The Secret Pitfalls of Living Trusts

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Nilus MattiveDear Rich Lifer,

‘There’s a myth that living trusts are only for the wealthy…’

That’s how the pitch starts.

Living trusts, formerly known as revocable trusts, are marketed as a way for people to avoid the hassles and costs of probate.

But what these slick salespeople won’t tell you about living trusts is what I’m going to share today.

Before we get too far along, let me start by saying that living trusts have their place.

No, you don’t need to be wealthy to benefit from a living trust. But, it’s still not a good enough reason to have one.

If you own out-of-state property or you plan on leaving one child more of your assets than the others, or you have assets that need ongoing management, a living trust can be a great estate planning tool you can utilize.

All too often, though, living trusts are sold to people who don’t fully understand what they’re buying.

Maybe they attended a free seminar held at a hotel conference center or public library, and they were sold on the benefits of a living trust. Then before they knew it, they were being pitched an offer that seemed too good to pass up.

The reality is what could have cost $300 to create a simple will, ended up costing $1,000 to $3,000 for a living trust this person really didn’t need.

Here are five things living-trust promoters are not telling you:

You Can Avoid Probate Without a Living Trust.

If avoiding probate is really one of your main sticking points to creating a living trust, then the good news is you can achieve this without overpaying for a trust. Most of your valuable assets can go directly to your heirs outside of probate.

Your house and other property that’s owned jointly with the right of survivorship goes directly to the joint owner when you die. Also, retirement accounts, pensions, and life insurance policies automatically transfer to the beneficiary.

If you’re worried about your family not getting immediate access to your money when you die, you can set up payable-on-death accounts. This gives recipients immediate access to your money.

There are also a few states that allow you to name a beneficiary for your car. And there are more than a dozen states that allow transfer-on-death deeds for real estate.

Probate Is Not as Bad as You Think.

Another way these salespeople will try to persuade you is by playing up how bad probate will be. The truth is a lot of states have streamlined the process for uncontested wills.

For example, in California if your estate is valued at up to $150,000, excluding property that passes directly to beneficiaries, you can avoid probate altogether.

The site nolo.com lists every state with exceptions and offers advice on how to avoid probate in your state. Keep in mind that there’s no probate for retirement accounts with named beneficiaries, joint accounts with survivorship rights, pay-on-death accounts and life insurance. If these make up most of your estate, a will should work just fine.

Lastly, sometimes probate can be worth it. Having a third party look over what the executor is doing, making sure all debts and taxes are paid, and assets found, can be beneficial.

You Have to Transfer All Property to a Trust.

If you want your house to be included in your trust, you need to record a new deed transferring ownership to the trust. This goes for all other assets, too.

New stock certificates must be issued. Cars and boats must be retitled. This can be a pain to do, but if you miss any one of these steps, the living trust is another worthless piece of paper.

Trusts Have Their Fair Share of Complications.

When you create a trust, you typically name yourself as trustee so you have control of the assets. Most married couples will name their spouse as joint or successor trustee.

This can create problems if your spouse becomes incapacitated or develops, say, dementia. Your family might have to declare that your successor or co-trustee is incompetent in order to gain access to your finances. A better approach is to name an adult child as trustee.

Also, a lot of people assume that if they transfer assets to a trust, they no longer are considered to be the owner of those assets since the trust owns the wealth. Therefore it’ll be easier to qualify for Medicaid.

Unfortunately, when you transfer your assets into a living trust, you usually still maintain substantial control over the trust assets. As a result, the assets will still count as resources when Medicaid eligibility is determined. Don’t believe anyone telling you living trusts will make it easier to qualify for Medicaid.

You Can Avoid Guardianship or Conservatorship Without a Living Trust.

Another major selling feature for living trusts is that they allow your family to avoid costly court-supervised guardianship or conservatorship, if you were to become disabled or incapacitated.

You can achieve the same thing with a durable power of attorney, which are a lot less expensive to set up and easier to use.

Finally, and not to dissuade you entirely from living trusts, but it’s important to understand that trusts are big business.

Most of the people selling you living trusts are good, honest people. But, some have ulterior motives. By getting to see what assets you own, these salespeople might try to sell you other financial products like annuities.

Bear that in mind next time you’re being pitched an “offer you can’t refuse” for a living trust.

To a richer life,

Nilus Mattive

Nilus Mattive

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A Ferrari, Rolex, and The S&P 500 Walk Into a Bank…

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Dear Rich Lifer,

I have always been a collector of things.

When I was younger, I focused on coins … comic books … action figures … baseball cards … and all the other typical stuff 10-year-old boys like.

Since then, I’ve gotten into guitars, surfboards, vintage skateboards, wine, and even rare sneakers.

I’ve made money on just about every one of those things over the years while having fun along the way.

And while I continue to favor traditional financial assets for the lion’s share of an investment portfolio, I believe every investor should put at least some of their personal wealth into what professional investors commonly call “alternative assets” – whether you’re talking about precious metals or various collectibles.

Why?

Lots of reasons – privacy, safety, diversification, maybe even just sheer beauty or novelty!

