Financial planning isn’t just for the wealthy, especially if you live in California.
Many people believe this is only for the rich and their families, and that because their estate is not complicated or significantly large, financial planning would not be beneficial to them. Most likely this mindset is incorrect.
A financial planner will discuss with their client’s many topics, such as monthly cash flow and budgeting, short and long-term financial goals, minimizing risk, investment strategies and estate planning, while confirming the client’s assets are titled correctly to avoid probate.
Many may think they are not wealthy because their only asset is their home. If you are fortunate enough to own a home in California, your home value has most likely increased. According to the California Association of Realtors, the statewide median single-family home price in April was $813,980, up 7.2% from March and up 34.2% from April 2020.
If your home is not held in a trust, your financial adviser should address this and refer you to an estate planning attorney. If you are the sole owner of your home, it is highly likely that probate would be necessary to transfer or sell your home following your death.
Probate may not be necessary if assets are attached to a beneficiary or surviving owner. And simplified procedures may be used if the value of the estate is under $166,250. But if you are the sole owner of a home valued over $166,250 and titled in your name, this asset will pass through probate court to determine how it will be distributed. If you die without a will in California, your assets will go to your closest relatives under state intestate succession laws.
Probate is the process of administrating an estate, and it is expensive. All probate fees in California are predetermined by the state. Based on ordinary services provided by the executor, they would receive 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000, and 1% of the next $9 million. Over this amount, they would receive 0.5% of the next $15 million, and anything over that would be determined by the court at a reasonable amount.
The cost of probate for a home is based on the fair market value supported by an appraisal at the date of death. It is not based on the equity in the home, as it may seem. For an $800,000 median-priced home in California, the probate fee would range between $19,000 and $38,000. If both the attorney and a personal representative choose to receive a fee, then the $19,000 compensation doubles to $38,000.
The length of time for probate to be completed varies widely in California.
Creditors have four months to make a claim against the estate, which means it must stay open at least that long. The state probate code requires that orders for final distribution should be filed within one year, or 18 months if federal tax returns are necessary. However, this timeline can go much longer if the will is being contested or other litigation is pending.
Financial planning is the process of taking a comprehensive look at your individual financial situation. An adviser will review your assets and liabilities, ability to save, timeline for withdrawals and goals and objectives to help establish a reasonable plan. As a result, your adviser should also be identifying areas that potentially could be problems for you or your heirs. This review should always include the titling of your assets, including your home.
Meeting with an estate planning attorney to prepare a trust, will, health care directive, and power of attorney will cost you between $2,000 and $4,000 for basic planning. This sounds expensive until you compare it with the cost of probate and, additionally, the lack of control that you will have following your death.
Financial planning allows you to plan now and control the outcome. Wouldn’t you rather make choices that align with your personal goals and objections than letting the state of California’s intestate laws make those decisions for you?
Teri Parker CFP® is a 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.email@example.com.
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.
Addiction presents its ugliness in many forms, such as drug and alcohol abuse, compulsive gambling and over or undereating, just to name a few.
While there are a variety of addictions, many of the symptoms of behavioral disorders overlap. Families and the addict are eventually affected financially and emotionally. Sometimes relationships become so severely damaged they cease to exist.
Often, family members support the person’s addiction without realizing it. Once aware of the problem, it is important to consider and establish some firm boundaries, however difficult. Are you willing to see your loved one spend time in jail instead of covering their legal fees? Are you willing to see them evicted or living on the street instead of paying their living expenses? How many months are you willing to pay their rent if they are not addressing their addiction?
Setting boundaries will not cure your loved one of their addiction or guarantee that they seek help, but it will help you to manage your life without financial ruin. Ultimately, all you can control is how well you look after your own health and welfare.
Without support or resources, navigating through the emotional strain and financial pressures of addiction will be difficult. The Substance Abuse and Mental Health Services Administration agency within the U.S. Department of Health and Human Services provides resources that address the topic of addiction for both the addict and their family. SAMHSA’s mission is to reduce the impact of substance abuse and mental illness on America’s communities. They can be reached at 1-800-662 HELP (4357) or at samhsa.gov.
