Stewart Welch Videos


Monday, December 27, 2010

2011: Turning Dreams into Reality!

Few of us take the time to stop and take stock of our lives but if you take a moment to reflect, you will find that you, in fact, accomplished quite a lot in 2010. But did you achieve your full potential? It’s likely that your full potential is much greater than even you recognize. I’m reminded of the story of the dog whose owner always kept him in the backyard on a 25 foot chain. The owner fed and cared for him and sometimes even played with him. But the dog was always chained. After a time, the owner unbuckled the chain but the dog never ventured beyond the 25-foot perimeter- now shackled by an artificial chain and collar. What’s holding you back from achieving your full potential? Have you created your own artificial chain and collar? For each of us, our destiny is to have an extraordinary life. Yet, it is up to us to claim it. For 2011, commit to break the chains that are keeping you from achieving your true potential.

Achieving extraordinary results rarely happens by accident. First you have to decide exactly what it is you want; then believe that it is possible; develop a plan of action; and finally commit one-hundred percent to getting the results you intended. It’s also important to acknowledge that success is rarely a sprint, but rather a marathon. In my experience many people are good ‘starters’ but few are good ‘finishers’. Use the following process to help you turn your biggest dreams into reality:
Develop your dream list. Start with a blank paper and write down everything you would do, own, buy, and accomplish if there were absolutely no barriers to your success. List everything you can imagine. This is where you want to think big and have some fun.
Create a ‘Vision’ of your future. What would you be willing to totally commit to accomplishing in 2011? From your dream list, choose one or two for which you feel the strongest passion and write them down on a separate piece of paper. The greater the detail, the better.
Develop an Action Plan. Between where you are now and the achievement of your vision, you’ll find a number of ‘Critical Success Factors (CSF)’. These are the critical things that you must do to create success. List as many as you can think of along with supporting ‘actions’. Include ‘target time lines’ for each CSF.
Commit 100%! Commitment is evidenced by daily focus. I believe that whatever you constantly focus on will come to pass. It is this constant focus that is the engine for achieving greatness. Each day you should include a minimum of three ‘action activities’ that move you closer to the realization of your vision.

I have developed a Vision Worksheet form along with an example of one of my own major visions for 2011. If you’d like a copy, email me at and put ‘Vision Worksheet’ in the subject line.

You can have the life of your dreams if you’ll accept the responsibility for making your dreams a reality. Have a dream fulfilled New Year!

Monday, November 22, 2010

Hard Choices - Tackling the National Debt

“Hard Choices- Tackling the National Debt”

President Obama appointed a bipartisan National Commission on Fiscal Responsibility and Reform with instructions to develop recommendations to balance the budget, excluding interest on the national debt, by the year 2015. That commission issued its preliminary report earlier this month and what is painfully obvious is that there are no painless solutions. Proposals include:
• Raising the age of full Social Security eligibility from sixty-six to age sixty-eight by 2050 and sixty-nine by 2075.
• Cutting defense spending by $100 billion.
• Eliminating interest deductions on mortgages over $500,000.
• Limiting future Medicare benefits.
• Slashing the federal workforce by ten percent.
• Eliminating $3 billion in federal farm subsidies.
• Making more workers subject to income taxes while reducing the number of tax brackets to three: 9%, 15%, and 24%.
• Increase the gas tax by fifteen cents.
• Tax dividends and capital gains as ordinary income.

Just how big is the problem? Our national debt is currently $13.7 trillion and climbing at a pace of $1.3 trillion per year. Of the $3.5 trillion our federal government spends each year, more than 60% goes to Medicare/Medicaid benefits, Social Security benefits and defense spending. An additional 12% goes to welfare programs; 5% goes for interest on the national debt and another 5% for government pension payments. The total of all these items is more than 80%. I think you can see where this is headed. You are not going to solve this problem without significant cuts to many programs for which many Americans now feel that they are entitled.

I recently returned from a vacation in France where citizens held violent protests over the government’s plan to raise the minimum retirement age from sixty to sixty-two. How are American’s going to react to the massive cuts that will be required to solve the growing crisis of our growing national debt? You can bet it’s not going to be a celebration. The final decision will be made by a relatively small group of career politicians, most of whom have never had to meet a payroll and who have voted special benefits for themselves. They have their own pension plan versus Social Security and their own health insurance plan versus the one they want us to accept. Unfortunately, many career politicians see their primary job is to get re-elected. How do you get re-elected? You need to be popular with the voters. What makes you popular with the voters? You become popular by giving stuff away, not taking it away. My best guess is that, collectively, they lack the will and courage to make these difficult decisions until they are faced with a crisis that demands action.

We all know something must be done to solve our national debt problem before it turns into a disaster. Too often we want our congressional representatives to do what is necessary as long as it doesn’t affect our wallets. We too, need to muster the courage and be willing to make financial sacrifices while holding the politicians’ feet to the fire for the way they manage our money. It’s a job that must be done and the time is now.

