By Warren Cassell | February 8, 2016 — 10:25 AM EST

Whether we like it or not, death is one of the few guarantees in life. Despite this immutable truth, too many people have not taken the time to spell out who they would like to inherit their assets after their passing. Findings from a 2014 RocketLawyer.com survey found that roughly 51% of persons between the ages of 55 and 64 have not written a will. Probably the most startling thing of all is that for the most part creating a will is just a small component of comprehensive estate planning.

Proper estate planning also entails purchasing sufficient life insurance coverage, naming transfer on death beneficiaries for retirement and other investment accounts, setting up trusts for your heirs and even allocating funds for different charitable organizations.

Although creating a well-constructed estate plan requires a lot of work, it is worth it. It allows you to have the last say on what you would like to do with the wealth that you worked hard to accumulate. These below six books will help to give you an idea on how exactly to move forward with your estate planning estate planning books.

“The Legacy Journey: A Radical View of Biblical Wealth and Generosity” (2014) by Dave Ramsey

Over the last 23 years in the United States, the name Dave Ramsey has been synonymous with the act of getting out of debt. Having had filed for personal bankruptcy in his late 20s, Ramsey built a multimillion dollar financial coaching empire that focuses on helping middle class families live a completely debt free life.

Unlike his other books, The Legacy Journey puts little emphasis on money management practices for everyday people. Instead, it focuses on how to invest, spend and gift a portion of your wealth after amassing it. Evangelical Christian, Ramsey uses The Legacy Journey to talk about wealth from a biblical perspective. The book also provides readers with an inside look on how Ramsey constructed his estate plan. He shares some of the ways he structured trusts for his children when they were minors as well as how he and his wife choose the charitable organizations they give to. (For more, see: How Dave Ramsey Made His Fortune.)

“A Passion for Giving: Tools and Inspiration for Creating a Charitable Foundation” (2012) by Peter Klein and Angelica Berrie

As a way to continue their legacy, many people wish to leave a portion of their wealth to various non-profit organizations and other special causes when they die. A Passion for Giving serves as a guide for anyone looking to make charitable giving an important component in their estate plan. In addition to sharing case studies of how wealthy philanthropist go about donating their money, the book shares a step-by-step guide to starting and managing a private family foundation, as well as how to properly invest the foundation's assets for it to grow over time. (For more, see: 5 Steps To Forming A Tax-Exempt Nonprofit Corporation.)

“Beyond the Grave, Revised and Updated Edition: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)” (2014) by Jeffrey Condon

Written by an attorney with several decades of experience practicing estate law, Beyond the Grave is a comprehensive handbook that explains the basics of estate planning. The book explains common terms and mentions strategies that can be used to minimize tax liabilities for heirs of an estate. It also shares tips on how estate owners can avoid leaving an inheritance that would divide their families. (For more, see: 'I Just Inherited Money' Now What?)

“Family Trusts: A Guide for Beneficiaries, Trustees, Trust Protectors, and Trust Creators” (2015) by Hartley Goldstone, James Hughes, and Keith Whitaker

Trusts are instruments that are commonly used in estate planning. They help to minimize estate taxes and prevent creditors from seizing certain assets. Family Trusts provides all parties involved in a trust, grantors, trustees, and beneficiaries, with basic information on what a trust is and how it works. The book also gives grantors suggestions on how exactly to structure a trust. (For more, see: Estate Planning: Introduction Estate Planning.)

“8 Ways to Avoid Probate” (2014) by Mary Randolph

After someone passes away, their entire estate goes into a legal process to validate his or her will, appoint an executor to distribute the estate’s assets to its heirs and pay off the final debts and taxes owed by that estate. This is known as probate, and it often takes months and sometimes even years for it to be complete. As such, many families incur large legal fees and have their inheritance delayed as a result of probate. As the name implies, 8 Ways to Avoid Probate shares eight different strategies that estate owners can use to immediately transfer assets to their beneficiaries upon debt and, therefore, reduce what goes to probate.(For more, see: Skipping-Out on Probate Costs.)

“Get It Together: Organize Your Records So Your Family Won't Have To” (2014) by Melanie Cullen and Shae Irving

Get It Together gives readers practical tips for organizing and securing all of their important documents. It is a great resource for persons who are concerned about their family having trouble with finding their these documents should they die. These might include a list of passwords, bank statements, insurance policies and information on retirement accounts.(For more, see:6 Ways To Lose Your Estate.)

