Author: Jeff

I Found a Bubble While Getting an Oil Change

Last week the computer system in my car “reminded” me (under no uncertain terms) the I was due for an oil change. The timing was perfect as I was literally driving to drop off my car at the dealership for just that scheduled maintenance. My service guy—we’ll call him Heinz—is the greatest. He treats me like a king (I highly recommend finding a service guy who is a big golfer and then dropping off a sleeve of balls every service visit 😊).

Heinz and I were shooting the breeze a bit while he was waiting for a service ticket and out of the blue he asked “the question.” Well, first he said: “Hey Jeff, can I ask you about something unrelated?” My mind always goes completely blank for a millisecond when I hear that question. Then, I check my watch to start billing my time (kidding). I replied the only way I could to the world’s greatest service guy: “Sure!”

Here was the question: “If a person’s crypto (digital currency) takes off and they suddenly have $30 million, what should they do?” Well, I admit that I didn’t see that coming…at all!! My first reply was a question back: “Has that happened to you, Heinz?” “Oh no,” he said, “but me and my friends have been investing in crypto for a long time, and we just started wondering about that question.”

Pretend you hear a big buzzer, and there is graffiti dropping from the ceiling right now, because that, my friends, is how you start to identify an asset bubble. When people who are investing in an asset start to daydream about the perceived problem of what to do with the $30 million they will make off that asset, then you know the asset is starting to stoke irrational excitement that will create irrational behavior. When they think it is important enough to run it by a financial advisor who is getting his oil changed, your eyes should pop wide open.

“Bubbles” are best thought of as a period when the value of an asset rises substantially above its fundamental value. Trying to determine something’s fundamental value is a challenge in and of itself, but when it comes to a bubble, I’m reminded of the famous quote from Supreme Court Justice Potter Stewart in the renowned Jacobellis v. Ohio obscenity case. Justice Stewart acknowledged the difficulty in defining the word “pornography,” but famously stated “I know it when I see it.” The same holds true for me and asset bubbles. It is speculation at its highest level.

There have been many asset bubbles in financial history, one of the first being The Dutch Tulip Bulb Market Bubble in Holland in the 1600s. The rarest tulip bulbs traded for as much as six times the average annual salary in Holland. Needless to say, it ended badly for many who eventually lost it all, probably not long after they were daydreaming about what to do with their $30 million.

Now, I don’t know for sure if crypto is in bubble range, and/or when the bubble will burst if it is. I do know that the bitcoin I inherited from my 86-year-old mother (that still amazes me) has grown in value by almost 75% in the last year. I don’t own enough to start daydreaming, but if I did, I would think strongly about cashing a lot of it in to diversify. As Kenny Rogers famously sang about poker and life: “You got to know when to walk away, and know when to run.”

The stock market also seems to be going nowhere but up in recent months. While I wouldn’t attach the phrase “bubble” to the general market (yet), I would caution you to be ready for a pullback sometime soon. It may not happen this year, but a stock market pull back is and always will be inevitable.

I have a hard time getting my arms around crypto. I think it’s here to stay, but I don’t know how to value it because it doesn’t produce anything I can identify except convenience. That hasn’t stopped Heinz and his friends from piling more and more money into it as it continues its dramatic rise. Sounds like a mistake to me, but I hope I’m wrong because Heinz is a great guy and I know he’s had some health problems so he could use a windfall. If he gets it, my only regret will be that I’ll have to find another service rep who really appreciates a sleeve of golf balls.

Fun Fact: The Dutch Tulip Bulb Market Bubble saw tulip bulbs selling for about 10,000 guilders at its peak. That equaled the value of a mansion on Amsterdam’s Grand Canal at the time. Tulip bulbs were bought on credit under the assumption that when the tulip bulb was sold the loan could be repaid. When a few loans defaulted, everyone headed for the door and the price of tulip bulbs crashed. Since then, history has repeated itself over and over with different assets rising into bubble range, only to come tumbling down to earth.

Debt Paydown vs. Investing

Some folks who have a mortgage, student loans and/or car loans are in the enviable position to consider paying down or paying off that debt from their cash or investment accounts. If a person I’m meeting with has that option, then here’s how I approach the issue:

Financing a big purchase isn’t a bad thing, despite the stories of family members from the past who “only paid cash for everything.” For our purposes, let’s assume a client named John asks for my advice on his $50,000 mortgage balance with 8 years of payments remaining. He has $75,000 in a bank or investment account and wonders whether he should just pay off the mortgage and be done with it. Three factors need to be considered:

1.  Emergency Money. If John pays off the mortgage, will he still have sufficient funds for an emergency? Everyone should always have easy access to cash that will cover 6-12 months of recurring expenses. Paying off debt is not recommended if it minimizes or eliminates your emergency fund.