Thursday, November 18, 2010

Choosing the Best Medicare Plan for You

If you are age 65 or older then you have likely been receiving a lot of correspondence from companies promoting their Medicare health and Medigap plans. Open enrollment period for the 2011 Medicare Health Plans, Medigap, and Part D Prescription Plans begins November 15. If you want to change to a different plan or you are choosing a plan for the first time, you must sign up by December 31. Many of the insurance providers have either eliminated certain plans or made substantial changes so now is the time to do your comparisons to ensure your getting the most benefit for your premium dollars. The Medicare Health Plans, Medigap plans, and Prescription Plans that you choose should be tailored to your specific needs and situation.

At age 65, you are eligible for Original Medicare which is Part A and Part B. Original Medicare pays 80% of your health care costs and you are responsible for the remaining 20%. You have two different insurance options that will help absorb the additional costs.

1. The first option is for you to maintain Original Medicare and buy a Medigap plan to cover the 20% which are copayments, coinsurance and deductibles. You pay a premium for the Medigap policy but do not have any additional cost throughout the year except for an annual deductible of $155. The premiums for Medigap policies range between $125 and $200 per month. These plans are for people who want to know exactly what their out-of-pocket costs will be throughout the year and/or have health issues with frequent doctor and hospital visits. A Medigap policy does not include prescription coverage and you must buy a plan for prescription related expenses if you want to avoid paying those costs directly out of your pocket. If you choose to purchase the Prescription Part D plan, you’ll want to carefully examine each plans coverage options and choose one that covers the medications you are using.
2. The second option is for you to purchase a Medicare Advantage Plan which provides your medical benefits and prescription benefits in one plan. A Medicare Advantage Plan combines Part A and Part B benefits with prescription drug coverage to give you lower out-of-pocket costs than if you only had Original Medicare. Medicare Advantage Plans work very well for people who want no to low premiums and are willing to pay the out-of-pocket costs when they go to the doctor or hospital. Essentially you ‘share the costs’ with the insurance company instead of being responsible for the entire 20% out-of-pocket expenses if you only had Original Medicare. Obviously no one can predict their future health but these plans work well for people who do not go to the doctor often and/or for people who want to self-insure a portion of the out-of-pocket costs.

Medicare has become very complex in the last few years with so many plans being offered. It is worth your time to research the plans to ensure you have the best plan for your current situation and you will want to check with your doctor to make sure they accept your plan.

My thanks to Kimberly Reynolds, CFP® for her contributions to this article.

Tuesday, November 9, 2010

Election Rout Suggests Stock Market Gains

Republicans gained sixty seats in the House of Representatives, the largest gain since 1938 while also gaining six seats in the Senate. If nothing else, the mid-term elections have sent a clear message to all of our congressional representatives, “We don’t like what we’ve been seeing!” Republicans now have control of the house while the Democrats maintain control of the Senate and Oval Office…in other words, ‘gridlock’. How will these changes impact the economy and your investments? Generally speaking, gridlock will be a good thing for both the economy and the stock market. Uncertainty has been one of the major roadblocks to economic recovery as corporations have been reluctant to invest in expansion, technology and people under the cloud of uncertainty regarding future regulation and taxation. Instead, they have focused on the pieces of the puzzle for which they have the most control…expenses. The results have included substantial layoffs and the storing up of cash. Gridlock tends to create greater certainty regarding future legislation because any changes must be worked out through a process of compromise. The new mix of congressional representatives will give corporations the confidence to use their resources to seek out opportunities.

How can you use gridlock to advance your own financial situation?
Invest in blue chip stocks. While the stock market will always remain volatile, now would be a good time to begin to shift some money from fixed income (CDs, bonds, bond mutual funds and money market funds) to stocks. An excellent choice is blue chip stocks that are paying a dividend. Many of these companies are paying a dividend that is substantially higher than the interest currently being offered on high quality bonds. Good examples include AT&T and Verizon who each pay a dividend of about 5.8%; Southern Company whose dividend is approximately 4.8%; and Eli Lilly paying a 5.5% dividend. As the fear that has driven the stock market over the past twenty-four months gives way to optimism, investors, particularly retirees, will begin searching for conservative investments with higher returns and blue chip stocks will be in that ‘sweet spot’.
Invest in small company stocks. Smaller company’s, while typically more volatile, may benefit more than the Fortune 500 companies as they are able to react and deploy resources more quickly. You’ll want to own a big basket of stocks for this category. Consider a no-load fund like Vanguard’s Small Cap Index Fund (VSCIX).
Invest in international stocks. As the U.S. economy goes, so goes the rest of the world. More undeveloped countries such as Brazil, Russia, India and China are likely to outperform the more developed countries of Europe, but all should benefit as the U.S. economy improves. Again, you’ll want a large basket of stocks so consider a fund like Vanguard Total International Stock Index (VGTSX) or Vanguard Emerging Markets Stock Index (VEIEX).

Your allocation between stocks and bonds will continue to be of vital importance and must be tailored to your particular facts and circumstances. Consider seeking professional counsel before making substantial changes to your investment strategy.