The Bottom Line

Although you might find thinking about your eventual death hard to stomach, it is very important to invest time, energy and money into constructing a comprehensive estate plan. Despite common beliefs, every adult, not just the wealthy, should spell out who they would want to inherit their assets. Without possessing a last will and testament, you run the risk of having a judge determine how to distribute your assets, among your family and friends, following your passing. This is a problem because a court’s decision may not necessarily reflect what your wishes for your estate would have been if you had prepared a will. Furthermore, proper estate planning can help to significantly reduce your estate’s overall tax liability which will result in a larger inheritance for your heirs. While writing a will and setting up trusts, might require assistance from professionals, the above six books can provide a great start for anyone who is looking to create an estate plan.

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January 13, 2016 — 4:00 PM ALMT

Jeb Bush Tax Plan Could Disrupt Real Estate And Small Business 

SEP 13, 2015 @ 06:58 PM 5,680 VIEWS 

Whatever the long-term effect of the Bush 2016 tax plan, there is one provision that may create something of a shock to both real estate and the financing of small business. In the “Backgrounder” for the Reform and Growth Plan, we read – “Generally, businesses would no longer be able to deduct interest payments.” The provision is seen as a corollary to another proposal

Under the proposal, businesses could fully expense all new capital investments, an approach that seeks to remove taxes on marginal investment returns. This would simplify the tax code and significantly increase incentives to invest in new machines, equipment, buildings, and other structures.

Devil In The Details

Now there are a host of devilish details that I would like to clarify about these proposals.  For example there is that word “generally” which can cover a multitude of sins and what exactly does “new” mean?  Is is it something I just bought for my business making it new to me or something that is really brandy new?  Makes a big difference when you are talking about real estate.  Also does the expensing apply to capital investments that would not be depreciable under current law such as land and does it apply to intangibles?

Hopefully more details will be forthcoming.

MIAMI, FL – SEPTEMBER 12: Republican presidential candidate and former Florida Governor Jeb Bush greets people during a Miami field office opening on September 12, 2015 in Miami, Floria. Bush continues to campaign for the Republican nomination. (Photo by Joe Raedle/Getty Images)  

Economists Think It Is A Great Idea

If you poke around you will find that many economists approve of changes of this sort.  A recent article in the Economist refers to the deduction for business interest as a “A Senseless Subsidy”.

In The Not So Long Run Though?

The economists may be right in the long run, but in my mind it seems that regardless of the ultimate benefit, the transition would be wrenching. The Tax Reform Act of 1986, sensible as it reforms may have been, was a shock to real estate values.  In a 1991 article in the CPA Journal  Roy Cordato wrote:

 The Tax Reform Act of 1986 has contributed to the decline of the real estate industry. The changes that have contributed to the decline of the industry include the elimination of the capital gains tax differential, the increase in the period for writing off taxes for depreciable real property, and the limitation of the deductions of passive investment losses. These changes have reduced the market value of real property, created an incentive for divesting real property, increased the difficulty of divesting real estate, and reduced the attractiveness of investing in new housing and construction.

The elimination of the deduction for business interest threatens firms that are reliant on debt financing.  It seems like it would make starting up very challenging and that when businesses hit a rough patch it would be equivalent to kicking them when they are down.

An Oversimplified Example

I’ve constructed a simple example to illustrate how the current system works and the effect that the change might have. My example sacrifices realism for easy math, but I think it shows the principles that are at work.

Joe inherited a bit of land from his uncle and has decided to build some housing on it.  The equity in the land allows him to take a mortgage to fund the construction cost – $275,000 (You can make it $2.75 million if that sounds too chintzy and scale the rest of the numbers up by a factor of 10).  Joe expects the net operating income (NOI) to be $24,000.  NOI is the rental income offset by the actual expenses of running the property including taxes, insurance and repairs, but not interest or depreciation.  A more hip term in some circle is EBITDA.

Joe has decided that he would really like his taxable income to match his cash flow.  In order to achieve this he will pay $10,000 of principal on his mortgage each year for 27 years and $5,000 in the final year. Under that scenario cash flow after debt service and taxable income will be $250 in Year 1 gradually increasing til it reaches $24,000 after the mortgage is paid off.  Joe will recover the principal payments through depreciation deductions.  In real life, they would not match on a year to year basis, but they will ultimately line up.  Over the 28 years in my simplistic scenario Joe would collect $672,000 in net operating income, pay $196,000 in interest (at 5%), $275,000 in principal and have taxable income and pre-tax cash flow of $201,000.