Sound crazy or financially irresponsible?

Well, I’ve written about this before but consider the Rolex watch that I wear nearly every day.

The Rolex

It was about $2,500 new in 1999.

Today, after yet another recent surge in prices, it’s worth close to $10,000 … even with all the accumulated scratches, scrapes, and a faded bezel. (Actually, most watch collectors prefer examples that have been unpolished and show their natural patina.)

So I’ve enjoyed using and wearing this tool for 20 years and gotten a huge return along the way!

Meanwhile, if you were to pull up a chart of the S&P 500’s performance over that same two-decade period …

You would see, the S&P 500 has risen about 113% while my Rolex has quadrupled!

Okay, you’re probably thinking this is an isolated example.

Well, not really. If anything, most Rolex sports model watches have steadily risen in value over the last decade. Some of the most desirable models – like vintage Daytona and Submariner models are now fetching hundreds of thousands and continuing to appreciate sharply.

Imagine walking around with $200,000 on your wrist, and only the savviest observer having any clue!

That brings up something to consider about even ho-hum collectible watches like my own: I can hop on an airplane, fly to just about any major foreign city, and pretty quickly exchange my watch for cash in the local currency (or a precious metal).

Or what about that sports car you’ve always wanted? Surely you’d be better off putting the money into stocks or bonds, right?

When to Invest and When Not to

Well… Turns out maybe not.

Many collector-quality cars have been steadily rising in price, too.

Hagerty insurance keeps various indexes on the market – tracking prices for Ferraris, muscle cars, and other big categories.

A quick look shows big gains over the last decade in just about every instance.

For example, the company’s “blue chip” index measures the performance of 25 of the most sought-after collector cars. It’s gone from $500,000 in January of 2007 to roughly $2.5 million at the beginning of this year!

Heck, you know the old wisdom that cars depreciate the minute you drive them off the lot?

It’s not always true.

Many recent-model, gently-driven Porsche 911 GT3s are currently selling for more than their original MSRPs.

Or what about very high-end, low-production cars like the McLaren P1?

The lucky people who secured their cars for about $1 million new a couple years ago can now probably sell for double or triple that now.

Even I once bought a brand-new car and sold it for more money than I originally paid.

It was a 1997 Land Rover Defender 90, one of the last imported into the United States. I drove it for a few years and then sold it for about 10% more than it cost me.

Today that vehicle is worth even more still (yes, with tens of thousands of additional miles on it)!

The Value of Tangible Assets

Are situations like this common?

Hardly. But research and careful buying can pay off.

More recently, I owned a Lotus Elise sports car … drove it for a couple years … and didn’t lose a penny when I eventually sold it.

Cars and watches are only the beginning – guns, stamps, art, even those action figures from my childhood… there’s plenty of money to be made out there!

Of course, the real point is that many types of tangible assets appreciate in value… even as you enjoy looking at them… wearing them… or driving them.

Obviously, none of these assets produce income and that’s a MAJOR drawback. They are also less liquid than most financial assets. Heck, they could even be in the final stages of a massive price bubble.

But if history is any guide, tangible assets DO provide a solid combination of privacy, portability, wealth protection, and appreciation potential.

So I encourage you to learn more about some collectible category that suits your personal hobbies or interests.

You’ll not only get some extra diversification for your traditional portfolio, you’ll probably have a good time along the way!

To a richer life,

Nilus Mattive

Nilus Mattive

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Urgent: Your Will May Need Updates

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When the “Queen of Soul” Aretha Franklin died last year, it was believed that she hadn’t prepared any kind of estate plan, including a last will and testament.

But, a few months ago, three handwritten wills were found in her home near Detroit. Two were in a locked closet and one was stuffed beneath the cushions of a couch!

If you’re wondering whether the handwritten wills are valid, join the crowd.

In Franklin’s case, with her $80 million estate, it’s likely good news that some kind of last will and testament was found to help divide her assets.

But, there’s no guarantee that the informal, handwritten wills are going to hold up in court. So the saga continues…

Aretha’s problematic situation is why it’s so important to have an estate plan with a legally valid last will and testament.

I won’t bore you with estate planning details (today), but I do want to talk about when you should consider updating your will.

This is all personal preference, of course, but I would suggest reviewing your will if you’ve done any of the following recently.

Moved to a Different State

If you’ve moved to a different state since your will was written, it’s a good idea to review it. Whatever state you die in, will be the state’s laws that are applied to your will.

And some rules in your new state could be different from your old one. For example, some states vary in the number of witness signatures needed on a will to transfer property once you die.

If you move from a state that requires only one witness to two, this can be problematic for your executor. Other rules that differ between states are the types of wills deemed valid.

Some states allow self-written wills but have rules around how they can be written. In one state, you might have to write out your entire will by hand. Whereas, in another state you can type your will and just sign at the bottom.

Purchased a New Property

Another mistake a lot of people make is they assume that because their will states that they are gifting their home to their children when they pass that it’s a done deal.