Thursday, October 28, 2010

Year End Tax Planning

With less than three months remaining in 2010, now is the time for year-end tax planning. Most people can exert some degree of control over their tax bill if they maximize certain tax strategies available to them this year. Here’s a checklist of items you should review now:

Green Home Improvement Credit: You can get a tax credit for making green home improvements through the end of this year. You can get a 30% tax credit, up to $1,500, for making small energy efficiency upgrades such as adding insulation, replacing windows, getting duct seals and adding energy efficient doors. If you make a big upgrade, such as solar panels or a wind turbine, you can get a 30% tax credit — no limit or cap on how much.
Invest in your 401k plan: Make sure you are deferring either the maximum or the most that you can financially afford. Many companies match employee’s contributions up to a certain percentage so you want to make sure you are deferring enough to receive the full match. That is free money! The maximum contribution in 2010 is $16,500, plus individuals age 50 and over can make an additional catch-up contribution of $5,500.
Donate to Charity: All gifts must be made by year-end to receive a deduction in 2010. In addition to checks or cash, consider giving appreciated stock from your portfolio to avoid capital gains tax on the sale.
Required Minimum Distribution from IRAs: If you are age 701/2 or older, then required minimum distributions (RMD) are back! If you have to take a distribution from your IRA and you have charitable contributions to fulfill then I recommend you give part or all of your RMD directly to the charity. NOW… Congress has not passed this into law for 2010 and no one knows if they will but there is no downside to doing this right now. The pro for giving your RMD directly to charity is it will reduce your Adjusted Gross Income. A lower Adjusted Gross Income can reduce your exposure to phase-outs on your Itemized Deductions and can lower your Medicare Part B premiums if you are subject to the Income-Adjusted Part B premiums. If Congress does not pass this then you would just have to report the RMD as income and then take the charitable gift deduction your Schedule A as an itemized deduction.
Manage your capital gains: Many people have loss carry forwards from the previous years due to the market conditions. If you have capital gain income this year then make sure you have enough loss carry forward to offset this plus enough to take $3,000 against ordinary income. If you don’t have a loss carry forward from last year then consider selling any positions you have with losses to offset the gains.
Sell Investments for Long-Term Capital Gains: If you’ve been holding on to some investments with gains, now might be a good time to sell them. Through the end of 2010, there is no long term capital gains tax for those in the 10% and 15% tax brackets. For everyone else, capital gains top out at 15%. Next year though, capital gains tax might shoot up to as high as your marginal tax rate!

Because everyone’s facts and circumstances are different, you should meet with your tax advisor now to determine what other strategies might help cut your tax bill this year. Next week I will have Part II of Year End Tax Planning.

My thanks to Kimberly Reynolds, M.S., CFP®, for her assistance with this article.

Tuesday, October 19, 2010

You Could Have Been a Millionaire!

Years ago a group of tobacco executives appeared before a congressional hearing, placed their left hand on the Bible, raised their right hand and swore that tobacco products were neither addictive nor harmful to your health. Of course everyone including smokers knew this was a big lie. Unfortunately, many young people still believe that smoking cigarettes is 'cool' and makes them feel (and look) like adults. That is --until their teeth turn yellow, they figure out people are keeping their distance because of bad breath and they realize that they can no longer control the habit. I remember once being in a quick mart and having someone come in and order a carton of cigarettes. He was on oxygen and toting an oxygen bottle at the time. One of my associates who quit smoking five years ago based on my challenge (with a monetary reward!) said that she occasionally still has urges to smoke a cigarette, “As long as her leg!” Tobacco is as addictive as any drug.

We all know that smoking is a universally bad idea, but did you ever stop to think about the true costs of smoking? Is it nothing more than the cost of a $5 pack of cigarettes per day? Here’s a partial lists:
A twenty-year-old who gave up a $5 per day habit and invested the money at 7.5% would have $1 million by age 70. Reverse thinking would suggest that continuing smoking costs this person a million dollars over their lifetime. And this assumes the cost of cigarettes stays constant.
Research indicates that smokers on average die nineteen years sooner than non-smokers.
In Alabama, research suggests that for every pack of cigarettes sold, and additional dollar will be spent on healthcare treatment related to tobacco use.
There are fewer job opportunities for smokers as many employers avoid hiring smokers for a number of reasons. First, smokers tend to need to take ‘smoking breaks’ throughout the workday which is both unproductive and unfair to non-smoker employees. Second, smokers tend to have greater health related illnesses causing greater absenteeism and higher healthcare costs.
Life insurance premiums are much higher for smokers than for non-smokers. For example, a $1 million 20-year term policy on a 30-year old smoker cost $1,500 versus $435 per year for a non-smoker.

These are just some of the personal costs of smoking. There are also the health-related side effects to unborn children as well as people exposed to second hand smoke. Tobacco is clearly one product with virtually no redeeming personal or social values. Research does suggest that the rising cost of cigarettes does cause decreased use. If, at the state level, we were to raise the tax on cigarettes and ban use in all public places we could positively impact health, healthcare costs and our economy. With elections right around the corner, this would be an excellent topic to add to the list of issues for our legislators.

If you have avoided the habit or beaten the habit, pass this article along to a smoker that you care about. You may just save their life and make him or her a millionaire!