2.  Rate Comparison. If the emergency fund is covered, then the next question I ask is the rate of interest John is paying on the debt (in this example, a mortgage). If it is equal to or greater than 6%, then I recommend he seriously consider paying down the debt as quickly as possible while still having an ample emergency fund. Why 6%? Because if your debt interest rate is less than 6%, and you are willing to invest your money appropriately, then you will likely get more bang for your buck by investing and paying the debt in installments.

Here’s an example: Let’ say John’s mortgage interest rate in the above example is 4%. Let’s further assume John’s investments are in a diversified low-cost index portfolio with an average annual return of 5.75% – a very reasonable assumption. While invested for the year, the $50,000 John is considering paying off the mortgage with is making $2,875 (5.75% of $50,000). At 4% interest, John’s annual interest payment on his mortgage is $2,000 (4% of $50,000). By keeping the mortgage and investing the balance, he can make $2,875 and owe $2,000 for a net gain of $875. If he cashes in the investment and pays off the mortgage, he is saving $2,000 in mortgage payments but losing out on the $2,875 gain on his investments. The net loss is $875.

Realistic returns on a well-diversified and moderately aggressive investment portfolio are around 7%-10%, but they don’t produce that every year, so I err on the conservative side by using the 6% rule in debt repayment analysis. If John was a more aggressive investor, he may consider keeping debt with an interest rate of 7%; or only 5% if he is a very conservative investor.

If John’s money isn’t really working for him because it is just sitting in a checking account making 1%-2%, then his money can work much harder for him by paying off that 4% mortgage. But before I would tell John to take that cash from the bank account to pay off the mortgage, I would gauge his comfort in investing it. If he can’t stomach the market volatility, then debt repayment makes better sense than a low interest checking account. If he can take the volatility, then I usually recommend he keep paying on the mortgage and invest the money.

3.  Peace of Mind. Finally, John can’t forget the intangible component that is peace of mind. How you sleep at night should always be a factor in your financial decisions because your money is there to make you feel protected. If paying off the mortgage just makes John feel better and he doesn’t want his loved ones to worry about the debt if he dies unexpectedly, then debt repayment makes sense despite the numbers we looked at above. This same analysis applies to any debt – student loans, car loans and the like.

As you can see, there is no absolute objective answer to the debt vs. investing question. But there is a methodology that can certainly help you make an informed decision. Feel free to call my office if you have any questions because every situation is unique.

Personally, I paid off my mortgage sooner than I needed to because I wanted the peace of mind. However, I financed my last car that I could have paid cash for because the dealership offered a 60-month 3.9% rate. I jumped at that rate because I’m confident I can make my money work harder through my investment portfolio.

Fun Fact: For those of you old enough to remember, CD rates in the 1970s were almost unfathomable today. In 1979 the average 3-month CD rate was 11.2%, but before you long for those days gone by, remember that inflation in 1979 was at 11.3%, so that CD was really producing a net loss in purchasing power of .1% annually. Today 3-month CD rates are closer to 4%, and with inflation currently around 2.67%, your current CD is gaining purchasing power each year despite the much lower rate. The “good old days” weren’t necessarily that good on the CD front.

A Follow-Up to the Big Beautiful Bill: Investment Accounts for Children

As a follow-up to last week’s Up Early, a thoughtful client of mine inquired about the “Trump Account” created under the new tax bill. At its simplest terms it’s an IRA for children. At its more complicated terms it’s, well, fairly complicated. Here’s what I’ve been able to figure out so far:

The new tax bill creates what are called “Trump Accounts” for children who are US citizens with Social Security numbers. For children born from January 1, 2025, through December 31, 2028, the Federal government will contribute $1,000 to start. Parents of children born before 2025 can also open a “Trump Account” but that account is not eligible for the initial $1,000 government seed money.

Once open Trump Accounts can be funded by parents or others through a contribution of up to $5,000 annually until the child’s 18th birthday. Companies can contribute up to $2,500 annually for an employee’s eligible child and that contribution won’t apply toward the employee’s taxable income. These contribution limits will be indexed for inflation annually as well.

All families with children born during the eligibility dates can receive the $1,000 seed money regardless of income or net worth. The accounts are supposed to open mid-2026 with the $1,000 seed money available at that time.

No withdrawals are allowed until the child reaches the age of 18, and at that point for all intents and purposes the Trump Account is an IRA for the child. As such, IRA rules will apply, including additional contribution limits for IRAs that are currently $7,000 per year and, importantly, a 10% withdrawal penalty for distributions made before age 59 1/2, with some exceptions as noted below.