Your will needs to specify exactly what home and at what address you’re gifting. So if you move or decide to buy a second property, make sure your will specifies who receives which property and at what address.

Purged Old Possessions

If you’ve moved or downsized recently, you likely purged some of your old possessions. Sometimes you end up giving away or selling something you had planned on passing down.

If your will lists items you no longer own, those possessions will be skipped over and the recipient of those items with get nothing. So, it’s best to review your will and redistribute whatever possessions you currently still own.

Gifted a Willed Item

Sometimes you will gift some of your possessions early due to downsizing or out of necessity. For instance, you might gift an antique desk to one child, but in your will, it says that same desk goes to another child.

Things can become awkward between families if you don’t catch these little hiccups. Whenever you give something away that’s significant, review your will to make sure you haven’t disrupted the balance.

Had a Significant Change in Your Net Worth

You might have exact amounts of money earmarked for each one of your children. This will likely depend on how much your estate is worth, the value of stock you own, etc.

But the size of your estate and the worth of your stock could have grown or shrunk dramatically since you last wrote your will.

This can create challenges for your executor. Especially if one asset has grown significantly while another has shrunk. If that’s the case, it’s best to update your will to reflect your current net worth.

Begun Working with a New Charity

Maybe you’ve recently started volunteering at a nonprofit or you joined a board for a charity that means a lot to you. You might wish to donate some of your wealth to this group.

Now is a good time to update your will to reflect those changes. And the same can be said for charities or groups you no longer feel the same way about. You might need to remove some groups from your will to better reflect how you currently feel.

Had a Death in the Family

If your spouse dies before you, you won’t need to update your will because wills typically list alternate recipients in case this happens.

But, if your will lists a child who has recently passed as a beneficiary, then you’ll need to include instructions on how you would like that child’s items redistributed.

Your Primary Caregiver Changed

If one of your sons or daughters becomes your primary caregiver since you last wrote your will, it might be time to update your document to reflect your gratitude.

Oftentimes, becoming a primary caregiver involves a huge time and financial commitment. The best way to go about making this change so as not to upset the other beneficiaries listed in your will is to explain your intentions.

To a richer life,

Nilus Mattive

Nilus Mattive

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The Last Resort for Healthcare: What You Need to Know

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Long-term care for a semi-price room in a nursing home averages $6,844 per month according to the U.S. Department of Health and Human Services.

Many Americans can’t afford such costs, so they often look to the option of last resort: Medicaid. 

Medicaid is a program that provides health care to some middle-income families, even though it’s frequently thought to only be for the poor. Coverage includes custodial nursing home care in all states and home care services in a few.

It’s meant to pay for specific expenses after a patient’s resources are gone. The federal government pays a portion of the tab, while states operate and fund the balance.

Qualifying for it isn’t always easy, especially for elderly folks with a moderate income and who have accumulated a modest net worth over their working lifetimes.

Programs and qualifications among states can vary slightly depending on the needs and goals of that state.

That aside, there are basically two financial criteria that must be met. 

First, Is the Income Eligibility Criteria…

The Federal guideline for 2019 is that an individual, age 65 or older, cannot have a monthly income greater than $2,313. If married and both spouses are applying for Medicaid, each can have a $2,313 income for a combined $4,626.

When only one spouse is applying, the non-applicant is allowed some of the applicant’s income to help cover the living-at-home expenses while their spouse is receiving care. In most states, that maximum is $3,160.50 per month.

If your elderly loved one’s income exceeds the threshold, she could spend some of her income on health care and medical-related costs to get her income below that threshold.

Examples of Medicaid income spend down include:

  • Eyeglasses
  • Hearing aids
  • Transportation to receive medical care
  • Past medical and hospital bills

She should track every dollar spent on health care. Save every receipt. Missing one from the pharmacy, for example, could mean qualifying for Medicaid or not.

Second, Is the Asset Eligibility Criteria…

States will not grant Medicaid nursing home coverage if applicants have more than a certain amount of assets.

In most states, a single applicant, age 65 or older, is allowed to have $2,000. You can find your state’s requirements here.

If married and both spouses are applying for Medicaid, the typical limit is $3,000.

And if married with only one spouse applying, the non-applicant spouse can have as much as $126,420 in most states.

But not everything that people own is countable.

Countable assets are generally assets that can be converted to cash and used to pay for long-term care.

Examples include:

  • CDs
  • stocks
  • bonds
  • savings accounts
  • money market funds
  • a second home
  • IRAs, 401(k)s

Non-countable assets, that is those that are exempt from the state’s maximum, include:

  • furniture
  • clothing
  • personal belongings   
  • a car
  • irrevocable funeral and burial trusts
  • the primary residence — assuming the non-applicant spouse will continue to live there and the equity is not more than $585,000

Medicare Spend Down

Suppose your elderly loved one is not in good health. And you know that that she may need long-term care in the near future. The problem is that her resources exceed the state’s Medicaid allowance.

That means she’ll have to spend down her assets.