One of the consequences of economic ruin is having bad credit. With this burden, people in recovery will struggle to be approved when applying for credit cards or loans. Even if they are sober; banks and other financial institutions will be wary of allowing a line of credit to a person who has, in the past, demonstrated poor judgment and decision-making skills. This may mean that even the basics of a loan to get back on their feet, or a housing application for a place to live, will become much more difficult than usual.
It’s unrealistic to expect a newly sober person to simply resume their financial existence from before their addiction took hold. Consider seeking help from a financial adviser who knows how and where to apply for financial aid, secure loans, find scholarships or grants and qualify for special payment plans that can help cover the cost of treatment and other damages incurred because of addiction.
While recovering financially will not be easy, there are tools to assist with this phase.
Next Step Prepaid Mastercard — Developed by three recovering addicts, this prepaid card is specifically for people in recovery. It comes with controls that block certain ATM or point-of-sale transactions, such as those at liquor stores, casinos, bars, escort services, and selected online retailers. The card cannot be used to get cashback.
The card must be cosigned by a responsible person in the individual’s life. The cosigner is responsible for the actual loading and transferring of funds; a companion card is given to the individual who uses it for purchases. There are daily spending limits and maximum monthly transactions placed on the Next Step card, and the card’s use can be monitored online for accountability purposes.
True Link prepaid Visa Card — The True Link Prepaid Visa Card is a reloadable prepaid Visa card created to meet the complex needs of the underserved. This card allows a person to buy items and pay bills without carrying cash. Access can be blocked for purchases in bars, online, and other risky places. The card can also be set up to be accepted at certain merchants. It offers access to real-time alerts if the card is attempted to be used at a blocked location, such as a liquor store.
Even though it is difficult to watch a loved one lose control of their life, family members should not financially rescue or support the addict. Let the addict experience the consequences of their disease. Think carefully about helping an addict, establish boundaries, and clearly understand the long-term ramifications to your finances. By financially supporting the addict, you are supporting their addiction, while possibly placing your own finances at risk.
Teri Parker CFP® is a 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.firstname.lastname@example.org.
So why do rankings of all sorts often vary widely?
View the creators of all those data-driven rankings like a chef.
Sure, selection and quality of ingredients matters — or, in this case, choosing the underlying economic and demographic stats that build a ranking’s metrics.
But it’s the recipe — how the ingredients are mixed — that can truly impact the final result. You know, a dash here. Or a pinch there.
Take retirement. How the complex concept of personal finances figures into a person’s location choice for their golden years is by no means a set number.
Did you save enough? Are you a heavy spender? What might medical costs be? All are fairly unique parts of any household’s happy-retirement recipe.
But recent, noble efforts of data crunchers at WalletHub, Bankrate and Kiplinger’s to gauge the states in terms of retirement livability factors help show how the statistical mix can alter a ranking’s outcome.
I used my trusty spreadsheet to combine this trio’s retirement rankings in order to give a composite picture of strengths vs. weaknesses. I reassembled their published ranking data — overall scores, subindex grades and related data — into three categories: cost-of-living; character (culture and climate); and care (healthcare and healthiness).
Imagine making the costs measurement doubly as important as the other two metrics. That’s probably good for folks who are carefully watching their retirement pennies.
Florida and South Dakota were the top two. Utah was third followed by Wyoming and Tennessee.
California was the ninth-worst state for retirement when personal budgetary items were given high importance. And New York and New Jersey were worst-to-retire-to states by this math.
On the other hand, there are folks who don’t worry much about money. Perhaps they have generous pensions or saved smartly (or were simply lucky).
Also, note what many studies of retirees’ views on their quality of life after employment reveal. Life’s intangibles — friendships, families, and health — are far more critical to seniors’ happiness than many of factors frequently used to study best-place locations.
So, what if costs weren’t part of the retirement math, just the character of a state and the quality of its senior care?
According to this formula, the top three states shift to Vermont then Hawaii and Maine. Vermont was No. 40 when costs were a double factor.
Meanwhile, Florida and South Dakota fall into a tie for eighth place when costs aren’t part of the recipe. Tennessee drops to No. 40.
And California, minus its well-known high expenses? The 15th-best state for retirees.
That’s the confusing message from three recent state-by-state, best-to-retire rankings based on a myriad of economic and demographic stats.
