5 reasons an addict won’t seek help for recovery

Do you have an addict in your circle? Those suffering from addiction do not always appear to have problems.

Some signs you may notice that indicate that someone is in trouble can include when they drink or use drugs when alone, keep these things hidden away in out-of-the-way places or actively isolates themselves, ignoring friends, loved ones and activities they once enjoyed. This person may exhibit erratic behavior and suffer from troubling physical symptoms when attempting to get sober.

Addiction incurs enormous costs for all of us, whether we have an addict in our circle or not. The challenges with which we wrestle on a societal level are innumerable, including the far-reaching impact of drunk driving, complex medical issues requiring subsidies that affect all of our premiums and homelessness.

However, convincing the addict to get help and to accept recovery is an immensely difficult undertaking.

Here are five lies addicts tell themselves when confronted by loved ones about their addiction. Any one of these keeps them from recognizing that they should get help.

“I would be fine if everyone would leave me alone.”

Placing blame is one of the excuses an addict uses to justify substance abuse.

They often believe family and friends are just trying to make their lives worse, and it is usually nearly impossible to convince them otherwise. Besides the denial they exhibit when they explain why they drink or use, drugs and alcohol can actually cause or heighten feelings of paranoia.

Because of these factors, in addition to the secrecy surrounding their using, the addict can feel very isolated and lonely.

If you have an addict in your circle, it might be helpful to keep a written list somewhere of those people who care and who have attempted to intervene to help. If the addict cannot hear you at this time, this list may serve later on to remind them who does care, if and when they are willing to listen.

“I can quit anytime I want.”

An addict is usually convinced they are in control of their life.

In fact, it is the substance that controls them. Even so, they believe that they can monitor if and how much they use. Nothing could be further from the truth.

If there’s an addict in your life, you have witnessed first-hand how they will choose substance over family, friends, work and anything else in their life, including future possibilities.

Although you cannot convince an addict of this, you can outline patterns of their abuse and their choices, and use this as part of confronting them.

“If I have to ask for help, this means I’m weak.”

Addiction is stronger than the individual will. The addict believes there is something wrong with them if they can’t detox alone.

This may come from having heard statements by others that include, “Why don’t you just quit?” or “Why do you do that?” Or, they may have heard a story about someone just “kicking it.”

In fact, barring a random miracle, the addict is a prisoner to the substance, and shaming them only makes them retreat and isolate further. And although it is usually impossible for an addict to quit on their own, it’s helpful to urge them to see that because of the nature of the substance and its control over them, asking for help is courageous.

“It’s my choice if I want to screw up my life.”

Substance abuse isn’t the only problem in an addict’s life. Addiction generally spawns legal and financial problems, compromised health, lost relationships, and dishonesty cutting off personal and professional opportunities.

As this happens, other lives are touched. Friends and loved ones suffer in various ways if they stay in such a relationship. The negative impact of the fallout from addiction touches all of us, as I previously mentioned, even if we do not have an addict in our immediate circle.

“Drugs (or alcohol) is better than detox.”

The addicted person may often fear detox, hearing horror stories about withdrawal experiences.

Indeed, the longer a person has used, the more intense detoxing may be. These symptoms used to include fever and chills, vomiting, hallucinating, insomnia and more.

However, we have learned a lot about how to help mitigate these symptoms as of late, and detox is now usually tailored to the individual client, including the prescription of medicines where helpful, in order to ease the negative effects of detoxing. Moreover, detox should include follow-up care in a comprehensive program designed to help will feelings of stress, anxiety, and depression, as well as learning new, healthier behaviors to replace abusing substances.

If someone you love is suffering from addiction, please do not shun them. Do not shame them. Educate yourself about the role you may be able to play in their recovery, and seek professional help for advice in intervening, if and when appropriate. The future they can have through recovery is one of possibilities and of joy.

Patti Cotton works with business owners, executives and their companies, to elevate and support leadership at all levels. Reach her at  Patti@PattiCotton.com.

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Not minding personal finances? Some tips to get you back on track

As a financial adviser, I work with individuals and couples. Typically, when a couple engages me for financial services, one person is more in tune to the finances than the other. In many circumstances, the woman in the relationship may pay the bills, and then steps back, relying on her partner to make the more impactful financial decisions.

This process may feel comfortable for the couple, but it will come to an end in the event of a divorce or death. Often, when life abruptly changes, the woman, due to her lack of involvement in the household finances, feels ill-prepared and overwhelmed by her new role.

But what can you do about it? So that you will never feel helpless, learn to be accountable for your finances. First, you need to analyze your monthly cash flow. Budgeting will help prioritize spending, earmark money to save for the future, and plan for short- and long-term goals. Are you living within your means or spending more monthly than income allows?

The goal of a budget is to ensure you are meeting those basic needs — and some wants — without spending more money than you receive as income.

Manage credit and debt

Credit is borrowing money to buy goods and services with the promise that the money will be paid back by a specific date. Credit cards are easy to access and, if properly managed, are a good way to establish credit. When you apply for a credit card, it’s important to understand the terms. Often, the fees and interest rates are not obvious when you are signing the application.