She could begin by converting countable assets into non-countable assets. For instance:

  • Making home improvements — a handicap bathroom, a chairlift, a wheelchair ramp
  • Paying off mortgages, auto loans, credit cards
  • Prepaying funeral and burial expenses

She could also set up a life care agreement…

This is a legal contract with a caregiver, can be a family member or friend, to provide a specified level of care for the duration of the elderly person’s life. Tasks could include housecleaning, preparing meals, and serving as an advocate if she goes to a nursing home.

The pay cannot be deemed as gifts, and a fair-market wage must be established.

You may be thinking… why bother with all that. Why not just give enough assets to friends and family members to get her countable assets down to the Medicaid limit, or sell them at a steep discount?

Clever idea. But states are onto that one with the…

Look-Back Period

This is a period of time when assets that could have been used to pay for long-term care were transferred. In most states it is 60 months. Here in California it’s 30.

The rules are complex and vary state to state. Basically though, authorities look closely for assets transferred within the look-back period.

And if they find that an applicant violated that rule, your loved one may not get the financial assistance she was seeking. Instead, she could with a penalty period — a period of Medicaid ineligibility when she would have to pay out of pocket for her own nursing home care.   

Medicaid Estate Recovery Program (MERP)

To make all of this even more complicated, states are required to seek recovery from an individual’s estate for Medicaid payments made. They have been known to get pretty aggressive, for example immediately going after life insurance proceeds that were intended to benefit a surviving spouse.

They can even put a lien on a patient’s home if she is permanently institutionalized, unless her spouse is living there.   

Bottom Line

Before implementing any Medicaid planning strategies, I suggest meeting with an attorney. Not the one who handled your home closing or divorce.

You want an elder care attorney who knows the ins and outs of the Medicaid rules for your state and can re-structure your loved one’s finances to help them become eligible. The National Academy of Elder Law Attorneys is a good place to begin your search.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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Have You Heard These 10 Must-Know Terms?

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According to a recent Empower Retirement survey, 66% of respondents said they don’t understand what “rebalancing investments” means.

A similar percentage, 69%, said they don’t know what “asset allocation” means. And the survey found that millennials in particular find financial terms difficult to understand.

I’d say it’s not just the younger generations struggling to understand today’s financial jargon. I see a lot of soon-to-be retirees with the same distinct dear-in-the-headlights look when pressed about “diversification” and “decumulation.”

Planning for retirement should not be hard to understand. Which is why today I want to demystify a few common financial terms that seem to be tripping up a lot of people. You’ll see a lot of financial experts use these terms to sound smart – really they’re just annoying.

Here’s my top 10 list of financial jargon terms everyone you should know:

1. “Asset Allocation”

This is a term used to talk about how you divide your investment portfolio. How much are you allocating to stocks, bonds, cash, etc.?

Financial planners will often ask you how you want to allocate your assets, they’re essentially asking you how do you want to divide your money.

2. “Decumulation”

I know this sounds like a bad thing — it’s not.

It refers to a phase after years of growing (accumulating) your retirement account, where you begin drawing down your savings to fund your golden years. Essentially it’s a shift from saving to spending and there are lots of opinions and strategies on how to decumlate effectively.

3. “Deleverage”

This is a term that became popular after the financial crisis in 2008.

It simply refers to the concept of paying off debt. When you deleverage, you’re typically selling off assets to pay down your debt.

4. “Diversification”

This term is similar to asset allocation in that we’re talking about putting your money into different baskets. Diversifying your wealth is a strategy used to mitigate risk.

By distributing your wealth into different asset classes, you can lower the chance of losing all your money should one asset class tank.

For instance, if you invest all your money in real estate and house prices crash, you’ll lose your nest egg. Whereas if you invest only a portion into real estate, keep some cash, and invest the rest in stocks and bonds, now your money is diversified and better able to manage the good and bad times.

5. “Equities” and “Fixed Income”

These are really just stocks and bonds.

It annoys me when I hear people tell me their financial advisor has been using these terms instead of simply saying stocks and bonds. It creates unnecessary confusion all for trying to sound smart.

6. “Fee-only” and “Fee-based”

These are terms referring to a financial advisor’s fee structure. The difference is fee-only advisors are paid a flat fee, whether that’s hourly or a percentage of assets managed, and fee-based advisors can accept commission on financial products sold as well as whatever fee structure you negotiate.

This can create the potential for conflicts of interest, so it’s best to avoid fee-based planners.

7. “It Has a Great Story”

This familiar phrase simply refers to how well an investment has performed in the past.

It’s a ridiculous saying but you’re going to hear it a lot.

8. “Risk”

A lot of people associate this with losing money. Risk is really just the chance that your investment will not match your expected return (either positive or negative). If a mutual fund has a 6 percent historical return, and the actual return is 18 percent, that’s the good side of risk.

9. “Tax-Loss Harvesting”

This actually has nothing to do with farming or agriculture. It’s the selling of investments at a loss to lower your tax bill for the year. Most of the time, investors will buy a similar investment as a replacement at a lower price. But all this does is delay the tax penalty.

10. “The Market”

This is a term you probably think you know, but I’m going to challenge you to dig a little deeper next time you hear this term. The market is not singular.