Data crunchers at Bankrate and Kiplinger’s both ranked California No. 45 among the states for desirability as a place to live out one’s golden years. But statisticians at WalletHub placed California 30 notches higher!
How do you explain the gap? Well, let’s look at how California’s grades varied by those doing the rankings.
Remember, when it comes to rankings, beauty is in the eyes of the grader. My trusty spreadsheet — filled with retirement data and rankings of WalletHub, Bankrate and Kiplinger’s — found that even population counts display a deep statistical divide.
Yes, California has 5 million people aged 65 or older, the largest number of seniors in the nation. Certainly, that means something. But that flock equals only 12.9 percent of all Californias, the sixth-smallest share of 65-plus residents nationally. Are we young? Or unattractive to retirees?
Then look at the ranking divergence when it came to expenses. Yes, California’s expensive … but just how much pricier vs. other states is up for debate.
Bankrate found California third worst for cost-of-living and third-worst for its tax rates. But WalletHub scored California 14th worst for “affordability.” And Kiplinger’s noted California’s 65-plus households had a $65,904 average income, sixth-best among the states.
As for scoring conditions for care for seniors, Bankrate ranked California No. 19 for healthcare quality and No. 14 for well-being. WalletHub gave the state a No. 16 ranking for healthcare. And Kiplinger’s cited average healthcare costs for a retired couple of $430,867. That’s above a national average of $423,523 and 10th highest among the states.
Of course, California “cool” scored well. Bankrate gave the state a No. 14 ranking for the weather, No. 20 for culture, but 19th-worst for its crime. WalletHub ranked the state third-best for quality of life.
California appeared trickier to grade than other states as the three rankings had some agreement on the where-to-retire extremes.
Best states? Well, South Dakota made the top three among each surveyor: For Wallethub it was Florida, Colorado and South Dakota; Bankrate was South Dakota, Utah and Idaho; and Kiplinger’s list was topped by South Dakota, Hawaii and Georgia.
Worst states? New York and Maryland got double dings in the bottom-three grades: Wallethub (Kentucky, New Jersey, and Rhode Island); Bankrate (New York, New Mexico, and Maryland); and Kiplinger’s (New York, Massachusetts, and Maryland).
Here’s how the 50 states ranked in this trio of gradings for retirement quality, listed in alphabetical order …
“The titans of industry tried to bottle up this rule,” said former California treasurer Phil Angelides who chaired the federal Financial Crisis Inquiry Commission which investigated the causes of the Great Recession.
“CEOs have managed to plant themselves in a river of money,” he added. “But the rise in productivity since the 1950s has not led to a parallel rise in workers’ wages.”
RECESSION LEADS TO REFORMS
Publicly-traded companies have been disclosing top managers’ pay since 1933, information that’s typically buried in proxy statements filed with the U.S. Securities and Exchange Commission. But the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, spurred by shareholder demands for transparency and taxpayer fury over Wall Street bailouts, is shining a new spotlight on CEO compensation.
In recent years, the nation’s 8,100 public companies began giving investors a nonbinding “say-on-pay” vote on executive compensation. Now, those same companies also must divulge the pay ratio between their CEOs and their rank-and-file, dividing the top boss’s earnings by those of the median employee — the level at which half the company’s workers make more and half make less.
Whether you’re a Wal-Mart cashier, a Bank of America teller or a Boeing engineer, you’ll be able to go to SEC.gov, the commission’s website, click on “company filings” and compare what you make to the chief executive’s take. You also can see median pay information for colleagues and look up the compensation ratios at comparable businesses.
From 1978 to 2016, CEO compensation at the nation’s 350 largest firms rose 937 percent, 70 percent faster than the stock market, according to the Economic Policy Institute, a Washington, D.C. think tank which issues a yearly executive pay report. Over the same period, the report found, the typical worker’s compensation grew 11.2 percent.
In 2016, the nation’s 350 biggest public companies paid their CEO an average of $15.6 million.
When he was running for president, Donald Trump told CBS’s “Face the Nation” called CEO pay “disgraceful…You see these guys making these enormous amounts of money, and it’s a total and complete joke.”
But he added this: “It’s very hard, if you have a free enterprise system, to do anything about that.”
Corporate groups call the ratio rule a crude measure. Smaller technology firms with an educated workforce may have narrow ratios. Large retailers with many low-skilled part-timers, and manufacturers with numerous foreign employees, have wide gaps.