Under the Bush plan, things are different.  Joe gets to immediately deduct the entire $275,000 which is really cool if he has a lot of other income to shelter, but not so great if he doesn’t.  It would however turn into a net operating loss, which he would probably get to mostly deduct over the next several years.  Conceivably that could shelter Joe’s net operating income for the first twelve years or so.  It gets hard after that though, since neither the interest nor the principal is deductible.  Over the life of the scenario Joe has $672,000 in NOI and an upfront deduction of $275,000 for total taxable income of $397,000 and the same pre-tax cash flow of $201,000.

When Things Don’t Go So Well

A much more disturbing thought, one for which I will not try to construct examples is what happens with firms that borrow to finance receivables, inventories and to deal with irregular cash flow.  During periods in which inventory and receivables are stable there might be a pretty good match between taxable income and after-tax cash flow.  The notion that you could run into a rough patch during which there is barely enough operating income to cover your interest expense, but you are still generating taxable income because the interest is not deductible is frightening. The Economist article actually notes that eliminating interest deductibility could be quite disruptive.

But outside the public markets, taxing interest would bash a cohort of firms with low margins or that have over 75% of their balance-sheet funded by debt. In America the obvious victims are utilities, cable-TV firms and commercial real-estate firms. Many leveraged buy-outs would be in trouble. One private-equity chief warns, “You’re opening up a Pandora’s box…It would cause massive disruption and market turmoil.” Firms might rush to list their shares and issue new equity, causing the overall stockmarket to fall in the face of the extra supply of shares.

Taxing interest would hurt bits of Main Street, too. Small firms find it hard to raise equity. Farmers would find it more expensive to get loans to smooth the seasonality of their incomes. In Europe and Asia indebted holding companies are often used to control corporate empires: some of these structures would wobble.

My observations are of course anecdotal and perhaps not good evidence, but it seems to me that the entrepreneurs who pull themselves up by their bootstraps do it with debt more than equity. One of the big differences is that equity returns don’t have to be paid during dry spells, but interest keeps ticking and must be paid.  If operating income just covers interest where is the money to pay taxes, which would be required under the new system going to come from?

The Other Changes Affecting Real Estate

Bush’s plan eliminates the deduction for state and local taxes.  With the local taxes goes one of the subsidies to home ownership.  The other, the home mortgage interest deduction is not directly attacked, but there is an indirect assault.  Itemized deductions other than charity are subject to a cap.

The cap would limit the tax value of itemized deductions to two percent of a filer’s adjusted gross income. Since it is dependent on a progressive tax schedule, a filer in a lower bracket will be able to have more deductions as a share of their incomes. Low- and middle- income filers in the 10 percent tax bracket could deduct up to 20 percent of their income, while high-income filers in the top bracket could only deduct about 7 percent.

Someone with the maximum deductible mortgage balance of $1.1 million might be paying between $40,000 and $50,0000.  If their adjusted gross income is $400,000 the cap would limit them to about $28,000 total non-charitable  deductions.  If they have large medical bills or gambling losses, there might be no benefit at all from the mortgage interest.

 Winners And Losers

The Tax Foundation has done its analysis of the Jeb Bush plan and finds that all income groups are winners whether you score it statically or dynamically.  The plan, scored statically reduces federal revenue by $3.66 trillion over 10 years.  Dynamic scoring more than halves the revenue loss bringing it to $1.6 trillion. If that $1.6 trillion is covered by benefit cuts, the tax savings might look a lot less exciting to the lower portions of the 99%.

Putting that aside though the really big rate savings under the plan go to families with joint income over $151,200 which is where the 33% bracket kicks in under current law.  Even above that though those who live in high tax states, have large mortgages or use significant leverage in their businesses might find themselves far behind.

Of course  the economists will tell us that this will be good for us in the long run.  As John Maynard Keynes noted in the long run we are all dead and that

Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again

I’m thinking that the transition to non-deductible business interest might well be quite tempestuous.

Apr 28, 2016

Robert Warner

Too many people focus on their current financial circumstances and don’t think about the future until it’s too late.

There are varied reasons people avoid estate planning or making a will. A 2015 survey by CNBC showed that 38 percent of individuals with investable assets of $1 million or more have not consulted with a financial professional to establish an estate plan. Among individuals with $5 million or more, 68 percent were more likely to have a plan, compared to 61 percent of those with $1 million to $5 million in assets estate planning guide.