Ask yourself or your financial advisor if you’re talking about the stock market or bond market? S&P 500? U.S. or international? You want the conversation to go deeper than just ‘the market.’ Because you’re not trying to meet or beat ‘the market,’ you’re trying to achieve specific financial goals.

My hope is that some of these definitions clear up the confusion around common financial jargon.

When in doubt, look up what terms mean and don’t be ashamed to ask the person using the jargon in front of you what the heck they’re actually talking about.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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Ferrari, Rolex, or the S&P 500?

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I have always been a collector of things.

When I was younger, I focused on coins … comic books … action figures … baseball cards … and all the other typical stuff 10-year-old boys like.

Since then, I’ve gotten into guitars, surfboards, vintage skateboards, wine, and even rare sneakers.

I’ve made money on just about every one of those things over the years while having fun along the way.

And while I continue to favor traditional financial assets for the lion’s share of an investment portfolio, I believe every investor should put at least some of their personal wealth into what professional investors commonly call “alternative assets” – whether you’re talking about precious metals or various collectibles.

Why?

Lots of reasons – privacy, safety, diversification, maybe even just sheer beauty or novelty!

Sound crazy or financially irresponsible?

Well, I’ve written about this before but consider the Rolex watch that I wear nearly every day.

The Rolex

It was about $2,500 new in 1999.

Today, after yet another recent surge in prices, it’s worth close to $10,000 … even with all the accumulated scratches, scrapes, and a faded bezel. (Actually, most watch collectors prefer examples that have been unpolished and show their natural patina.)

So I’ve enjoyed using and wearing this tool for 20 years and gotten a huge return along the way!

Meanwhile, this chart shows the stock market’s performance over that same two-decade period …

As you can see, the S&P 500 has risen about 113% while my Rolex has quadrupled!

Okay, you’re probably thinking this is an isolated example.

Well, not really. If anything, most Rolex sports model watches have steadily risen in value over the last decade. Some of the most desirable models – like vintage Daytona and Submariner models are now fetching hundreds of thousands and continuing to appreciate sharply.

Imagine walking around with $200,000 on your wrist, and only the savviest observer having any clue!

That brings up something to consider about even ho-hum collectible watches like my own: I can hop on an airplane, fly to just about any major foreign city, and pretty quickly exchange my watch for cash in the local currency (or a precious metal).

Or what about that sports car you’ve always wanted? Surely you’d be better off putting the money into stocks or bonds, right?

When to Invest and When Not to

Maybe not.

Many collector-quality cars have been steadily rising in price, too.

Hagerty insurance keeps various indexes on the market – tracking prices for Ferraris, muscle cars, and other big categories.

A quick look shows big gains over the last decade in just about every instance.

For example, the company’s “blue chip” index measures the performance of 25 of the most sought-after collector cars. It’s gone from $500,000 in January of 2007 to roughly $2.5 million at the beginning of this year!

Heck, you know the old wisdom that cars depreciate the minute you drive them off the lot?

It’s not always true.

Many recent-model, gently-driven Porsche 911 GT3s are currently selling for more than their original MSRPs.

Or what about very high-end, low-production cars like the McLaren P1?

The lucky people who secured their cars for about $1 million new a couple years ago can now probably sell for double or triple that now.

Even I once bought a brand-new car and sold it for more money than I originally paid.

It was a 1997 Land Rover Defender 90, one of the last imported into the United States. I drove it for a few years and then sold it for about 10% more than it cost me.

Today that vehicle is worth even more still (yes, with tens of thousands of additional miles on it)! 

The Value of Tangible Assets

Are situations like this common?

Hardly. But research and careful buying can pay off.

More recently, I owned a Lotus Elise sports car … drove it for a couple years … and didn’t lose a penny when I eventually sold it.

Cars and watches are only the beginning – guns, stamps, art, even those action figures from my childhood … there’s plenty of money to be made out there!

Of course, the real point is that many types of tangible assets appreciate in value … even as you enjoy looking at them … wearing them … or driving them.

Obviously, none of these assets produce income and that’s a MAJOR drawback. They are also less liquid than most financial assets. Heck, they could even be in the final stages of a massive price bubble.

But if history is any guide, tangible assets DO provide a solid combination of privacy, portability, wealth protection, and appreciation potential.

So I encourage you to learn more about some collectible category that suits your personal hobbies or interests.

You’ll not only get some extra diversification for your traditional portfolio, you’ll probably have a good time along the way!

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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Is This Cheating the Gov’t, or Is It Justified?

This post Is This Cheating the Gov’t, or Is It Justified? appeared first on Daily Reckoning.

In a recent article about “The Seven Deadly Sins of Retirement,” I said soaring healthcare costs were a major topic that seniors need to think about. I also suggested you consider ways to shelter as much money as possible from nursing homes or government-run healthcare programs.

This is not the first time I’ve said as much, and it once prompted a reader named Pat to write in with the following response …

“Nilus, I have to tell you that I have real ethics trouble with some of your recent advice on retirement: Namely, advising people to give away assets so that they can avoid the Medicaid look-back provision for long-term care.