Investment options will be limited to low-cost index funds, but they have to track “primarily United States companies.” There is no clear understanding yet of where or who will be offering these eligible investment accounts so stay tuned.

The taxation of these Trump Accounts is where things are really complicated. Contributions made to the Trump Account do not count as taxable income to the child (even if they are made by the parent’s employer). The accounts will grow with all taxes deferred until withdrawal after age 18, and then any withdrawals made will be taxable.

How the funds are used will dictate how they are taxed. If the funds are withdrawn for school tuition, a first-time home purchase or small business expenses they are penalty free and will be taxed at capital gains tax rates. Funds withdrawn for other purposes (like a new car the 18-year-old may be eyeing) will be taxed at ordinary income tax rates which start at 10%, and they will also be subject to a 10% penalty if withdrawn before age 59 1/2.

Are Trump Accounts worth it? Yes, if the child is eligible for the $1,000 seed money. After that, I’m not so sure. The most power tool in investing is time, so starting an investment account for an infant allows for powerful compounding… at least until 18. Then, the 18-year-old is in charge (!). Will they continue the compounding, or buy a new car, taxes and penalty be damned. No way to know. Investments limited to only American companies doesn’t sit well with me either.

Like everything in this massive tax bill there’s a little bit more to clean up and learn about but I’m glad my client brought this issue up because I think it’s worth following carefully. I wouldn’t blink at opening the account if you can get the “free” $1,000. I would think twice before adding additional funds except those that your employer might be willing to contribute. Finally, I don’t think we’ve seen the last in terms of rule changes to the Trump Accounts. Stay tuned.

Fun fact: Amaze your friends and relatives by understanding the Rule of 72: That is an easy way to estimate how long it takes for any investment to double in value based on a given interest rate. Simply divide 72 by the interest rate. For example, with an 8.5% annual return it takes 8.47 years for the money to double. (72÷8.5). At a 6% annual interest rate it takes 12 years.

Understanding the One Big Beautiful Bill (So Far)

The “One Big Beautiful Bill” was signed into effect on July 4, 2025, after months of intense negotiations in both the House and Senate. The law is 870 pages long so there’s a lot to digest but here are some key elements that are worth knowing about in the financial planning area:

1. On the Medicaid eligibility side there is a “community engagement” requirement. Able-bodied adults must affirm on a monthly basis that they spend no less than 80 hours per month working, participating in a work program, completing community service, participating in education programs or doing a combination of all of the above. There are exceptions for those under 19 years of age and individuals with certain identifiable hardships.
2. There are state requirements for quarterly reviews of records to verify deceased beneficiaries so they don’t remain on the Medicaid program after death.
3. There is a newly created Rural Health Transformation Program that will provide $50 billion over five years to hospitals and other providers for states that submit a rural health transformation plan establishing how such funding will improve access to care and patient outcomes in rural hospitals.
4. Existing tax brackets become permanent, and the standard deduction increases by $750 for single people and $1,500 for married joint filers. ($15,750 for single; $31,500 for married filing jointly)
5. State and local tax deductions are increased to a cap of $40,000 for married joint filers over the next five years.
6. There is now a deduction for tips up to $25,000 and overtime pay up to $12,500, but there is a phaseout based on income levels. This change ends after 2028.
7. It is now possible to deduct up to $10,000 for car loan interest associated with vehicles in which the final assembly occurred in the United States. This is also phased out based on income levels. This change ends after 2028.
8. Student loan repayment plans have been revamped. New borrowers going forward will choose between the following options: 1. A fixed monthly payment over 10 to 25 years based on total principal, or 2. Income-based repayment based on adjusted gross income with a minimum payment of $10 per month and payment continuing until the loan balance is zero or the borrower makes 360 qualified monthly payments, whichever is earlier. Existing borrowers will be transitioned into one of these two plans by July 2028.
9. On the estate tax front, the law puts a lot of confusion to rest. The federal estate gift and generation skipping tax exemption will increase to $15 million per person starting January 1, 2026, and for married couples the exemption will be $30 million. These amounts will then be subject to a cost-of-living adjustment on an annual basis. You should note that Michigan has no state inheritance tax so Michigan residents can rely exclusively on these exemptions to plan their estates.

As I slowly wade my way through summaries of the tax bill, I realize just how extensive it is, from oil and gas interests to farming to nuclear power, to immigration and defense spending, it is truly massive. Like any major tax bill overhaul it will need clarification as time goes on, but I think the important elements above can be relied on for planning purposes.