Even if you intend to pay off your credit cards monthly, know what the current interest rate is on the card. The annual interest rate on your credit card will be nowhere near the 0.05% interest rate the bank is paying on a savings account but closer to a range of 14% to 26%.

When you apply for a credit card, a loan, or insurance, a file is created on you. This file is managed by credit reporting companies, and the information is called your credit report. Payment histories and the amount of credit are tracked over your lifetime. Credit history is important, and without a credit score above 720, it can be difficult to finance a home loan.

Credit card reporting agencies know that when a consumer carries high credit card balances, their default risk increases, and the agency will penalize the consumer by lowering their credit score.

If your credit history is poor, perhaps because you are not making your loan payments on time or at all, it can take up to seven years for the data to be removed from your credit report. Some negative credit issues, such as bankruptcy, can last 10 years on a credit report.

Leasing a vehicle

When you lease a car, you will usually have lower monthly payments than if you finance a car with a loan. You can transition to a new car every two to three years by simply returning the car to the dealer at the end of the contract.

The debt will have to be refinanced or the outstanding balance paid if you want to keep the car when the contract has reached its term. Additionally, lease-holders can be penalized if they terminate a lease early, exceed the allotted annual mileage, or damage the vehicle through excessive wear and tear. Before you lease a car, understand the long-term ramifications of this decision.

Watch your Investments

The objective of a quarterly investment statement is to help you understand how investments are allocated and if they are increasing or decreasing in value. It is a tool to help you manage and maintain a portfolio.

Do you need to sell a stock that has lost value? Will you be paying income tax on capital gains? Are your equity investments losing value when the stock market is up?

Review your statement every month. If something does not seem right, do not be afraid to do a bit of research or ask your adviser questions until you feel satisfied with the answer.

Save for retirement

Delaying saving for retirement often means you will be working well into those golden years. There is not a simple solution if you are in this situation. If you are over 50 and have not established a retirement account or have one that is dangerously underfunded, take the time now to meet with a financial adviser to implement a retirement savings strategy.

If you wait too long to fund your retirement, you may have ignited a fire that you will never be able to extinguish.

Before committing to financial decisions that could negatively affect you in the long term, evaluate your financial position. Carefully think about the outcome to your finances if the action backfires. Place your needs first and learn to say no when it is in your best interest. Remember that in retirement, you will need assets and income sources to maintain your current standard of living.

Insurance limits

Review your property and casualty insurance policies with insurance agents to determine if the coverage is sufficient. To minimize premiums, many auto or homeowners policyholders carry very low liability coverage limits. California only mandates 15/30 automobile liability coverage, which insures you for $15,000 per person or a total of $30,000 per accident.

If you have accumulated any assets, this coverage is insufficient. Do not assume that, just because you are paying for insurance, you are adequately insured. Confirm with your insurance agent or financial adviser that the insurance you are paying for protects your assets.

Review tax returns

Filing a tax return and paying taxes is not anyone’s favorite task. Gathering data to submit to the tax preparer is a chore and waiting for the results can be laden with anxiety. When the tax preparer calls and provides an update, good or bad, make sure to spend a few minutes reviewing the data.

What is your household income? Does the information on the tax returns look accurate? If reading your tax returns is completely foreign to you, ask the tax preparer to explain the information you are reviewing.

You may not prepare your state and federal tax returns, but you will sign the documents and are accountable for accurately reporting the information to the tax reporting agencies.

Learn to negotiate

Strong negotiating skills are beneficial when seeking a raise or a promotion and when buying a home or a new vehicle. However, people are often intimidated by the prospect of having to negotiate. Spend some time to learn and practice the key steps to fine-tune this art. Fortunately, many free resources are available online. Successful negotiators learn to control the process, coming away with an outcome that feels equitable and favorable to their objective.

Being more engaged with and vocal about finances will not only increase your confidence, it will also empower you to maintain control of your financial life over the long term, which is especially important as women continue to live longer than men.

Teri Parker is vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at Teri.parker@captrustadvisors.com.

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In a changed business world, leadership coaching matters even more

Returning to work means reexamining how you operate to get things done. It’s an opportunity to see whether you and your staff can be even more effective in light of the new complexities that have changed the business world. It’s time to fine-tune your leadership and take it to the next level.

But as business owners seek to develop their leadership and that of others in the company, they often focus on presenting workshops, classroom training and mentoring programs. These have proven to be the least effective in developing leadership. Executive coaching, which is called upon less frequently, has proven to work best for leadership development, and the numbers reflect this.

“But my training budget is modest,” said one leader. “I can’t give every executive her own private coach.”

While executive coaching does appear to be more costly, the return is also much higher. When businesses invest in executive coaching to develop greater leadership, they recognize a return on investment (ROI) that is 7 times that of their initial investment, according to studies by PriceWaterhouseCoopers and the American Management Association. At least 25% of those same companies reporting a return of 10-49 times the investment.

Related: Nominate your company as a Top Workplaces 2021

How might your business benefit from such returns?