“Why should I or any other taxpayer have to pay for someone’s care just so they can give their assets to their family?

“Having a mother who is likely to need such care, I certainly don’t think others should have to pay for it just so my siblings and I can have some of her assets.”

I take feedback like this seriously … and I always reconsider my arguments when someone calls me out.

But in this case, I stand behind my initial suggestion 100%.

After all, it’s my job to help readers preserve (and grow) their wealth using every legal means available.

Before we get into the specific case of the Medicaid look-back provision, let’s talk about the general idea of protecting your assets.

Protecting Your Assets

I have never, and will never, advocate using illegal means to hide or protect your accumulated wealth.

Because even if you put morality aside, it simply isn’t worth the risk! 

But should I stop recommending perfectly-legal tax shelters like 401(k)s, IRAs, and other special retirement accounts?

Of course not.

Or to take this completely off of me, should an accountant stop helping his clients use every available credit and deduction to lower their overall tax liability?

No way!

We don’t make the rules. We simply help people understand what the rules are and how to use them for the best possible personal outcome.

This is why I laugh whenever I hear Warren Buffett say his tax rate should be higher than it is.

Yes, he should absolutely speak his mind on the topic, and do his best to convince elected officials to change the law as he envisions it.

At the same time, nothing prevents him from writing a bigger check to the Treasury any time he feels like it. I’m sure they would have no qualms cashing it! 

So you have to wonder whether he really means it. After all, Berkshire Hathaway makes darn sure that it exploits every single advantageous element of the tax code possible. The company has a responsibility to its shareholders to do so.

In a similar vein, if you don’t like using the current rules and laws to your family’s advantage, that’s completely your choice.

But I would much rather give as much of my wealth as possible to my daughter – especially if the alternative choices are nursing homes or the government.

And here’s why I feel very ethical by preserving my wealth in this way …

The Ethics for Preserving Your Wealth

For starters, as I’ve already pointed out, there’s nothing technically (or legally) wrong with signing away all your assets to an heir and then later qualifying for Medicaid.

As to the MORAL argument, how is doing so any different than someone who gave away a good portion of their wealth to big-screen televisions or a gambling habit? 

Why should someone who chose financial responsibility feel guilty for getting to pass along the results of their discipline and hard work?

And how are they bilking the state any more than the spendthrift?

What I’ve observed time and again – and it’s a trend that seems to be accelerating – is the idea that responsible, harder-working, more-disciplined people should always, unquestionably, be there to bail out less responsible parties.

And not by choice but by force.

I see this dynamic at work in the government’s response to the real estate bust … the Fed’s record-low interest rate policies … the various bailouts … the new healthcare exchanges that were established a couple years ago … and plenty of other places.

Bottom Line

In my opinion, these approaches start with good intentions but result in serious moral hazard – a situation that encourages the very behaviors trying to be eradicated.

So, by all means, we should aim to help others whenever it’s within our means to do so …

We should absolutely obey the laws that are in place at any given time …

And we should all feel responsible for voting our consciences in an effort to shape the future as we believe it should be.

But there is absolutely no reason anyone should feel compelled to go one step beyond the letter of the law as it currently stands simply because of guilt.

Quite to the contrary, I feel it’s my ethical duty to continue giving readers the best information I can so they have the widest range of choices possible.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post Is This Cheating the Gov’t, or Is It Justified? appeared first on Daily Reckoning.

There are Billions to Be Claimed… Is Any of It Yours?

This post There are Billions to Be Claimed… Is Any of It Yours? appeared first on Daily Reckoning.

State governments are sitting on boatloads of unclaimed dollars. 

Right now Florida alone is holding $1 billion, Washington … $1.3 billion, Illinois … $2.9 billion, California … a whopping $9.3 billion, New York … a jaw dropping $14 billion.  

And the billions keep pouring in. 

According to the National Association of Unclaimed Property Administrators (NAUPA), in FY 2015, $7.763 BILLION was collected.

Where the Money’s Coming From 

When a rightful owner cannot be located after a year or longer, funds are turned over to the government. 

For instance, suppose you had a small savings account and moved to another state. But you forgot to give the bank your new address? Since the bank doesn’t know where to send statements or tax information, it turns the money over to the state. 

The same often happens with life insurance death benefits. The insurance company can’t locate the beneficiaries, so the money eventually goes to the state. 

Other cases when the owner cannot be found include:

  • Trust distributions
  • Tax refunds
  • Contents in safe deposit boxes
  • Tenant security deposits 
  • Annuities
  • Old stocks
  • Uncashed payroll checks  

How to Find Your Share

Of the $7.763 billion cited above, $3.235 billion was returned to the rightful owners. That’s because every U.S. state, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have unclaimed property programs meant to find owners of lost and forgotten assets. 

The unclaimed property law is sometimes referred to as the W.C. Fields Law, named after the legendary comic and actor who died in 1946. Afraid of being robbed while he worked in the vaudeville circuit, Fields opened bank accounts in around 700 places. After his death, his heirs spent years contacting banks around the country to track down his assets.