Fun fact: Every year thousands of hours of planning and expertise goes into the avoidance or minimizing of income taxes. Perhaps you’ll feel better knowing that while US income taxes aren’t low per se, our maximum tax rate of 37% is not at the top of the list. The Republic of Côte d’Ivoire (or the Ivory Coast) has a 60% max income tax followed by Finland at 56% and Japan at 55%. In fact, if you look at it in terms of tax revenue as a share of gross domestic product, Denmark has the highest taxes, while the US comes in at number 31 with total tax revenue being roughly 25% of GDP.

Understanding Real Estate Deeds

As an estate planning attorney, I spend a lot of time reviewing deeds to real estate. The laws regarding real estate ownership and transfer are archaic and lead to confusion for many property owners. Perhaps the Q & A format below will help you.

Q: What exactly is a deed?

A: A deed is a written legal document that is used to transfer interests in real estate (also called real property as opposed to personal property). If you review your deed, you will find some key information, including the following: a grantor (seller or transferor), a grantee (buyer or transferee) and a legal description of the property.

Q: Are there different types of deeds?

A: Yes. Here are the most common types of deeds you are likely to run across: Quit Claim Deed – In this deed the seller/transferor does not guarantee that they own 100% interest in the real estate, but does guarantee that they are transferring all of the interest they do own. Warranty Deed – As the name suggests, the seller/transferor uses this deed to warrant or guarantee that they own 100% unencumbered interest in the property they are transferring. This is the preferred deed for a buyer/transferee in an arm’s length transaction. The buyer will want a guarantee that they are the only owner on the purchased property. Ladybird Deed – Supposedly named after Ladybird Johnson, this deed is technically called an Enhanced Life Estate Deed. It is used in Michigan to name beneficiaries on real estate to avoid probate. When used properly, it also can provide protection in Medicaid eligibility planning.

Q: Who is in possession of the deed to my home?

A: Likely you have the deed (even if you may not know it). When you purchased your home, with or without a mortgage, the deed was supposed to be recorded and then sent directly to you shortly after the closing. Many people mistakenly think that they are not given the deed to their home until they pay off the mortgage. Not true! You are given the deed up front even with a mortgage. On the other hand, if you purchase real estate with a land contract (essentially, financing from the seller), then you will not be given the deed until the last payment is made on the land contract. The deed is typically held by a third party during the term of the land contract (“held in escrow”). Mortgages and land contracts are two different animals.

Q: What if I cannot find my deed?

A: Don’t worry, a legal copy of your deed is probably recorded with the Register of Deeds in the county you live in. In fact, almost no one will ever ask you for your original deed. Instead, future buyers and their title companies will rely on what is recorded at the Register of Deeds.

Q: How do I get a copy of my deed if I cannot find it?

A: Contact the Register of Deeds in your county and ask them for a copy of the most recent deed recorded on your address. You can also get a copy of your deed online through the county website in most cases. There will be a small fee. Do not rely on information from the assessor’s office. They have information about your property for tax purposes, but not technically for ownership.

Q: Is there anything special about a deed that shows ownership by a married couple?

A: In Michigan, yes there is. If both spouses’ names are on the deed with language that indicates that they are married, then they own it as “tenants by the entireties” which provides some lawsuit protection if only one of them is sued. Property owned as tenants by the entireties cannot be separated to pay a claim against only one of the spouses. If both spouses are sued, then the property does not have that protection.

I hope the information above clarifies some important points concerning ownership and transfer of real estate. A complete mastery of real estate law is very difficult. I owe much of my understanding of real estate law and, for that matter, my approach to breaking down complex legal issues, to my favorite law school professor, Jeffrey Lanning. Professor Lanning once called on me in his Real Property class to ask about a real estate issue in a case and said: “Mr. Saunders, what’s the answer and then tell me why you’re wrong.” He clearly wanted both explanations, and it took many weeks of that class for me to understand the brilliance of his teaching.

Fun Fact: You would know if you ever drove past Professor Jeffrey Lanning. Back in the mid-80s when I was at Wayne State University Law School, Professor Lanning had a large “artificial” pompadour hairstyle and drove around in a huge burgundy Cadillac Eldorado convertible with two bright gold ornate horns on either side of the windshield and a license plate that read “Harv ‘47”. Rest in peace and thank you, professor.