Typical ROI results reported from executive coaching include but are not limited to increased revenue and profitability, reaching, or exceeding organizational goals, higher performance and productivity, greater creativity and innovation, and enhanced skills in communications and conflict management.

At the same time, leaders have all heard disappointing stories of coaching experiences that cause them to hesitate. “How do I know it will work?” asked one executive. “My colleague really enjoyed his coaching experience, but he said it never really help him reach any tangible goals.” Sadly, his story is not unique.

How can you ensure, then, that your investment will pay off sizable dividends? Careful planning to identify a leader’s development goals and objectives is not enough. The coaching engagement should be overseen by a formally-trained coach using proven methodologies, and the plan should have distinct measurables (more numbers!) that serve as success markers to gauge how well the process is working.

You may also consider team coaching that can make the most of your budget and still have great returns.

A lot of leaders, in their eagerness to get “back to normal,” have given little thought to leadership development. The return to work has been first and foremost on most minds. However, with the complexities that COVID-19 has brought to us, leaders and other decision-makers will need to sharpen their skills in decision-making and execution.

Indeed, the COI (cost of inaction) when it comes to leadership development is staggering and has increased exponentially with the new business landscape. For example, 67% of all productivity loss can be attributed to poor communication and conflict. Less-than-optimal leadership practices can cost a business an amount equal to as much as 7% of its total annual sales. There’s much more, but I think you are getting the picture.

So why don’t more companies take advantage of this tool? Leaders fall into what we call “normalcy bias,” where they feel they are doing well, even when they are not. They may feel that coaching is only for corrective situations, or their executives seem too busy for coaching. And many feel their teams are meeting every goal they set. If this latter is your case, I’d challenge you to think about whether things are just too easy, and what could be accomplished by stretching those goals.

As the great “return to work” continues, and you think about whether your company is ready for more change, ask yourself if you are really fully equipped to lead it. Make sure that your investment, however you allocate it, provides you with a great return.

Patti Cotton works with executives, business owners, and their companies, to elevate and support leadership at all levels. Reach her via email at Patti@PattiCotton.com.

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The ease of legalease: What to know about legal terms

All occupations have their own industry-speak, and lawyers may be among the biggest offenders.

In our defense, some of the language of the law is in fact Latin. But understanding the terminology is important when it comes to knowing what documents you need in place and what is necessary to accomplish your estate planning goals.

Will vs. trust

I regularly get phone calls from clients wanting to update their wills, or beneficiaries wanting to know what their relative’s “will” says. In most cases, they’re really talking about the trust.

Wills: In California, if at the time of your death you have more than $166,250 in assets (with a few exceptions), your estate must go through probate in order to transfer those assets to your heirs. This is true even if you have a will that carefully dictates who is to receive your estate. The terms of the will, and the process for carrying those out, are overseen by the probate court and are public.

Trusts: It is very common to implement a living trust to hold title to your assets during your lifetime and for some period thereafter. Living trusts are called this because they are implemented during your lifetime, and they continue to “live” past your death.

Assets titled in the name of the trust will not be subject to probate proceedings. Instead, your named successor trustee will be charged with carrying out the terms of your trust, including the distribution of assets. The terms of your estate distribution are set forth in the trust itself, not in a will. Thus, the terms are private and not subject to court supervision.

Pour-over wills. Even with a trust in place, a will is necessary. The will provides that, in essence, if you forgot to title an asset in the name of the trust or recently acquired an asset in your individual name, such asset is to be “poured over” into the trust.

Not surprisingly, this is called a “pour-over will.” Thus, the will does not say who gets what or when—it says simply “give my assets to the trustee of my trust and let him/her deal with it” (only in fancy legal terms often involving Latin). The substantive stuff—the things people really want to know about—is in the trust, which is not a public document.

Incapacity documents

There is often much confusion regarding powers of attorney and conservatorships as well. In many cases, a duly activated power of attorney is all that is required. However, a court-;conservatorship may be necessary in more serious cases.

Power of attorney: A power of attorney is a document that authorizes a party to act on behalf of another. The power of attorney can be given voluntarily by the principal party—for example, an elderly parent who has the mental capacity but not the desire to continue managing financial affairs. Or, the power of attorney is activated when the principal is determined (usually by a physician) to be unable to handle their own financial affairs.

The agent named in the power of attorney only has the powers specified in the document and must act in good faith for the benefit of the principal.  A power of attorney is not valid after the principal has passed away. Importantly, the execution of the power of attorney by the principal, even when the principal is declared incapacitated by a physician, does not take any rights away from the principal. The principal may still act on their own behalf; it’s just that the agent can also act on the principal’s behalf.

Conservatorship: Where it is necessary to prevent a person from acting against their own interest, or in more serious cases of incapacity when a person is incapable of acting on their own behalf, a legal conservatorship is necessary.

A conservatorship is a legal proceeding wherein a determination of the need for a conservatorship of the person and/or the person’s estate is made, along with the appointment of the person(s) to act as conservator. Once a conservatorship is in place, the power of attorney is no longer valid, and the conservatee loses the right to act on their own behalf.

Health care documents

Another area of confusion is health care directives versus health care powers of attorney, “DNR” orders, and “POLST” documents.