According to the Financial Planning Association and other professionals, common reasons people avoid estate planning include:

• They don’t want to think about death;
• They’re too busy;
• They believe their estate is not large enough to require an estate plan;
• They’re unsure over elements of their plan, such as how to distribute assets or who should be named a guardian for children;
• They have life insurance and expect to receive an inheritance, so they believe no further planning is needed; and
• They believe an estate plan is expensive, complicated and must include complex elements, such as multiple trusts.

The first hurdle advisors must overcome in convincing clients to set up an estate plan is outlining the potential benefits, which include:

• Assuring their affairs are handled the way they wish;

• Allowing them to avoid probate court;
• Reducing estate taxes by placing property and other assets in trusts;
• Making provisions to care for and protect children and other beneficiaries; and
• Protecting their assets from unforeseen creditors or lawsuits.

More complex estate plans can also address issues of succession for a family business or provide for a family member who lacks the ability to manage his or her financial affairs due to disability or poor judgment. Trusts can be designed so beneficiaries receive an inheritance in stages or can name a trustee to oversee the distributions over time.

Getting Started

Helping your clients to begin to seriously consider crafting an estate plan is just a starting point. There are a myriad of questions that need to be answered and concerns that need to be addressed before the plan can begin to take shape. This burden can be overwhelming for many clients if left to their own devices. Here are some tips to help guide the conversation and keep everything on track.

Consider Key Elements

Before meeting with an estate planning attorney, help your clients identify key elements of their plan. For example:

• Who should inherit assets and should the assets be divided? 

• Who should care for their children if they cannot, including how to provide for children’s education? 

• Who should handle their finances if they become incapacitated? 

•  Who should administer their estate plan and distribute their assets?

• Who should be the executor of their wills? This person will ultimately be affirmed by the court and act as a fiduciary representing their best interests and those of their beneficiaries.

Take Inventory

Make a list of current assets and liabilities that will help an estate planning attorney calculate clients’ net worth and determine whether the estate is subject to taxes. The list should include homes and any other property, such as vehicles, jewelry, artwork and any other objects of value. Other elements of the inventory include financial statements from bank, brokerage and retirement accounts; safety deposit boxes or safes; insurance policies and liabilities, such as mortgages, lines of credit and all other debt.

Determine the Beneficiaries

In most states and the District of Columbia, you can disinherit anyone except your spouse (unless your spouse waived that right in a marital agreement). Your clients should also designate secondary beneficiaries in case an heir dies or a designated charitable organization no longer exists after they die.

Should a Client Establish a Trust?

Beneficiaries can receive assets directly or through a trust. The decision to create a trust will likely depend on multiple factors, such as a benefactor’s age, health and the family’s financial circumstances. There are multiple types of trusts, but a common choice is a revocable living trust that manages and distributes assets and avoids probate after a client dies. If your client establishes a trust, you will need to work with the attorney to determine when the beneficiaries will receive the assets, how long the trust will exist and what happens if the beneficiary dies before the assets are spent.

Creating the Estate Plan

A client may want to work with more than one professional expert on an estate plan. Here are some of the more common members of an estate planning team and their duties:

Estate planning team — It is not uncommon for estate planning teams to include an estate planning attorney, tax professional and financial advisor (presumably you).

• Attorneys can craft or update wills and trusts as needed and make sure the plan meets all federal and state requirements.

• Tax advisors help minimize taxes owed by beneficiaries on the assets they inherit. 

• Financial advisors ensure assets are managed specific to the client’s needs, goals and risk tolerance.

Take inventory and prepare — Essential documents and information the team will need or should create for an estate plan include:

• Most recent wills, or first ones if clients have not yet had them drawn;
• Trusts, either a client’s own or those in which a client, spouse or other heirs are beneficiaries;
• Financial powers of attorney;
• Prenuptial or marital agreements, if applicable;

• Business ownership documents and information, if applicable; 

• Advance directives, such as health care powers of attorney or living wills. Typically, these documents are drafted at the same time to ensure a couple’s wishes regarding life-sustaining treatment are carried out if they become terminally ill.

Review and update — Once an estate plan is in place, you should plan to review and update every three to five years or whenever your clients experience a life-changing event, such as:

• The death of a spouse;

• The birth or death of a beneficiary or fiduciary;

• Moving to another state or country; 

• A significant change in your client’s financial situation;

• The purchase or sale of a business; 

• Divorce or remarriage; or 

• The client, spouse or a beneficiary becomes physically or mentally disabled.

The value of an estate plan goes beyond the time and money it can save your clients’ loved ones once they’re gone. Having an estate plan in place gives loved ones the assurance they’re taken care of and can serve as a valuable link between advisors and clients’ subsequent generations.