Think Twice Before Preparing Your Own Tax Return

This piece was inspired by a meeting I had with a Trustee and her husband last week. The Trustee was named to manage both of her parents’ trusts after their deaths. Her father died decades ago, and her mother died just last month. Turns out that the Trustee’s husband likes to organize finances and prepare tax returns, including for her parents and their trusts. This proved to be a disaster because he was unaware (and didn’t think to ask) about how the trusts were set up. We will figure it all out eventually, but not without extra time, money and the help of an experienced CPA. These issues could have easily been avoided.

Taxes can be simple or complicated, depending on your specific circumstances. If you are single and retired, or young and just starting out, then doing your own taxes can make sense. However, things can become complicated quickly, and that’s where a professional tax preparer can save you time, money and stress. Here are some factors to consider:

1. If you are involved with a “taxable entity”, then see a tax professional. Taxable entities are enterprises that usually have their own tax identification numbers. LLCs, business partnerships and irrevocable trusts are taxable entities. (Revocable Living Trusts are not taxable entities because they use your Social Security Number as their tax id and thus are invisible tax-wise).
2. If you receive a Schedule K-1, then see a tax professional. A Schedule K-1 is a federal tax document that is used to report income, deductions, losses and dividends from taxable entities like LLCs and certain trusts. You could get a Schedule K-1 if you benefit from someone else’s trust (i.e. you are a beneficiary) or you have your own business. Any Schedule K-1 you receive becomes a part of your personal income tax return and without properly understanding them, you can cause yourself problems. One mistake I sometimes see is the filing of a personal tax return by a beneficiary before a Schedule K-1 is received by that beneficiary. That often requires going back and amending your return, ugh!
3. If you or a loved one have lots of medical expenses, then see a tax professional. Not only are those costs potentially deductible, but they also can dictate how best to prioritize which assets to withdraw from. (Hint – it’s often better to withdraw from a tax deferred account like an IRA in years when you have large medical expenses for the write-off). A good tax professional will walk you through the options and can save you a lot of taxes.

Sure, tax professionals can be expensive but so can mistakes made without proper guidance. The Trustee I mentioned at the beginning of this piece is about to find that out. I don’t want that to happen to you. In general, a good tax professional is more than worth the price.

Fun Fact: My wife has quite a backyard garden that includes bird feeders and inevitably, squirrels. It’s fun to see how resourceful a squirrel can be when they like what’s in the well-protected bird feeder. Not only are they resourceful, but they are also tricky. They sometimes engage in “deceptive caching” wherein they dig a hole and vigorously cover it up again without depositing a nut. Scientists think it is to throw off potential food thieves

Understanding Risk and How to Use It to Your Advantage

The term “risk” is as important as it is hard to define. The dictionary defines it as “a situation involving exposure to danger.” Of course, the word danger itself is ambiguous. Danger could mean all sorts of things from physical to mental to financial hardship. That’s why the term “risk” is so important – it applies to all elements of your life. In its broadest sense, risk is simply the probability of a negative outcome.

Risk is essential to quality of life because it drives innovation, fosters growth and opens doors to new opportunities. Identifying risk is different from being fearful of something. If you just gauge your fear in decision making, you’ll get nowhere. But risk can help you make better decisions if you approach it objectively. When you make an important decision, including a financial decision, consider this approach to risk:

1. Identify all potential risks. Lawyers are trained to do this quite easily because we essentially have been trained to look for what can go wrong. You need to sit down and make a bullet list of all the things that can go wrong in your important decision.
2. Assess the risks. As to each risk you’ve identified, attach a likelihood (probability) of that risk occurring. In addition, determine the potential severity of its consequences.
3. Develop a risk management strategy. For each risk, based on its probability and severity, determine whether your course of action should be as follows: 1. Complete avoidance. 2. Mitigation. Perhaps a slight alteration in your plan can substantially mitigate the risk. 3. Transferring the risk to a third party. That’s what insurance is all about. If you buy a home on a lake to enjoy lake activities you have a risk of injury to people you invite over. Homeowners insurance transfers that risk to a third party. 4. Accepting the risk. Once you’ve identified the risk and its probability you can decide whether it’s worth simply taking on the risk to enjoy the potential benefits of your decision.
4. Often missed in identifying the risks of a particular endeavor is the risk of not engaging in it at all. In my financial planning business, people sometimes think that if they hold their money in cash instead of in equities they eliminate a huge risk of volatility. While that may be true over the short term, holding all or most of your savings in cash creates a huge inflation risk over the long term because inflation slowly but surely eats away at the buying power of your money. Historically, nothing fights inflation as well as owning stock in good companies.

Risk is inevitable in life. I can think of very few things that I have accomplished in my life that didn’t involve overcoming one or more risks. In fact, I abide by the adage that the biggest risk in life is not taking any risk.

