mortgage rates were incredibly low, home prices were rising, and the tidal wave that was to later occur was nothing more than a ripple in the oceans current. Toward the end of the record year in 2003, spending became robust and the fear of inflation began to rise. With an overnight rate as low as 1% in 2003, an exorbitant amount of liquidity made its way to the hands of every individual and corporation who wanted to borrow money, flooding the market with dollars; the obvious risk of inflation grew.

As the fear of inflation, rose so did long term interest rates hedging themselves against the imminent possibility of the Federal Reserve increasing the Funds rate. As this fear of inflation rose, and with it interest rates, the record volume of 2003 declined. As the worries of declining volume spread throughout the mortgage industry, another problem began to emerge. An unprecedented pricing war began in 2004 and would eventually last almost 30 months. Amidst it the Federal Reserve, fearing an overheated economy, would begin increasing the Fed Funds rate in what would amount to be 17 times ending in mid 2006 at 5.25%.

Despite their attempt to raise long-term rates to offset the over-stimulated sector, rates remained historically low. This may have been due to an incredible surge of foreign investment in our long term treasuries helping to keep yields lower; but what really affected mortgage rates on the street was the battle of price occurring between lenders. To fight for the declining mortgage volume, lenders cut their margins, narrowed their credit spreads, and simply began losing money. There were record losses now coming from most lenders.

However, midway through 2005, an uprising began. Shareholders of publicly traded banks and owners of private institutions decided they could no longer accept this dismal level of return on investment. Mortgage prices needed to rise to sustain growth, especially as volume continued to decline. This adjustment to price was the
first step toward the eventual collapse we are currently seeing today.

As banks and mortgage companies raised their price to gain profitability, they sought a way to stay competitive. Without price to drive growth, they leaned towards credit. So what began as a price war, now became a credit war. Every bank and mortgage institution began relaxing their credit standards, some worse than others. Stated Income, No Documentation, No Money Down, Lower FICO requirements, No Reserve Requirements... the list goes on and on. Instead of gaining market share by aggressively pricing their mortgage products, they made a ludicrous, but conscious, decision to ease their guidelines. This led to the worst lending practices ever seen in the mortgage industry. All universal laws of mortgage lending were broken.

To think that our industry was going to lend a 1st time home buyer with 520 credit score 100% of the value of their home and ask for stated or no documentation regarding their income or assets was insane. To expect this borrower not to default was ridiculous. Now here we are 2 years after the credit war began. 145 mortgage lenders have disappeared since 2006, 11 hedge funds have imploded in the last several months as well as two European Banks. There are 1.7 million foreclosures expected just this year compared to 300,000 to 500,000 usually seen in a normal market.

The expectations are that the peak in foreclosures will not occur until early 2008. So the record number of defaults has led to the ominous amount of foreclosures, which has led to increased underwriting standards, a rapid change to guidelines, tightening of liquidity and on and on and on and on.

DWL Speaking at Financial Conferenece

Category: Elder Law, Estate Planning, Estate and Inheritance Tax, Business Law and Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning, Miscellaneous Musings

I am excited to be speaking at the Garden State Women Magazine 6th Annual Financial Conference & Networking Event on May 12 at the Park Avenue Club in Florham Park. This is an exciting day where New Jersey's top insurance, real estate, legal and financial professionals will provide women with the information and guidance needed to take charge of their financial future. Click here for more details.

529 Plans in a Nutshell

Category: Financial Planning

529 Plan. What exactly do those 3 little numbers mean for those saving for college? Joel A. Schoenmeyer, Esq. has 20 Short Facts about 529 Plans (Part 1) and (Part 2) on his blog Death and Taxes, The Blog. In short, precise detail, Joel goes into the history, advantages, disadvatages and nuts and bolts of a 529 Plan.

FAQ: General Durable Power of Attorney

Category: Estate Planning, Financial Planning

Following numerous recent questions about what a General Durable Power of Attorney is and can do, a primer from Findlaw.com:

FAQ: Durable Powers of Attorney for Finances
Learn about the simple way to arrange for someone to make your financial decisions should you become unable to do so yourself.

How does a durable power of attorney work?
When does a durable power of attorney take effect?
What does an attorney-in-fact do?
How do I create a durable power of attorney for finances?
What happens if I don't have a durable power of attorney for finances?
I have a living trust. Do I still need a durable power of attorney for finances?
Can my attorney-in-fact make medical decisions on my behalf?
When does a durable power of attorney end?

An important caveat - in New Jersey and many other states, your attorney-in-fact cannot make gifts unless the power to make gifts is specifically authorized. This is very important from many perspectives: a failure to include a gifting provisions can stunt the ability to Medicaid planning, while, on the other hand, a gifting provision can be abused if the attorney-in-fact uses the gifting provision to transfer assets to himself or herself.