Health care directive. This is the same thing as a health care power of attorney — it’s called an “Advance Health Care Directive” in California and a health care power of attorney in some other states. Whatever the name, it is a document that states who can make health care decisions for you if you are unable to, and, in general terms, what sorts of decisions you’d like made (pertaining to matters such as pain relief, life-sustaining treatments, and hospice care). The agent named in the health care directive is also the party responsible for decisions regarding post-death matters (organ donations, autopsies, choice of mortuary, cremation, burial, etc.)

DNR: A “do not resuscitate” order, known as a DNR is signed with your medical provider, although the agent named in your health care directive can be authorized to sign a DNR on your behalf.

POLST: Finally, a “POLST” is a “physician’s order for life sustaining treatment.” This is a document (frequently it’s pink) signed by a person, usually seriously ill and frail, and his or her physician.

This is a document relied upon by emergency medical personnel (who will not read or interpret the health care directive) because it includes a doctor’s orders based on the patient’s preferences for medical care. A POLST often includes a “DNR” order.  Keep a POLST handy and visible in the event emergency personnel respond to a 911 call.

Each of these documents serves a specific purpose and should be discussed, implemented, and reviewed with legal counsel and medical personnel on a regular basis.

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. You can reach her at Teresa@trlawgroup.net

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Who are the team players in your financial game?

Which is your favorite team?

Whether you said Angels or Dodgers, Ducks or Kings, I hope your next thought was, “but I really love my team of financial and business advisers, too.”

Our uniforms aren’t as colorful, and we rarely serve hot dogs or peanuts, but if you’ve got a financial planner, an accountant and an attorney working collaboratively toward your goals, you’re ahead in the game. And you’ve got a team that’s rooting for you, which is a nice twist.

One or more

Often clients will feel they maybe only need one of these professionals, and then try to have that professional cover the other bases as well, perhaps thinking this is more cost-effective. But it makes as much sense as having a Major Leaguer play basketball and football and expecting him to be an All-Star in those sports as well.

Each professional has their own strengths, which should be utilized accordingly. Sure, occasionally there’s a Bo Jackson or a Tim Tebow-type who is both a CPA and a CFP or CPA and attorney; just be sure you know what position they’re playing for you.

I’m an estate planning attorney. I help my clients plan for death, disability and leaving a legacy. Often that involves trusts that last for several years to several generations. Sometimes the game plan calls for lifetime gifts, transfers of business interests, forming new business entities that bring in younger generations on the ground floor, and/or charitable gift planning. None of this can be done in a vacuum.

The team

This type of planning requires a thorough understanding of the client’s hopes, concerns, goals and values. I spend some time discussing just that with my clients. But I also need to understand a client’s current and future financial situation. Yes, the future — do you have an inheritance coming? Is there a lawsuit pending? When are you retiring? Have you earmarked certain funds for a lifetime goal?.

The person who may be most familiar with that is the client’s financial planner, and he or she should be involved in the discussion. This will save time, money, and frustration in the long run if everyone is working toward your same goal.

Discussing gifting of assets (whether to family or charity) or business succession planning can never be properly done without the input of an accountant.

For example, if I suggest a certain gift to descendants, the accountant will be in the best position to know the specific tax consequences of such a gift and perhaps suggest the assets that are best given to charities versus a family member.

Furthermore, it’s the accountant who will need to prepare future gift tax returns and income tax returns for you and any new entity. It’s best not to surprise them with that information on April 14th.

Likewise, if you’re talking to your CPA or financial planner about forming a new business entity, he or she may suggest, for example, an S corporation for tax reasons. It’s likely the estate planning attorney is going to advise the irrevocable children’s trust you formed and wish to have as a shareholder will not qualify as an S corporation shareholder, so perhaps we should look at a limited liability company.

Open lines of communication

Odds are good you meet with your accountant and financial planner at least annually. This is probably not so with your attorney. Thus, your CPA or financial planner is more likely to know when something has occurred in your life or business that should be brought to the attention of your attorney or another member of your team who can take it from there.

If those team members already know each other and work together, it’s more likely they’ll be sharing relevant information (with your permission, of course) regularly. This passing of the ball makes for a stronger game, with fewer fouls.

Around this time of year, I frequently hear from accountants I’ve worked with for mutual clients through the prior calendar year. Sometimes they need a copy of a trust, the appraisal we had done in connection with a gift or just a refresher on what entities were set up when and why so that tax returns can be prepared (or extended. (Hey, it’s 2021, and nothing is normal.)

Sometimes there are tax and business decisions to be made, and future plans to be discussed. I always think how nice it is to be part of a winning team that has the same strategy and focus. I think the clients feel that way too (even if initially they may have been worried about exceeding their salary caps).

Pick your team. Introduce them. Let them play ball together for you. Trade when necessary.

By the way, my dog’s name is Percival. Go, Angels!

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles. You can reach her at Teresa@trlawgroup.net.

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Why married couples should be a tax-cutting team

Most professionals can remember the experience of working with their first client. My first client thought the large capital losses I reported on her tax return must have been a gross error due to my inexperience as a fresh-out-of-college accountant.