I’ve tried to teach my sons that success in life is directly related to the amount of risk you’re willing to take. However, I’ve also taught them to break down the risk elements of a decision objectively as I set forth above. Hopefully, you will take the time to do the same when making an important decision in your life. Not only will it help you to identify risks, but it will give you much more confidence in your decision-making.

The First Tee Beckons

I’ve counseled thousands of clients on issues concerning estate planning and elder law. Counseling in those areas is a big part of what I do. This weekend, the tables will turn. When you read this on Friday it’s likely I will be sitting at the kitchen table in the home of my 90-year-old father in Phoenix, Arizona. Also at the table will be my father who is still fairly mentally capable, my brother who is a physician in Florida, my stepmother who while substantially younger than my father, suffers from short-term memory problems, and last but not least, my half-brother who is 25 years younger than me, is a gregarious bartender in Phoenix, and has surely had his share of personal life challenges.

This meeting was triggered by a fall my father recently had in his backyard. He could not get up and his calls for help went unanswered. Eventually, he dragged himself into the house. That event scared him a great deal, which prompted his call to me asking that I come out to discuss his final wishes, review his estate plan and go to the bank to be put on his safe-deposit box. That might sound straightforward but looks (or sounds) can be deceiving. Just like it is for my clients, there is a lifetime of events and relationships that will swirl around this weekend in Phoenix.

I think that I am very good at identifying and addressing issues that arise for families confronting end of life issues. Lord knows I’ve had plenty of practice. But there is a great saying that golfers committed to the game know: “It’s a long walk from the practice tee to the first tee.” Golf swings seem effortless when they have no personal consequences. That’s the practice tee. But once you stand on the first tee and play for something, then every swing counts and things change substantially.

Counseling clients is kind of like the practice tee for me – I stay logical and draw on my experiences and knowledge of the rules. Sitting down in a personal family meeting is like the first tee – emotions, history and family dynamics take up residence in my lawyer’s mind—and try as I might, they’re not going anywhere.

Nonetheless, I will make every effort to stay committed and offer value to enhance my father’s quality of life moving forward. Here are my “pre-meeting” goals. I share them so that you can see if they might be relevant now or in the future in your own situation.

1. Make sure important documents are accessible. This can get complicated when you live out of state. We will need to go through my dad’s house so I know where he keeps his important documents, and we will likely need to go to the bank so that I can get my name on his safe-deposit box. He thinks he can get my name on the box on his own, but I know that I will most likely need to sign the signature card to have access. I also need to know where his “second” and maybe “third” hiding places are. There’s never just one.
2. Discuss any changes that need to be made to his plan. Despite being 90, my dad is recently remarried (back to his second of three wives – ah…family dynamics). His current estate plan was created before this remarriage and I suspect and hope that he will want to change his plan to provide more for his current wife. Two big issues arise there: First, telling the family what he’d like to do is one thing but having it put into a legally valid written estate plan is quite another. We will try to find the time to go to his attorney to get that process started. Second, my dad needs to revisit his decision-makers. I doubt seriously that my father’s wife will be able to manage assets on her own after his death. We need to have a long hard discussion about the best person to take on that role. My half-brother (who happens to be her son) is the obvious choice since he lives nearby and is a 40-year-old adult. However, he has not always shown himself to be responsible during times of challenge. This topic will not be easy to resolve.
3. Discuss living arrangements. My father has lived a long time for many reasons, including that he finds age to be just a number. He recently bought a convertible Mustang on a whim and lives in a 3,000 plus square foot home on the outskirts of Phoenix. Several factors come into play here. First, despite appearances my father is not a wealthy individual and maintaining all of his “stuff”, even while healthy, is going to continue to be an increasing financial challenge. Secondly, at any moment his whole situation could change, and his living arrangement may be unsustainable. I have arranged for tours of two high quality multistage senior living communities. They have everything from individual apartments to full nursing care as the situation changes. While my father has told me he’s interested in seeing the places, I hear through the grapevine that he really has no interest in moving. This is yet another topic that will get interesting, I’m sure.
4. The unexpected. As this section suggests, I have no idea what to expect, but I’ve known my dad all my life and I have no doubt that he will raise some topic, issue, and/or concern that neither I nor anyone else in the room will have anticipated. All I can say is it will be interesting, because…it always is with my dad.

It’s easy for me to sit in my office at my desk with no emotional attachment and address all sorts of issues like the ones above with my clients. I believe that I provide clarity and objective analysis that helps my clients wade through these difficult situations. The feedback I get seems to suggest that I’m right. However, this weekend I will be far from my office desk and sport coat. The person at the table won’t view me as his attorney, but instead as his son. I will make every effort to stay neutral, compassionate and understanding. Also seated silently at the table will be memories of our family history and relationships, both the good and the bad.