Most states hold unclaimed financial assets until you are found. Tangibles, such as from a safe deposit box, might eventually be sold at auction and the proceeds held until you claim them. 

The amounts are usually small, $100 or so. However, last year in Arizona someone claimed $2 million. 

You may have received a notice from a company offering to recover money that you didn’t know was yours. 

Many are legitimate businesses that charge a percentage of the amount recovered. Although some are scams expecting you to pay upfront and then don’t deliver on promises. So be cautious before signing a contract. 

But if you’re willing to do some legwork, you can search for unclaimed assets on your own. And in most cases, the state will return them to you at little or no cost. 

Where to Start

The government doesn’t have one central source to look for money that might be owed to you. 

So a good place to begin is with the NAUPA. You can search every state where you have lived on their free search engine.  

Go to the IRS, too. They may be sitting on a refund you didn’t even know about because they have an old address. 

Have you ever had a credit union account? The National Credit Union Administration (NCUA) could be holding funds for you. 

Or are you about to retire and think you might be entitled to a small pension from a company you worked for decades ago? The problem is … you can’t locate them.  

The Pension Benefit Guaranty Corporation has over $300 million for more than 38,000 people who haven’t claimed their pensions. The individual benefits range from 12 cents to almost $1 million. 

Speaking of retirement money …

The Department of Labor (DOL) allows companies who are terminating defined contributions plans, like 401(k)s, to transfer accounts of $1,000 or less to state unclaimed property funds when they can’t locate the owners.

So if you think you may have had small qualified retirement plan that has been terminated, the DOL will help you locate your money.  

To Prevent Losing Your Property…

Property is generally lost because the company or financial institution can’t find you.  

To prevent that: 

  1. Let banks, brokerage firms, insurance companies, and other financial institutions know when you move or have a change in marital status.
  2. Maintain accurate records that include account numbers, institutions’ names and addresses.
  3. Have a qualified attorney prepare a estate plan that has the contact information for all beneficiaries. And review it annually and make changes as needed.  

I hope this helps you find out if any of the unclaimed assets are actually yours.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, The Rich Life Roadmap

The post There are Billions to Be Claimed… Is Any of It Yours? appeared first on Daily Reckoning.

How to Buy Hawaii’s Most Desirable Real Estate for $11

This post How to Buy Hawaii’s Most Desirable Real Estate for $11 appeared first on Daily Reckoning.

Every single day as I suffer through this frigid winter, I dream of buying a house somewhere beautiful, sunny and warm.

My dreams aren’t just for any random warm location, though. I have a specific place in mind.

For me, there is no place that I would rather be than Maui, Hawaii!

ALTTAG

For now at least, elementary school age children and strong family ties to where I currently live are keeping me from fulfilling that dream.

I can, however, do the next best thing…

I can own a significant piece of Maui and make some serious coin doing it. And you can too!

Introducing Maui Land and Pineapple – A Stock Picker’s Paradise

Maui Land and Pineapple Company, Inc. (MLP) owns more than 23,000 acres in one of the most beautiful parts of Maui. This includes more than 21,000 acres of land right next to the world famous Kapalua Resort.

Maui map

Click to enlarge

The Kapalua Resort is a luxury resort that has two world-class golf courses, white sand beaches, two marine sanctuaries, the Ritz Carlton Hotel, and many other award-winning accommodations.

The point that I want to make very clear is that this isn’t just 23,000 acres of land. This is 23,000 acres of the most desirable, irreplaceable and most valuable land on the entire planet.

Maui Land and Pineapple began operations back in 1903.

By 1933, the company had acquired almost all of the property that it holds today.

The specifics of when Maui Land and Pineapple acquired this land is very important to know.

Because as you can imagine, this land that was acquired prior to 1933 was purchased for pennies on the dollar relative to what it could be sold for today.

Meanwhile, the way that generally accepted accounting standards (GAAP) works is that land is carried on a company’s financial statements at its original cost. For Maui Land and Pineapple, that means that the company’s financial statements are carrying its Maui land at pre-1933 prices!

That would be what you call serious hidden asset value, folks!

What Is This Company Really Worth?

The stock market is currently assigning a value to all of Maui Land and Pineapple of $215 million. That value is calculated by multiplying the company’s share price by the number of shares it has outstanding.

I think that valuation is far too low.

In instances where Hawaiian property has an ocean view, you can see land transactions take place at prices in excess of $500,000/acre. Even agricultural land in Maui gets sold for more than $25,000/acre.

If I am very conservative and assume that a fair valuation for Maui Land and Pineapple’s land would be $20,000 per acre, that would mean the company’s 23,000 acres alone is worth $460 million.

That would peg the value of the land alone as being worth $24 per share, which is more than twice the current trading price of $11 per share!

In addition to the land, Maui Land and Pineapple also operates two public water utilities businesses, a commercial property leasing business, and is working on adding value to the property that it owns by slowly developing it. All of these easily add several additional dollars of value per share.