Tuesday, September 28, 2010

Boosting Parents' Retirement Income

Many retirees have had their incomes devastated because of low interest rates. Historical returns for five to ten year bonds have been 4.5% to 5.5%. Today 10-year treasury bonds yield a paltry 2.6% and the average money market account is paying less than one percent. One of the primary drivers behind low interest rates is the Federal Reserve who has set and maintained the fed funds rate at near zero percent in an effort to stimulate an anemic economy. This past week, Federal Reserve Chairman, Ben Bernanke, indicated that the Federal Reserve will continue to support low interest rates for the foreseeable future. This leaves many retirees who depend on interest income in a financial tight spot with no relief in sight. Many retirees are finding it necessary to invade their principal just to pay their monthly bills.

In some cases, adult children are in a financial position to help…but what’s the best way to do this? First, let’s examine how a reverse mortgage can turn a non-income producing asset into a cash flow machine.

With a reverse mortgage, instead of making payments to a mortgage lender, the mortgage lender makes payments to the homeowner. And instead of paying down your mortgage over time, as you receive payments, your mortgage balance increases over time. At the point that you no longer live in the house, the home is sold and the loan paid off. Additional options include receiving a lump sum or having a loan that operates like a home equity line of credit. Some of the disadvantages of reverse mortgages are that you have closing costs that can be from three to seven percent of the loan amount; the interest rate attributed to the mortgage is typically two to three percent higher than a conventional mortgage; and you have to be at least age sixty-two to qualify. Lenders will also restrict loans to around 50% or less of market value.

One of the most often comments I get from retirees is that they don’t want to be a financial burden to their children. Translated, this means they would be very reluctant to take a financial handout even if you could easily afford it. However, they would likely consider a financial transaction that is mutually beneficial such as a ‘private’ reverse mortgage. With this strategy, the adult child becomes the mortgage lender but can do so without the closing costs; can use a lower interest rate; and could offer a loan greater than 50% of market value. You would need to formalize the transaction with a written promissory note and federal law requires that a minimum interest rate, called the Applicable Federal Rate, must be charged in order to avoid potential gift taxes. To avoid potential future conflict, be sure to make all siblings aware of the details of the arrangement before implementing.

Ultimately, when the parent is no longer living in the home, it can be sold and the loan, plus interest, repaid. The private reverse mortgage is an excellent way to partner with a parent to provide additional monthly cash flow during what may be an extended economic downturn.

Tuesday, September 21, 2010

Teaching Children about Work & Money

I was twelve years old when my father drove me to an unfamiliar neighborhood and let me out with a case of aerosol-size cans of fire extinguishers and said, “Son, when you finish selling this case, I have two more cases!” So I went door to door, ringing door bells, selling my wares. My first day I had limited success so I went home and pondered how I could become more effective and hit upon the idea of a ‘live’ demonstration. The next day I was armed with a small pan and lighter fluid. When the lady opened the door I squirted lighter fluid in the pan, lit it and asked, “If this was a stove-top fire, how would you put it out?” She ran and got some baking powder and attempted to dowse the fire. When it continued to burn, I handed her one of my fire extinguishers and she instantly put out the fire. My sales went through the roof!

Here’s what I learned:

I learned not to give up. Within every obstacle is an opportunity. In this case I used poor sales as an opportunity to try a different approach.
I learned how to interact with adults whom I had never met. After doing this over and over I found I quickly became more at ease in conversations.
I overcame the sense of rejection. Every presentation did not result in a sale. I’d take a moment to think if I could have done anything differently, learn the lesson and move on with the intent to constantly improve…try new approaches.
I learned that ‘work’ can be fun! Certainly making my own money was a new experience for me and it felt good! It gave me a sense of confidence. Maybe, just maybe, I could make my own way in the world!

Children learn the concept of work best at an early age. It’s not taught in school but through experience. As soon as you feel your children are old enough, encourage them to get a job. It could be babysitting, mowing lawns, a paper route.

Don’t pay children to do things that are part of family responsibilities such as taking out the trash, mowing the lawn, cleaning up their room or making good grades.

Do give them an allowance but include some ‘money rules’ to go with it, otherwise the only lesson they’ll learn is how to spend money….and my experience is that this lesson they learn without any help! Money rules might include:
The first 10% goes to helping others through a charity or gifts to their religious organization.
Twenty percent should go towards long-term investments. Yep, even at an early age, children can begin to learn about investing. Help them choose stocks they are familiar with such as McDonald’s, Wal-Mart, or Disney.
Another ten percent should go towards long-term savings…call it ‘the unexpected’ fund.
They are free to spend the rest as they choose.
They should be responsible for balancing their checkbook.
These money rules apply to both their allowance and job earnings.

Think of the mistakes you made as a young (or older!) adult and figure out how you can help your children learn the needed lessons before they are on their own. It will be one of your greatest gifts.

Thursday, September 16, 2010

Strategies for Avoiding Probate at Death

My associates and I were recently working through a complex multimillion dollar estate planning case where the client owned real estate in multiple states. One of the central topics of discussion was how the probate process would work under the current will which we were in the process of revising. Probate is the court supervised process of transferring one’s property at death to his or her rightful heirs. The costs of probating an estate varies according to state law and based on case complexity but can easily be three to seven percent or more of the probate estate. Not all assets go through probate and, with proper planning, probate can be avoided altogether. That’s exactly what we are doing with this client. Since the family has real estate in more than one state, their current will would have required probate in each state that they owned real estate adding to the costs and complexity of settling their estate. In addition to fees, the probate process results in making public some of what was private information. That’s because the filing documents are part of the public record which may include listing of assets and beneficiaries. Finally, the probate process typically takes a minimum of six months and can take several years.