I hope that my topic today lets you know you’re not alone when you deal with these unique family issues. Further, I hope that if I survive this trip (LOL) I will be a better estate planning and elder law advisor for you going forward. I’m sure I will learn a lot during this trip.

I’m about to step onto the first tee. I hope I play well.

Fun fact: Phoenix is known as the “Valley of the Sun” and is consistently one of the hottest cities in the US. The average high in the month of July is 103°. My dad would tell you that it’s a dry heat. I would tell you that my body doesn’t recognize the difference between a dry and wet heat when I open a car that’s been sitting in the sun.

Understanding Your Life Insurance Policy

People who own life insurance typically get an Annual Statement summarizing the policy and its benefits. Unfortunately, many of them don’t understand the information provided, especially if the policy is very old and their memory of the initial purchase has faded. You really should take a minute to carefully review your Annual Statement. Here’s some information that might help you to understand what it says:

1. First, be aware that you were given the actual life insurance policy when you purchased the insurance. The “policy” is simply a contract between you and the insurance company with terms and conditions related to your premium payment and the death benefit. It’s good to try to dig out that policy because it will tell you who you named as beneficiaries and other important details of the policy. The Annual Statement is just an updated summary based on that initial contract.
2. Policy owner/insured. In most cases the policy owner is also the person whose life is insured. However, that does not have to be the case, and you should carefully check to see if the insured and policy owner are the same. The policy owner is the only one with authority to change beneficiaries and cash in the policy. The policy insured is the person whose death triggers the death benefit payout.
3. Your policy is one of two types: term coverage or permanent insurance.
   • Term coverage typically provides a guaranteed premium and death benefit for a term of years. If you have “15-year term” then you have a guaranteed death benefit at a guaranteed premium for 15 years from the date you purchased the policy. Once you hit the end of that 15-year term, the policy typically doesn’t terminate but the premium is no longer capped and most people get rid of the policy because of the substantial premium increase at that point.
   • Permanent insurance has a death benefit and typically a cash value. It’s called “permanent” because it is intended to last for your lifetime. For insurance to be permanent, the amount you pay into the policy is greater than the premium requirement for the death benefit. The amount you pay over the premium requirement is kept in a separate account that gets a fixed interest rate (whole life) or is invested in the stock market (variable life). If you have a whole life policy, you will be able to see your minimum guaranteed interest rate and current interest rate. If you have a variable life policy you will be able to see your investment subaccounts (similar to mutual funds).
4. Death benefit (sometimes referred to as Face Value) is just as it sounds, the amount that will be paid to your beneficiaries at your death.
5. Beneficiaries. Many, but not all, Annual Statements will indicate who your current beneficiary is on the policy. If it’s not listed, it’s a good idea to contact the company to ask what they have on record. Insurance companies get purchased by other insurance companies and sometimes the beneficiary designations don’t completely make it to the new company. If the beneficiary designation is missing or incorrect, request a change of beneficiary form to complete and send back to the insurance company.
6. Riders and endorsements. This is where things get complicated. Your policy might have an assortment of “bells and whistles”. Perhaps it has a terminal illness benefit that accelerates the death benefit for your use before the end of your life. It may also offer an accelerated benefit if you are confined to a nursing home. It’s a good idea to call your agent or the insurance company if you see a rider or endorsement to review the details of the benefit and (equally important) what you’re paying for the benefit. Every added benefit on an insurance policy has a cost and it’s good to review the likelihood that you will use that benefit and compare it to the cost of the benefit. You can save some money if you decide that a rider is no longer needed.
7. Some policies have the premium paid from the cash value or investment value. If your policy is doing that, you need to carefully review the cash value each year to see if it is rising or dropping based on the deduction of premium and costs. If it’s going down, then you need to estimate when the cash value will be used up because at that point the insurance company will contact you about how you want to cover the premium payment which can be very large later in life. If you don’t pay it, your policy ends (“crashes”) and that can be a big surprise. You can call the insurance company and ask them for a report on how long the premiums will be covered by the policy value.