This is the beauty of stock market investing. Sometimes “Mr. Market” just isn’t very efficient.

A person can’t go to Maui and buy a parcel of land for 50 percent less than what acreage on the island has been selling for. But in the stock market that is exactly what shares of Maui Land and Pineapple are offering us today.

Now if I can just figure out a way to get that nice Mr. Market to sell me some South Pacific heat and send it my way to get me through this winter!

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

The post How to Buy Hawaii’s Most Desirable Real Estate for $11 appeared first on Daily Reckoning.

The Secret to Getting Rich on Real Estate

This post The Secret to Getting Rich on Real Estate appeared first on Daily Reckoning.

Before I began my business career, my rich dad insisted that I learn to be a real estate investor. At first, I thought he wanted me to invest in real estate simply for the real estate itself. As the years went on and my base of education grew, I came to better understand the bigger picture of the world of investing.

Rich dad said, “If you want to be a sophisticated investor, you must train your mind to see what your eyes cannot see.”

What my eyes could not see were the legal and tax advantages that real estate investing offers (informed) investors. In other words, there is far more to real estate than land, sticks, and bricks.

Today I make my money from all for asset classes: commodities, businesses, real estate, and paper assets. (And if you like quick-market gains, I have a video you need to see…)

But I hold the bulk of my wealth in real estate. I am able to magnify my wealth using the advantages that real estate offers the sophisticated investor.

There have been challenges for real estate investors in the recent past. But if you learn the ins and outs of real estate investing, you can make money in real estate whether the market is going up, down, or sideways.

That is why my rich dad preferred investing for cash flow instead of capital gains. As long as your property is cash-flow positive, you can ride out a downturn in the real estate market. The flippers and capital-gains buyers who are left holding properties for resale in a plummeting market are the ones who will be hurt the most.

You also need to surround yourself with good advisors. As a real estate investor, you must seek tax and legal advice from professional.

I do not know all of the details of the tax and legal advantages he describes—but I am glad that he, as my advisor, does.

Right Side of the Quadrant

We’re taught to “park” our money. So, it sits there, doing very little but waiting for us to use it.

Most people are on the left side of the Quadrant, working for their money instead of having their money working for them. In that scenario, the bulk of their money pays off bills—liabilities—while only the “leftovers” go into savings or investments. So, most of their money is flowing away from them.

But for the people on the right, the B-I people, their money is working for them. It’s flowing toward them. Their income is passive; their own money, as well as other people’s money, time, and energy, all generate wealth for them.

Does this mean you have to give up your current career or employment? Absolutely not. It simply means that your goal should be to increase your assets—right-sided, dynamic income generators—in order to get your income working for you, and not the other way around.

To me real estate represents freedom. Real estate means control over my life and my future. I am not depending upon a retirement plan filled with stocks, bonds and mutual funds—investments that someone else manages. I want control over my financial destiny.

Cash Flow

When I speak of making money in real estate, I’m speaking of cash flow. This is income coming in every month, regardless of whether I work or not. Achieving sustainable cash flow requires a higher degree of financial education. The good news is you don’t have to go to college to get this education.

Cash flow is realized when you purchase an investment and hold on to it, and every month, quarter, or year that investment returns money to you. Cash-flow investors, unlike capital-gains investors, typically do not want to sell their investments because they want to keep collecting the regular income of cash flow.

If you purchase a stock that pays a dividend, then, as long as you own that stock, it will generate money to you in the form of a dividend.

That is called cash flow. To cash flow in real estate, you could purchase a single-family house and, instead of fixing it up and selling it, you rent it out. Every month you collect the rent and pay the expenses, including the mortgage.

If you bought it at a good price and manage the property well, you will receive a profit or positive cash flow.

The cash-flow investor is not as concerned as the capital-gains investor whether the markets are up one day or down the next. The cash-flow investor is looking at long-term trends and is not affected by short-term market ups and downs.

Capital Gains

When people say their house has appreciated in value, or they flipped a property, they are speaking of capital gains. Capital gains is the game of buying and selling for a profit. You have to keep buying and selling, buying and selling, and buying and selling…or the game and the income stop.

Capital gains occur, for example, when you buy a share of stock for $20. The stock price goes to $30, and you sell it. Your profit is called capital gains.

The same is true with real estate. You buy a single-family house for $100,000. You make some repairs and improvements to the property, and you sell it for $140,000. Your profit is termed capital gains. Any time you sell an asset or investment and make money, your profit is capital gains.

Of course, there are also capital losses. This occurs when you lose money on the sale.

The Advantage of Cash Flow Investing

The best thing about cash flow is that it is money flowing into your pocket on a continual basis whether you’re working or not. It is your money working for you.

And generally, cash-flow investing is based on fundamentals that aren’t as susceptible to market swings like capital-gains investments, which means that even in bad times, money still flows into your pockets.

Additionally, cash flow is what is known as passive income, which is the lowest taxed type of income.

This is not always the case with capital gains taxes, which vary depending on the type of asset you’ve invested in and how long you’ve owned that asset. In some cases, the taxes can be very high.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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