Here are three ways that you can avoid probate:

Create a Revocable Living Trust. With a revocable living trust, you establish a trust and move all of your probate assets into the trust. You can act as your own trustee but designate a successor trustee should you become incompetent or die. This sounds more complicated than it is, for once it’s set up it’s easy to maintain.
Own property as Joint Tenancy with Right of Survivorship. A good example would be to own your home with your spouse under this form of title. At death, your interest in your home automatically passes to your spouse by title rather than going through probate. Some states use a slightly different version known as Tenancy by the Entirety and community property states such as California use Community Property with Right of Survivorship.
Name beneficiaries to your retirement accounts, bank accounts and life insurance. I’ve run into lots of cases where someone named their estate as the beneficiary of their life insurance. This not only subjects the assets to potential probate fees but also potential creditors. For bank accounts and brokerage accounts, you can use a ‘Payable on Death’ designation to direct who gets your account assets at death.

Take a moment to review your own estate situation. If you own property in more than one state or you put a high value on privacy of your financial affairs, consider the revocable living trust. If your estate is simple and will not be subject to estate taxes, the strategies above may simplify the transfer process and greatly reduce the time required to get your assets to your heirs at your death. Care must be taken in executing a plan for avoiding probate for there are many potential pitfalls and tax traps so your best strategy is to seek the advice of a professional experienced in estate planning.

Thursday, August 26, 2010

Where to Invest Now - Stewart H Welch III on Fox News

Where to Invest Now

As I was leaving the TV station earlier this week, I was stopped by a friend who asked for my thoughts on the markets. He had recently upped his contributions to the retirement plan and indicated his intention to invest 100% in bonds based on his dismal outlook for the economy. Hmmm. At first blush, this seems like a perfectly reasonable and conservative approach. It’s hard to argue that the outlook for the economy doesn’t paint a bright picture, at least in the near term. And setting up a systematic savings program is one of the most basic keys to accumulating wealth. However, I suggested he consider a slightly different approach to his investing strategy.

First let’s look at the stock market. For the decade ending 2009, the stock market has delivered negative returns and this year continues to disappoint investors. Could it be that much of the downside risk is already wrung out of the stock market? Sure, it could go down further but for someone who is systematically putting fresh money in each month, I’d say the stock market is a very good bet if you don’t plan to touch your money for at least five years. At this point, the greatest risk to the stock market may be ‘event’ risk…something like Greece defaulting on its sovereign debt. There is a small risk of a double-dip recession, but that seems unlikely. The good news is that corporations have used the economic downturn to take dramatic steps to cut expenses and improve systems. In short, they are lean and mean! Once the economy perks up, increased revenue will quickly accrue to their bottom line…think profits!

Now let’s take a moment and review the bond market. We are in the midst of the worst interest rate environment that I can remember. The Federal Reserve has set interest rates at zero percent and is actively pursuing policies that continue to keep interest rates low. It’s a disaster for retirees who depend on interest income to pay their bills each month. Investors, afraid of the stock market, continue to pile money into bonds and bond mutual funds, and in many cases, are buying longer maturities and lower quality just to get any kind of yield. What this creates is a kind of bond market ‘bubble’. Eventually, the Federal Reserve is going to take the lid off of interest rates and we’ll likely see them rise dramatically. At that time, bond holders, especially holders of longer maturity bonds or bond funds, will see values drop dramatically. Worse, it may be years before bonds recover from the bursting bubble.

What’s an investor to do? Since the stock and bond market future is never predictable, consider a mixture of high quality dividend-paying stocks (examples: AT&T, Southern Company and Eli Lilly) with bonds having medium to short maturities (example funds: VFSTX, PTTOX). You’ll want to own a basket of at least 20 stocks. Keep a close eye on your bond funds and be ready to shorten maturities when the Fed begins raising interest rates. An allocation of 60% stocks and 40% bonds should allow you to capture much of the stock market return with significantly less volatility.

Tuesday, August 17, 2010

Pre Marriage Financial Advice

Last week I discussed ways to reduce the financial strain in the event of a divorce. It occurred to me that a better strategy is to head off a future divorce by starting out a marriage on a sound financial footing. So if you or someone you know will be getting married in the near future, help them out by passing along these tips:

Commit to financial responsibility. First, start by realizing that even though you believe your marriage is ‘special’ and not at risk of a future divorce, the reality remains that one out of every two marriages will end in divorce. Of equal importance, realize that while financial issues may not always be the primary reason for a divorce, in most cases it’s a major contributing factor. So if you can get your finances squared away from the beginning, your chances of being in the 50% who stay married go way up.
Pull and share your credit reports. You’re about to combine your finances so it’s best to get a handle on where each of you stands on your credit score. If there are problems, you’ll have more time to resolve them before you join financial forces. Remember, when you get ready to buy your first home, lenders will review both of your credit histories.
Set short, medium and long-term goals. Let’s face it. The vast majority of couples are made up of one person who is more of a ‘spender’ and the other more of a ‘saver’. This is the perfect mix for frequent disagreements about money. “Honey, let’s go out to dinner (again) tonight.” “No. We’re saving for the down payment on a home, remember?” With finances, there’s a constant ‘dance’ between immediate and delayed gratification. Work it out together in advance and ‘automate’ saving for your goals wherever possible.
Divide the responsibilities. Someone has to pay the bills and handle the family finances. Often, the one who controls the money wields uneven control in the marriage. The best solution is to share the responsibility by paying the bills together. This way you both have a handle on where your finances stand.
Meet regularly. At least monthly, set aside time to review your goals; review last months expenses versus your budget (yes, you should have a budget); review your expected expenses for the upcoming month; and look ahead for any non-periodic expenses. This should not take you more than a couple of hours per month and is vital in order to keep your finances on track.
Understand the costs of affluence. In my experience, most couples have pretty lofty financial goals and expectations regarding their future lifestyle. Building a big financial future often comes at a cost in the form of long hours at work for at least one of the marriage partners. Be sure to discuss how you, as a couple, intend to balance work, money and family time.

Marriage is a wonderful institution where two people commit to intertwine their lives for the purpose of building a future together. All marriages face the spectrum of both bliss and challenges. By joining forces to solve your financial puzzle, you’ll likely find that the moments of bliss far out way the moments of challenges.

Monday, August 9, 2010

Financial Strategies for Divorcing Couples

I’m happy to report that my wife and I will soon celebrate our 30th anniversary of marriage. Unfortunately, about one-half of marriages do not stand the test of time. Now you’d think that divorcees would have learned the lessons from a failed marriage and ‘get it right’ the second time around…but this is not the case. According to research, 67% of second marriages and 74% of third marriages fail. The emotional and financial trauma associated with divorce is often substantial. If you or someone you know is facing the prospects of a divorce, here are suggestions that can soften the impact:

Seek mediation. I was working with a couple who decided to end their marriage. In this case both people worked in well-paying jobs and they had minor children so there would be custody issues in addition to property division, child support and perhaps alimony issues. I suggested they consider divorce mediation rather than the traditional ‘you hire your attorney, I’ll hire mine’. There were lots of assets involved so the stakes were high including potential legal expenses. These clients approached their divorce with civility, a sense of fairness and a focus on doing what was in the children’s best interest. The result was a smooth transition and legal fees of under $3,000. Contrast this to a recent couple’s divorce that chose to each hire their own attorney to fight out both the financial and custody issues. This couple, whose wealth was but a fraction of the couple in my first example, spent more than $70,000 in legal fees. This is money that could have been split between the couple rather than the attorneys or used to set up college funds for the children.
Get professional help regarding division of financial assets. Which would you rather receive in a divorce, $100,000 personal investment account or $100,000 retirement account? Well, it depends. Clearly there are very different tax issues involved. A Certified Financial Planner or CPA can help you work through the various tax issues according to each person’s individual goals. In addition, there will be income tax issues that will need to be resolved. You’ll also want to decide how attorney fees will be handled.
Protect your credit. The divorce process can easily take many months and ‘disruption’ is a common byword. This disruption of the normal handling of your finances can result in things falling through the cracks such as bills not getting paid on time. The last thing you want is to be newly divorced and have bad credit. Pull a current credit report from each of Transunion, Experian, and Equifax; resolve any current credit inaccuracies together; and be diligent regarding paying all bills in a timely manner. It’s often much easier to repair credit before rather than after a divorce.
Change beneficiary designations. You’ll want to re-write your will. However, the laws of most states automatically exclude an ex-spouse from receiving assets under your will if you forget to change it after your divorce. This is not the case with life insurance beneficiary designations, designations for retirement plan beneficiaries, co-ownership of bank accounts, etc. We had one case where an ex-spouse was left on a bank account for more than 20 years…and was therefore entitled to the bank account proceeds when the owner died.

Thursday, July 29, 2010

Unintended Consequences

You may have heard of the ‘Butterfly Effect’…a butterfly flaps his wings here in America and sets off a tornado in Japan…or so the saying goes. It’s a metaphor used to explain how small changes can create large unintended results.

The greed and mismanagement that dominated the executive offices of America’s largest banks over the past decade caused what is now called The Great Recession. The banking industry was brought to the verge of collapse; unemployment rose well above 10%; consumers and businesses severely curtailed spending and our economy came to a screeching halt. Our government leaders hopped on white horses intent on ‘saving the day’ with an array of new legislation, regulation and corporate quasi-takeovers. Enter, the Butterfly Effect. Let’s look at a couple of the unintended consequences of government intervention.