Fun fact: I don’t know how fun it really is but it’s important to know. Millions of dollars of insurance policies go unclaimed simply because the beneficiaries didn’t know they exist. The National Association of Insurance Commissioners (NAIC) has a website available for anyone who believes they might be a beneficiary for an unclaimed insurance policy. To use the website you have to have the policyholder’s legal name, Social Security number and date of birth and date of death. Here is the link: Life Insurance Policy Locator

Gifts Can Have Consequences

People make small gifts to friends for Christmas, birthdays, anniversaries, and the like without thinking twice.  Bigger gifts need to be thought through more carefully. Maybe it’s to help someone finance the purchase of a home, or to buy a car. Perhaps your estate is large enough that you would prefer to pass some of it on before you die to minimize estate taxes. Regardless of the reason, many people don’t understand all the rules associated with making a relatively large gift to a friend or family member. Here are some points to remember:

1. According to the IRS, a gift is any transfer to an individual for less than fair market value in return. No gift occurs if I sell my car to my son for the fair market value Kelly Blue Book price. However, if I simply transfer the title to him for free, or sell the car to him for far less than the fair market value, then I have made a gift of the difference between the fair market value and what I received in return. Similarly, if I loan my son $100,000 and he signs a promissory note to pay it back and I subsequently forgive the loan, then I made a gift of the outstanding loan value.
2. Know that there can be a tax on making gifts. It doesn’t come up that often because there is a gift tax exemption, which for 2025 is $19,000 per person. If you are married, then one spouse can use both spouses’ exemptions for a total of $38,000 without any gift tax consequences. This is referred to as a “split gift”. Once you get over the threshold of $19,000 for an individual or $38,000 for a married couple, then the IRS imposes a “gift tax.” The exemption runs to each gift receiver so a single person can make lots of gifts to different people without any tax as long as no individual person receives more than $19,000.
3. You can make certain gifts over and above the annual exemption listed above without incurring a tax. Tuition or medical expenses, gifts to spouses and even gifts to political organizations do not have an annual exclusion limit. The same is true for gifts to qualifying charities. However, those gifts must be made directly to the educational institution or medical provider. You can’t give the gift to your loved one as reimbursement for what they already paid for tuition or medical expenses.
4. If there is any gift tax to pay, it’s not paid by the receiver of the gift (donee) but instead is paid by the giver of the gift (donor). A gift of a new car to my son (fat chance) does not trigger any income tax for him.
5. Gifts to friends and family are not tax deductible by the giver (donor). Gifts to charitable organizations might be tax deductible depending on the status of the organization.
6. How does the IRS know if you made a taxable gift over the annual exclusion? The onus is on the giver of the gift who is required to file a gift tax return Form 709. It’s been said that gifts over the annual exclusion are one of the most underreported tax transactions in the United States.
7. One of the most misunderstood elements of the gift tax is just exactly how it’s paid. Making a “taxable” gift does not increase your income taxes for the year of the gift. Instead, your “taxable” gift simply eats away at your lifetime estate/gift tax exemption. Currently, for a single person the exemption is almost $14 million so if you make a gift of say $29,000 in 2025, then you are $10,000 over the gift tax exclusion and the result is that your estate/gift tax exemption at the time of your death moves down from $14 million to $13,990,000 (I rounded it to make it easier to understand but you get the idea). This is not that big a deal unless the gift you give is large and your estate is also really large. The only possible way you would pay a tax in the year you made a gift is if you had already made so many gifts that you ate up your total $14 million estate tax exemption. For most people it’s a nonissue.
8. As I’ve indicated in prior posts, you should understand the capital gains consequences of making a gift of appreciated property. Writing a check for $10,000 as a gift to someone has no capital gains tax consequences because it’s cash. But if you give someone $10,000 worth of Apple stock that you bought years ago for $1,000, then the receiver of that Apple stock gift is treated as though they bought the Apple stock for $1,000. That’s called their basis in the stock, and if they immediately sell it for $10,000, then they have $9,000 of capital gains. However, if instead of giving the Apple stock while you are alive you create an estate plan that gives $10,000 of Apple stock to someone after your death, then the receiver of that gift at your death is treated as though they bought the Apple stock for $10,000, not $1,000. They get a step-up in basis. Death transfers wipe out capital gains while lifetime gifts do not. As a result, it’s almost always better to give cash rather than appreciated stock or real estate if you intend to make a lifetime gift.

If you intend on making a large gift you must be aware of the basic rules regarding exemptions and tax filings. You should also be aware of the capital gains tax issues as well. Hopefully the information above will give you more confidence in exploring your options for making gifts.

Fun fact: Speaking of gifts, the word “philanthropy” literally means “the love of humanity.” George Peabody is considered the father of modern philanthropy. He was born into poverty in South Danvers, Massachusetts, and rose to tremendous wealth. He subsequently gave almost all of his fortune away so as to set an example to other wealthy people in the mid-1800s. As a result, they renamed the town in which he was born to Peabody in honor of his generosity.