She exclaimed that the losses were impossible because her husband, who had recently started to day trade, had told her all year how much money he had made.

When I patiently reviewed with them the losses on the statements from the broker, the husband had an explanation, “It is OK, honey. I only sell the losers.”

As the story illustrates, tax time is also a financial reckoning time for couples when they realize how much they actually made (or lost) and where all the money was spent. Just last week, millions of married couples were looking forward to stimulus payments they didn’t receive because their income exceeded the threshold.

Some spouses were surprised to find their combined adjusted gross income was over $150,000. They also found themselves asking each other, “Where did it go?”

Many couples also assumed that last year they saved money by not physically going to the office and that they could deduct the expenses of telecommuting. Instead, they found out that they spent more than they had thought on delivered lunches and that the home office set up and lunches were not deductible employee expenses under the new tax law.

Tax professionals often find that married clients act as if they are two single individuals who just happen to file together on one form. Once a year, the spouses come together and combine their W-2s, 1099s and their deductible expenses. The numbers are added together on a jointly filed return. Not much thought is put into coordinating what they are doing to reduce their tax burden during the year.

Instead of experiencing these surprises annually, what if you and your spouse became a tax-cutting team? Here is the truth about the challenges of cutting your taxes and an example of what you might be able to do to remedy it.

The truth is, there is not that much opportunity for tax planning if you and your spouse earn a wage or salary and if you do not have investments or a small business. If your taxes are based on a couple of W-2s, some bank interest on a 1099 and a 1098 for your mortgage, please do not blame your tax program or preparer if you owe.

There is no special trick or secret knowledge to reduce your taxes. The government changed the withholding tables a couple of years ago, so you have more in your check every pay period in exchange for a smaller or no refund at tax time. Many who routinely anticipated refunds now owe.

The standard deduction for married couples filing jointly, which is the amount you can claim instead of adding up and using your itemized deductions, is $24,800. As a result, less than 14% of taxpayers itemized deductions on their federal returns in 2019. So, unless you created tax planning opportunities by opening a small business or by investing, there is not much even the best tax professional can do to reduce your tax bill.

But all is not lost. You can create opportunities for tax planning with your spouse. Here is a good example.

Don, who is married to Melodie, makes a decent salary at a real estate investment firm. Melodie previously was a dancer but decided to stay at home with their two young kids. Since they took the standard deduction and their only income was Don’s W-2 and some bank interest, there was no opportunity for tax planning.

They often argued about Melodie’s expensive passion for health and fitness activities, and Don voiced concern for her safety at the gym. Melodie felt lonely not working out with others and expressed interest in providing personal training services.  After much discussion and the required permits, they renovated their garage, where Melodie trains others. She also sells supplements and workout gear online.

Melodie’s hobby became a business. Her costs became deductible expenses, and she earned some extra income. Working together, the couple was able to support her aspirations and reduce their taxes.

To deduct expenses under IRS safe harbor rules as a legitimate business and not as a hobby, an activity must generate a profit in at least three of five years ending with the tax year in question. In other words, you can deduct a loss for two of five of your first years in business. But there is still a benefit even if you or your spouse only net $1 in income each year. The costs of the hobby were paid out of the business revenue and not from the household budget.

There is also a chance that you can make it big if you support the dreams of your spouse. Disney, Mattel, Amazon and many other companies started in homes and garages.

The first step to becoming a tax-cutting, wealth-building team is to set an appointment with a tax planning professional (and your spouse). Look for someone interested in individual and small business tax planning vs. just tax preparation or other services.

Ask for referrals from your other professionals or financially successful people you know and look at their website’s content. Seek out someone you can build a relationship with who has time for you. And please, do not be too concerned if they are on the younger side.

By the way, my first client, 30 years later, is still a client and dear friend. He no longer day trades.

Michelle C. Herting, CPA, ABV, AEP, specializes in most things related to trust and estate taxes, gifting, and succession planning. She has three offices in Southern California.

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In marriage we trust: Why having an estate plan is a must

I have frequently heard from couples who put off estate planning because they couldn’t agree on a plan. I usually say this is the same as not going to the doctor because you haven’t diagnosed yourself.

An estate planning attorney’s job is to guide you through the options available and the techniques that can be used to meet the goals you both have, even if those goals may seem to conflict. There are always options. Here are some …

Separate and community property

Married couples often have estates that vary in size. One partner may have accrued net worth from before the marriage or inherited property from their parents, resulting in a large sum of separate property in addition to their half of the community property accrued during the marriage.

The spouse with more assets may be hesitant to have an estate plan that leaves everything to the surviving spouse, particularly if there are children or other dependents. This may be the case even when the assets are all owned equally.

What if the surviving spouse remarries and leaves it all to the new spouse? What if the surviving spouse has more kids later? What if the cabana boy or girl seduces it all away from the surviving spouse?

These are all concerns that can be handled through the use of trusts. A living trust can provide that on the death of the first spouse his or her share of the community property and all their separate property will be held in a separate trust known as the “decedent’s trust”.