Extension of unemployment benefits. With so many people out of work and unable to find jobs, it makes sense to extend the period of time people can receive unemployment benefits, right? A business owner tells this story. “On a weekly basis, I have people coming in asking if we are hiring. If I say ‘no’, then they ask me to sign a form indicating that they sought employment which is one of the requirements to remaining on unemployment benefits. If I says ‘yes’, the person asks if he can be paid in ‘cash’. If I say he’ll receive a payroll check, he moves on to the next business. Why? Because he wants to keep his unemployment check coming in and hopes to earn some ‘non-reported’ income.” Many others who are receiving benefits have found that they can manage on the unemployment checks so, ‘Why work if you don’t have to?’ So by extending unemployment benefits, the ripple effect is that unemployment itself is also extended. Now it is true that there are lots of people who are trying very hard to find a job, but as long as you extend benefits, you can bet re-employment will be a slow process.
Lowering of interest rates. When the financial crisis began to unfold, our government reacted by lowering interest rates to zero (Federal Funds Rate). The idea was to slash interest rates in order to encourage borrowing and spending by businesses and consumers. In addition, the government jumped in bed with our largest bankers and loaned them an unprecedented $700 billon dollars to keep them afloat and allow them plenty of cash to lend…which is their primary function. So how did it work out? Well, the bankers hoarded their new-found cash and eighteen months later, they’re still not lending. They can borrow at 0% and earn a spread investing in treasuries or commercial paper without taking any risk. A VP of the Southeastern Business Division of one of the nations largest banks said that from January through August of 2009, they made no loans and that for 2010, they had made only 18 loans. Worse, current retirees who depend on interest income to pay their bills have seen their cash flow slashed and as a result…are not spending money!

So how do you jump-start an economy where the banks aren’t lending money to businesses so that they can expand and hire new workers; retirees can’t afford to spend money; and many unemployed workers are gaming the system? One answer is for the government to spend more money. But at what Butterfly Effect?

Sunday, July 18, 2010

9 Secrets of Achieving Financial Freedom, Pt VIII

“9 Secrets of Achieving Financial Freedom Pt VIII”

As I conclude this series on the ‘9 Secrets to Achieving Financial Freedom’, let’s begin with a review of what we’ve covered so far. The Secret of Decision states that before you can accomplish any goal, you must ‘decide’ what you truly want. With the Secret of Total Commitment and the Secret of Clarity you commit to do, “Whatever it takes” to succeed and get very clear exactly what success will look like for you. Once you’re clear about what you intend to achieve, use the Secret of Decisive Action to both develop and execute a written game plan. Any goal worth achieving will likely involve many challenges and obstacles so you’ll need to fortify yourself by implementing the Secret of Perfect Attitude. With this secret you discover that while you may have little choice regarding your challenges and obstacles, you get to choose how you react to them. That choice allows you to respond in a positive, constructive and productive way…and will hasten your journey to success. Adopting the attitude of success allows you to incorporate the Secret of Financial Focus. Each day ask yourself, “What can I do today that will move me closer to my goal?” and then take a positive step. Most major goals are accomplished with hundreds of ‘baby steps’. The Secret of Passive Income states that to be truly financially free, you must create a source of cash flow outside of your own paycheck that is at least equal to lifestyle expenses. Think of it as a way of ‘automating’ your success. With the Secret of Leverage, you’re looking for ways to accelerate your success…to reduce the time it would normally take otherwise. In the world of personal finance leverage is available in many forms. Donald Trump and millions of other people use financial leverage to create personal fortunes with modest amounts of money. Business owners use ‘people’ leverage to magnify results. Just look at what Bill Gates has accomplished by assembling a group of highly talented employees. Our government provides tax laws that allow you to leverage returns through tax deductible retirement plans. And the list goes on and on.

This brings us to the final secret, the Secret of Team. Rarely have I met a Self-Made Multimillionaire who got there without a lot of help. In fact, built into most Self-Made Multimillionaires DNA is the intuitive knowledge that they’ll need to develop a Team; seek out mentors; and model others who have gone where they intend to go. You should do likewise. Whatever your goal, think about who you could get to help you achieve it. It might be a professional, a friend, a family member or someone you don’t know personally but will need to meet. You’ll find most people are willing to help you if you’ll just ask.

In my own Ultimate Fitness Quest, I used all of the above ‘secrets’ as I set out to lose 20 pounds of body fat in 40 days and cut my waistline from 37 inches to 34 inches. Each secret proved critical to success as each is interconnected. By day 40, I lost 20 ¼ pounds and cut my waistline to 33 inches. So where do I go from here? I’ll set a new health and fitness goal that builds on my current success. You can as well. Whether your goals are in the area of personal finance or fitness, take the first step today and visit

Monday, July 12, 2010

The 8th Secret - Leverage

The eighth secret of the 9 Secrets of Achieving Financial Freedom is the Secret of Leverage. Archimedes said, “Give me a lever long enough and a fulcrum on which to place it and I shall move the world.” The right use of leverage can accelerate your success for just about any goal you have. Thinking of the investment arena for a moment, there are numerous ways leverage is used to magnify success.

One of the simplest forms of leverage is compound interest or as Albert Einstein said, “Compound interest is the eighth natural wonder of the world and the most powerful thing I have ever encountered.” Simply stated, compounding is the effect of earnings on both your principal and interest. In other words, if you invest $1,000 at 5% interest, you’ll earn $50. By reinvesting your interest along with your principal, you are now earning 5% on both your principal AND your reinvested interest.

You can also create leverage through tax planning. For example, our government has passed tax laws that encourage certain behavior such as deferring income into your company 401k plan. Doing so avoids immediate taxation on income and defers taxes on earnings until funds are withdrawn in retirement. Whether it’s tax free interest on municipal bonds, depletion allowance on oil and gas exploration, depreciation on real estate and business assets, each strategy allows you to leverage your returns.