Mattel, the El Segundo toy maker, famous for its Barbie dolls, is a case in point. Its CEO-to-worker pay ratio — 4,987 to one — is partly because three quarters of its workforce is in China and other low-paying countries, dragging down the median worker’s annual pay to $6,271.
But regardless of the ratio, Mattel CEO Margaret Georgiadis’ $31.3 million windfall last year was double the norm at large companies. It included two one-time grants of $14 million and $11 million in company stock to lure her away from a previous job at Google.
Given fears over shareholder anger and plummeting worker morale, companies are expanding their public filings to explain some of the disparities.
“All of our employees will benefit from the success of the turnaround Mr. Zubretsky is leading,” the company said in a statement.
“The vast majority of his compensation is both performance-based and long-term in nature such that his interests are fully aligned with the interests of all our shareholders – he wins only if they win.”
Edwards LifeScience’s proxy statement noted that sales grew 16 percent last year, adding that “89% of the total direct compensation of our CEO…was performance-based.” The company’s median employee made $50,195.
Public Storage’s $10.5 million CEO pay is justified by the firm’s “superior” shareholder returns, its proxy statement suggests. Dubbed a “cash cow” in the financial press, the firm’s market capitalization grew from $4 billion to $35 billion since 2002, when Havner took over as CEO.
Its median worker earned $23,921 last year.
The ratio rule is “kind of a dig” at CEOs, Havner said.
“Comparing what I do to the median employee is not even apples and oranges. It’s more like fruit compared to Star Wars. They don’t know how to allocate capital, and their educational level and skill set is vastly different.
“People have decisions to make as to whether they want to improve themselves and get higher paying jobs,” Havner added. “Some people decide to do that and others don’t.”
LEGISLATORS WEIGH IN
But why don’t rank and file employees share more in the wealth they help create?
That question is driving efforts in the California legislature and in several other states to penalize firms with big CEO pay ratios.
A bill sponsored by Sen. Nancy Skinner (D-Berkeley) would raise the state’s 8.84 percent corporate tax rate to 10 percent for companies with ratios between 50-to-one and 100-to-one. The tax would then grow in steps, reaching 13 percent for companies that award the CEO more than 300 times what they pay their median worker.
The measure, SB 1398, would also hike the tax by 50 percent on firms that cut their U.S. staffs while growing their contract and foreign work forces.
“We need to motivate good corporate behavior,” Skinner said. “When companies pay minimum wage, or just above, then taxpayers foot the bill. Their workers’ depend on food stamps, Medi-Cal and other government programs.”
In 2014, a similar measure gained a majority in the state senate but failed to reach the required two-thirds threshold for a tax increase. The California Chamber of Commerce placed the bill on its “job-killer” list, as it has the Skinner bill, a lobbying effort that often dooms legislation.
But Skinner sees Trump’s recent tax law, projected to save corporations about $320 billion over ten years as boosting her bill’s chances. “Corporations got a huge windfall, so they are in a better position to pay their employees more,” she said.
“Employees, not just CEOs, contribute to profits.”
The Walt Disney Company, one of Southern California’s biggest employers, with 30,000 workers at Disneyland Resorts, stands to gain an estimated $1.6 billion a year under the new tax law.
The company also is in the crosshairs of both its unionized workforce and its shareholders over chief executive Robert Iger’s compensation.
At Disney’s annual shareholder meeting in March, in a stunning say-on-pay defeat, 52 percent of shareholders voted against the Disney CEO’s $36.3 million compensation. ISS Analytics, a data analysis firm, calculates Iger is set to make roughly $423 million over the next four years if a deal to buy assets from 21st Century Fox is consummated, Reuters reported.
Disney’s board argued the lucrative package is “critical” to retaining Iger, 67, who has presided over record profit growth and has considered retiring.
That argument fell flat with a coalition of Disneyland unions which organized a protest at the company’s March meeting, wielding signs proclaiming #StopDisneyPoverty.
Disneyland pegs its average wage at $37,000 a year, but that includes tips paid by customers at the resort’s restaurants and hotels.
Artemis Bell, 32, a Disneyland night janitor who makes $11.86 an hour after seven years, was among the workers attending Disney’s annual meeting.