The decedent’s trust can provide that the income and principal are available to the surviving spouse if needed, but the surviving spouse cannot change the beneficiaries, thus giving some assurance that the decedent’s plan for their assets will be carried out.

The surviving spouse could be the trustee of the decedent’s trust — that is, the party responsible for managing the assets and making distributions pursuant to the terms of the trust. Or, for extra security, a third party could act as a trustee.

Another option would be to allow the surviving spouse to serve as trustee unless and until they remarried, at which point a third-party trustee takes over, and perhaps distributions from the trust are more restrictive.

Alternatively, consider having an adult child serve as co-trustee with the surviving spouse in the event of remarriage.

Children from other relationships

“His, hers, and ours” children are not uncommon in modern-day marriages. A spouse generally wishes to care for their surviving spouse but also wants to be fair to their children. We’ve all heard stories of the “wicked step-parent” who took all the assets, cut out the deceased spouse’s children, and left it all to their own (no-good) children.

Again, leaving the first-to-die spouse’s share of assets in a trust, with a carefully designed plan for trusteeship and distribution of those assets, can meet the deceased spouse’s goals, while keeping peace among step-relatives. The trust assets can be available to the surviving spouse under certain conditions, and then distributed to the children (biological, adopted, step, as set forth in the trust) upon the surviving spouse’s death.

With blended families, consideration should be given to a professional fiduciary to serve as trustee. A professional can balance the desire for income to be distributed to the surviving spouse against the need for preservation or growth of principal for the children who are the successor beneficiaries. And, a professional trustee isn’t sitting at the Thanksgiving table, so financial discussions won’t take attention away from the feast.

I also often suggest parents consider life insurance that pays immediately to the children, so there is at least one gift to the kids that isn’t contingent on the death of a step-parent. Sometimes a plan as simple as life insurance to the kids, all else to the surviving spouse, can work well for all parties.

Different heirs

Sometimes the issue isn’t the kids or even the size of each partner’s estate, but simply that each spouse has a different choice for the ultimate beneficiary, be it a charity, nieces and nephews or friends. Again, a trust can work to achieve different goals.

Spouses can agree that upon the second death one-half goes to spouse A’s beneficiaries and one-half to spouse B’s. They can either keep these all in one trust and “trust” that the surviving spouse doesn’t change the terms, or again have the trust split into two at the first death, with half becoming irrevocable.

Other options

When one spouse has significantly more assets or each has significant separate property, spouses may want to consider having separate trusts — one that holds separate property for each and one that holds community property.

It’s also possible, and can be good planning, to gift assets to children during your lifetime through the use of irrevocable trusts.

Each of the options discussed in this article has many variations, and the structure of a trust has estate, income, and property tax consequences, all of which should be discussed with your estate planning attorney. You don’t need to have the answers ahead of time; you just need to have the discussion with a professional adviser.

They don’t call us counselors for nothing.

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles. Reach her at Teresa@trlawgroup.net

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Family money: Trusts, taxes and how to plan lifetime gifts

Warren Buffett said that the perfect inheritance is enough money so that children feel they can do anything, but not so much that they could do nothing. This is pithy advice.

How much inheritance that amounts to, when to give it, and how, is the real crux of the matter for most families.

New laws motivate gifting.

Intergenerational transfers of wealth are nothing new. Passage of California’s new Proposition 19 caused significant upticks in the lifetime gifting of real property. And now, President Joe Biden’s tax proposal seeks to lower the estate tax exemption to $3.5 million per person, lower the gift tax exemption to $1 million, eliminate the step-up in income tax basis at death, and raise the capital gains tax rate.

As a result of all these changes, we are likely to see another tsunami of intergenerational gifting to take advantage of the current, more favorable tax laws.

Current law allows for lifetime gifts or gifts at death up to $11.7 million per person. With the expected decrease in the estate and gift tax exemptions, it’s likely many parents will consider gifting assets to children before any new tax law tax effect.

If a parent gifts $5 million in assets currently, the gift would be covered by the current exemption. If the estate tax exemption is later lowered to $3.5 million, the parent will have no further estate tax exemption remaining, but will not be subject to gift or estate tax on the “excess” $1.5 million they were able to gift before the law changed. In addition, the appreciation of the $5 million in assets between the time of the gift and the death of the parent will occur in the child’s hands, and thus outside the estate of the parent, saving even more in estate taxes.

The tax tail wagging the dog

While there can be significant benefits to gifting property to your children, or even grandchildren, sooner rather than later, how that is done should be considered carefully. Whether your estate is likely to be taxable or not, taxes are not and should not be the only concern.

Also, consider your family goals, the legacy you mean to leave, and whether or when your child or grandchildren might be able to handle the responsibility of such a gift. Also consider the vehicle for the gift, whether that should be a gift outright, in trust, in family partnership interests, or another business entity.

Gifts in trust

Large gifts to children and grandchildren should almost always be made using trusts. A gift during a lifetime or at death can be made through an irrevocable trust for the benefit of your children, and even your grandchildren.

An irrevocable gifting trust allows you to do tax planning while also providing your heirs with other benefits. It is not “controlling from the grave” so much as it is giving your heirs a leg up.