“Bob Iger makes more in a year than anyone in my department makes in three lifetimes,” Bell said.
“I work very hard at my job to maintain quality,” she said. “But I’ve had to go to food banks and sleep on a mattress in a living room to make ends meet. I recently had pneumonia, but I couldn’t afford the $40 co-pay to go to the doctor.”
Whether the ratio rule survives may depend on the 2018 mid-term elections, given that the focus on CEO pay is strongest among Democrats.
After Trump’s election, Michael Piwowar, a Republican SEC member who was named acting chairman, sought to overturn the mandate. In his view, it was an attempt to “name and shame” executives which “harms investors, negatively affects competition, promotes inefficiencies, and restricts capital formation.”
And in June the GOP-led House of Representatives passed a bill, the Financial CHOICE Act, repealing the ratio rule.
Anne Sheehan, Director of Corporate Governance at California’s State Teachers’ Retirement System, with a portfolio worth $222 billion, wrote the SEC: “There is a point where shareholders and the broader marketplace are not reaping the benefits of these high levels of pay…Outsized pay at the top can affect morale down the chain of the organization.”
The Senate, fearing a Democratic filibuster, has so far declined to take up the ratio rule repeal.
“In many instances, there is no correlation between outsize CEO pay and the success of a corporation,” said Angelides, the former California treasurer, citing government bailouts of Citigroup, Merrill Lynch, and AIG, all run by CEOs with multi-million dollar pay packages.
“I’m fascinated by the myth of the ‘indispensable CEO,’” he added. “Legions of CEOs run public companies that have been around for decades. They’re not entrepreneurs who create real wealth through genius. If one collapses on the golf course, hundreds of qualified people are around to take that job.”
PAY FOR PERFORMANCE
A recent survey by the investment research firm MSCI, titled “Out of Whack,” compared ten years of CEO pay to financial and stock market returns at 423 companies. The survey found high-paid CEOs among the worst performers and lower-paid CEOs among the best, even when counting market gains on their stock awards.
“More than 61% of the companies we studied showed poor alignment relative to their peers,” the study concluded.
Moreover, CEO pay is often buoyed by a bull stock market, unrelated to the executive’s actions, studies find. Stock prices are pumped up by financial engineering, such as share buy-backs, and boards of directors — the people who approve compensation packages — are typically stocked with friendly executives from other companies who tend to reward their peers. CEOs may be tempted to earn more by boosting short-term profits over long-term growth.
Public pension funds are most likely to vote against questionably high CEO pay packages, according to the annual “100 Most Overpaid CEOs” report issued by As You Sow, a non-profit shareholder advocacy group. But large mutual funds, such as BlackRock, Vanguard and Pimco rarely vote against high-paid CEOs with poor financial performance, according to the report’s tallies.
“Those who own mutual funds through 401ks and other investment vehicles must hold fund managers accountable,” the report concludes.
Margarethe Wiersema, a corporate strategy professor at UC Irvine’s Paul Merage School of Business, says prior to the 1980s CEO pay wasn’t “so extravagant.”
“Back then, the CEO of a company like General Motors might make a salary of about $1.5 million. He would get a bonus, depending on profit, but never more than 100 percent of base pay,” Wiersema said.
But after the hostile takeovers of the 1980s — when leveraged buyout firms would oust corporate leaders for sluggish stock growth — the nature of CEO pay changed, becoming directly tied to stock price.
“The intentions were good, but compensation went haywire,” Wiersema said.
Abuses proliferated, she added. Some companies that granted stock options to CEOs would then back date them or re-issue them when the price went down, offering the illusion of tying pay to stock performance but eliminating the risk.
Wiersema said she would like to see “more teeth” in the say-on-pay rule to make companies justify high CEO pay. Ratio disclosures won’t have an impact, she predicted: “Just because a board takes money away from a CEO doesn’t mean that money will be channeled to workers.”
Nor does Wiersema favor tying taxes to ratios, as Skinner‘s bill would do.
A better strategy, she suggested, would be for governments to raise mandatory minimum wages. “It’s ridiculous we taxpayers are subsidizing these companies’ low labor costs. They should pay their employees better.
“And if it means a burger costs 30 cents more, so be it.”