A trust can serve as a vehicle to train your heirs in the management of assets by providing for a third party to serve as trustee, allowing your heir to become a co-trustee at a certain age, and a sole trustee at a later age.

If your heir is in a high-risk job where lawsuits are a concern, a trust can provide them with protection from creditors. If you’re worried your child’s spouse would burn through your child’s inheritance, a trust can be structured to prevent that.

Think of the grandchildren

Grandparents can also provide for their grandchildren in a trust.

A trust can provide for the benefit of a child during the child’s lifetime and then for the grandchildren under similar terms. If the child has no choice and the grandchildren are the mandatory successor beneficiaries, the assets of the trust will not be included in the child’s estate, which could save significant estate taxes.

However, such a trust, known as a “generation skipping” trust (the tax skips a generation, not the trust’s benefits) would mean there is no step-up in income tax basis in the assets. If instead, the child was not likely to have a taxable estate even with the trust assets counted in their own estate and the income tax step-up in basis would be more valuable, the trust could simply give the child the option to exercise a power of appointment to say where the assets go at the child’s death.

If the power is not exercised, the trust terms providing for the grandchildren will prevail. In a sense, this is advance estate planning for the children by providing a default plan.

Trusts, whether for children or future generations, can provide very specific terms for when income or principal can be distributed to the beneficiaries to assure that your family goals and values are maintained.

The family business

A family-owned business often presents the biggest dilemma for parents, especially if one or more of the children (or perhaps the spouse of a child) is involved in the business, but the others are not.

Generally, a family business should be held in an entity (corporation, limited liability company or partnership) for centralized government, protection from creditors and ease of transferring between generations.

With an entity, parents can assure that control is in the hands of the active participants in the business by creating voting and non-voting ownership interests, adopting a business succession plan for leadership, and/or giving the majority interest to the child involved in the business.

If the parents also own the real estate on which the family business operates, consider gifting the real estate to the children not involved in the operating business, and the business itself to the active child.

Gifts of business interests in trust should also be considered since the trustee can then be carefully selected to manage the interest on behalf of all beneficiaries.

A legacy

Carefully considering when and how your children and grandchildren receive an inheritance is an opportunity for leaving not just property, but a legacy. A well-drafted and often reviewed trust is a vehicle that allows for that legacy to be maintained for generations to come.

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.”  Reach her via email at Teresa@trlawgroup.net

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A new year after a tumultuous one: What’s your net wealth now?

Many of us are relieved that 2020 is over and we are beginning a new year.

Last year was not a year that any of us would have wished for. The firestorm arrived in March when the whispers of COVID-19 became a reality. Our rug was pulled out from under us, and life quickly changed. The stock market fell, unemployment levels climbed and anxiety became an emotion we felt daily. In the end, the year was full of highs and lows. The markets recovered, some businesses failed while others thrived, all while we quarantined. In some manner or another, life was different.

This year, we may have the same resolutions as in the past — such as losing weight, exercising or eating healthier. Or our normal resolutions may feel frivolous because our needs have significantly changed. Our goals may be much direr this year, such as finding a job or putting food on the table for our family.

No matter where you fall on the spectrum, as we enter the new year, take a bit of time to review your finances.

Do you know your net worth?

Whether your net worth is high or low, you should understand what it is. Without understanding where you are now financially, how do you plan for your future? Calculating your net worth sounds complicated, but for most people, it’s not. Make a list of your assets (what you own). Then, subtract the liabilities from the assets (what you owe) to determine your net worth. If you have never done this, use this year’s net worth statement as a benchmark going forward. Every January, compare your statement of net worth to those of prior years.

Is your net worth growing or decreasing? Understand why it has changed. Are you saving more, has your debt increased or was the stock market up or down?

Create a budget

Do you know where you’re spending money? Most people know their mortgage and car payments, but fewer pay attention to the amounts they spend on food, Instacart or online purchases, especially if they are using a credit card.

Budgeting will help you understand how you’re spending. Track all expenses for a minimum of 30 days or, better yet, the entire year. Write out monthly expenses first, then add up any additional spending. After you’ve tracked expenses for a month, think about the following:

— Where can you reduce spending? If your income has decreased and there’s a monthly shortfall, examine which expenses can be eliminated or minimized.

— Are you using credit cards monthly because you’re short on cash? If so, does the card come with a low interest rate? Do not avoid looking at the statement to understand the rate and your options.

— How can you eliminate outstanding debt?

— Are you maximizing your annual contribution and employer match in your retirement plan?

— How much will you need to save to maintain the same standard of living in retirement?

— Are you saving enough to meet goals?

Plan for big-ticket items

Are you planning on moving, buying a car, replacing your roof or paying for college tuition in the future? Do you know how much this expense will cost, and have you thought about how to pay for it? If the money is not readily available in the savings account, pencil out a timeline, break the expense down to a monthly cost and plug the expense into your budget.

To avoid accumulating unwanted debt, what changes in your spending can you make now to save for this goal?

Prepare for the unexpected

As we were reminded in 2020, life can change unexpectedly and fast. Are you prepared for a job loss, illness, disability, natural disaster or lawsuit? Insurance and savings can protect you against unforeseen events.

— Do you have an emergency fund with at least six months (or more) of expenses in a savings or money market account?

— Are you adequately insured to meet your risk?

— Do you have a disaster plan in place and supplies readily available if an unexpected natural disaster occurs?

If you are tech-savvy, consider storing inventories and important documents on a portable hard drive. It’s also a good idea to retain copies of birth certificates, passports, wills, trust documents, records of home improvements, and insurance policies in a small, secure evacuation box (the fireproof, waterproof kind you can lock is best) that can be grabbed in a hurry in the event of an evacuation.

Protect your estate

Without proper beneficiary designations, a trust, a will, and other basic documents, the fate of your assets or minor children may be decided by attorneys and tax agencies. Probate fees, taxes and attorneys’ fees can erode your estate and delay the distribution of the assets when heirs may need them the most. If estate planning documents are not in place, schedule a meeting this year with an attorney who specializes in estate planning.

As we enter a new year and ponder the outcome of 2021, the unknowns are many. While our future may be uncertain, understanding where we stand financially provides the opportunity to make sound financial decisions, not emotional ones. While we cannot control our future, we can control our actions, understand where we stand financially, and make sound financial decisions based on that knowledge.

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Reset, reboot, relaunch – it’s all about 2021

As 2020 comes to a close, it is natural to feel hopeful about 2021.

We have promising vaccines to combat the COVID-19 virus, which has, up to now, dictated how we redirect and lead our lives over the majority of this current year. We had a tense presidential election, no matter how one voted. The emotions surrounding the process and the event have been significant. Other local, national and world events have added to this stress.

It is only natural then, that coming to year-end, people reflect on renewal and relaunching their lives. Whether or not you are a fan of New Year’s resolutions, almost all of us hope to experience a more positive and enjoyable 2021.

Part of a great “reset” involves three steps:

Reflection. A reflection on what went well. What were your accomplishments? For what would you like to congratulate yourself? What did not work well? For example, if you found a creative way to strike a work-life balance, this is a win to be congratulated. If you made the commitment to exercise 5 times weekly and did not meet this, flag this as something that did not work well. Write these wins and losses down.

Learning. What lessons have you learned after reflecting on the wins and losses that you have listed? Perhaps you decided to turn off your computer at a certain time each day so that you could turn to your family and respect the work-life balance you created. As a result, the learning might be that putting a structure in place such as specified work hours helps support your goals. And in the case of missing the mark with your commitment to exercise, what did you learn there? It may be that you didn’t leave room in your schedule, or that you didn’t identify what kind of exercise might work for you.

Commitments. After listing what you have learned, identify what commitments you want to make to yourself going forward. What do you want to bring forward into the new year, and what do you want to leave behind? Again, using our examples, if your learning is that you want to continue structuring time or being more specific for important goals and priorities, how can you apply this to your goals for 2021?

This is a fruitful exercise and my executive clients find that it helps them to stay sharp in their decision-making and execution moving forward. However, when it comes to leaving behind those things that they have identified no longer serve them, it becomes challenging to let go.

Why is this? We human beings are wired for comfort. This means that we also carry a natural inclination to resist change. It’s hard to leave the perch! The first step is deciding how you want to leave behind those things that are no longer useful.

Consider the following three choices as you ponder how to streamline and better your upcoming new year.

1. Release. Let it go. As you look back at 2020, what can you let go without remorse or anguish? Generally, the kinds of things that respond well to release are low-stakes commitments, decisions, or relationships. Often, they come disguised as enjoyable or previously more important, but upon closer inspection, they may now keep you from having the energy and time you might need for greater or more relevant things. What things might you be holding on to out of habit that should be eliminated from your life or work?

2. Reframe. Look at the situation differently. Reframing calls on us to take a different perspective about a situation or person. An example might be that you have been seeing a particular situation as irritating, or a person as prickly and thus someone to be avoided. Taking a posture to reframe means attempting to “find the gold” or different aspects of that situation which may lend to you feeling better about it. This is often adopted when the stakes are higher. What have you been putting up with experiencing this year that you feel you need to see a different way? Where in your life or work might you benefit from greater tolerance, compassion, or appreciation of the larger picture?

3. Reconcile. Bring resolution to the problem. Notice that the previous steps of releasing and reframing require only action on your part. Reconciliation, however, generally requires two or more people (or two or more parts of yourself!) to work. We generally seek to reconcile when stakes are high; when we want to save the situation or relationship. This will require a negotiation of sorts, or at the very least, a revisit of the situation you deem needs reconciling, a conversation, and a shared agreement to resolve the situation.  Sometimes, it requires that we also forgive either the other person or ourselves in order to feel that all is safely put to rest.

As you reflect on this year, and on rebooting life and work to make it even more meaningful and rewarding in the coming new season, what do you need to celebrate? And what do you need to leave behind? I challenge you to stretch your mind and take the steps to intentionally embrace 2021.

Cotton works with executives, business owners, and their companies, to elevate and support leadership at all levels. Reach her at Patti@PattiCotton.com.

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