Donald Trump became a billionaire by using financial leverage to buy real estate. He’s not alone. Financial leverage has created more millionaires than just about any strategy. You put a down payment on a piece of real estate and a bank or other lender will loan you the balance. Here’s an oversimplified example: You pay $100,000 cash for a rental property and it produces a $10,000 profit, earning you 10% on your money. However, if you invested $10,000 and borrowed $90,000 and earned a $10,000 profit, your return would jump to 100%. Now that’s leverage!

Clearly leverage can be a ‘two-edged’ sword as we have seen millions of good folks lose their homes and businesses to foreclosure because of declining values and revenue. However, when used judiciously it can truly accelerate your success. With any goal you have, ask yourself this question, “How can I use leverage to accelerate my success?”

So how have I used leverage in my Ultimate Fitness Quest? It started with a demanding goal…to lose 20 pounds of body fat over 40 days. I then got great advice from a team of experts in the field of health and fitness. I knew I would need leverage to inspire me to success so I did three things. First, I asked for support from my wife and co-workers, the people I would be spending the most time with. Next, I recruited a Support Partner, someone who would encourage me and hold me accountable. Finally, I told someone…excuse me…EVERYONE what my plans were. You want to create leverage on yourself? Try setting an audacious goal and then tell a bunch of people! So far I’ve lost 15 pounds in the first 30 days!

If you’re ready to set some audacious goals for your personal finances or health and fitness, sign up for the 9 Secrets to Achieving Financial Freedom or the Ultimate Fitness Quest at

Wednesday, June 30, 2010

Financial Focus!

9 Secrets of Achieving Financial Freedom - Part V

In this continuing series of the ‘9 Secrets to Achieving Financial Freedom’, today I’ll discuss the Secret of Financial Focus. One of the reasons that so many people struggle financially is they fail to give proper attention to their finances. Sure, they’re paying the bills and maybe putting a little money into their company’s retirement plan but that’s not enough to create financial success. The success of the Secret of Financial Focus lies in consistent attention to your finances. If you want to become financially free, how much time should you spend? In my experience, 30 minutes a day is adequate to significantly accelerate your progress towards that objective. Think about it. Your money is the ‘glue’ that holds your financial situation together. Most people will spend more time planning a vacation than planning their personal finances. No wonder so many folks are drowning in financial deep water. Realize that becoming financially astute is a process. As my wife is fond of saying, “Bloom where you are planted”, meaning start wherever you are and bloom from there. A logical place to start is to determine your ‘baseline’…by listing everything you own and owe. To access a form go to the Resource Center at; click on ‘Links’; then Asset/Liability Review. Next, educate yourself about the in’s and out’s of personal finance. Commit to spending 30 minutes each day learning about personal finance and investments. A good place to start is my ‘9 Secrets to Achieving Financial Freedom’, a free 30-day Internet course that will give you a good foundation from which to build. You can access it at There’s also lots of information on the Internet and many great books on the topic.

Ok, I know this might not be your number one fun thing to do in life but each of us has a responsibility to be a good steward of our money. I love this quote from Sir Josiah Stamp, “It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities”. There’s a universal law called the Law of Attention which states, “What you put your attention (focus) on, expands”. Pay attention to your money and watch it grow. Consider thinking of your personal finances in a new way. Think of it as a business you own with the intention of growing it into a big business. If you really did have a business, it would get daily attention. So should your personal finances.

How would I cross-relate the Secret of Financial Focus to my own ultimate fitness quest…my personal goal of losing 20 lbs of body fat in 40 days? Simply drop the ‘Financial’ and insert ‘Health & Fitness’. I’m focusing daily attention on what I eat as well as exercise. For me it’s been focusing on one day at a time. “What do I need to focus on TODAY to move me towards my health and fitness goal?” Check out my results…then realize you too can use the Secret of Financial Focus to transform your financial circumstances. Or you can use the same concept to transform your own heath and fitness in just 40 days! For your fitness transformation, visit

Monday, June 7, 2010

9 Secrets of Achieving Financial Freedom - Part 2

What does it take to achieve financial freedom? What does it take to achieve anything that you truly desire? Most people haven’t a clue. I spent thirty years studying people who have achieved extraordinary success and found that they each consciously or unconsciously do and think differently from everyone else. I call these the 9 Secrets of Achieving Financial Freedom. Last week, I discussed the first two secrets: the Secret of Decision and the Secret of Total Commitment. To achieve any worthy objective it first requires that you decide what you want and then make a total commitment to making it happen. Not every successful person does this but you will increase your chances of success many-fold if you write it down. This leads me to the third secret; the Secret of Clarity. You must have a crystal clear vision of what you want to do, become or have. The clearer the picture, the easier it will be to attain. The Secret of Clarity includes seeing yourself ‘as-if’ you already are that which you wish to be. It’s ‘imagining’ yourself into the future to that time when you are what you set out to become. Your mind will then begin to make decisions towards that reality.

Perhaps my favorite story of clarity relates to a struggling Asian actor. In 1970, in a letter to himself, he wrote, “By 1980, I will be the best known oriental movie star in the United States and will have secured $10 million dollars. In return, I will give the very best acting I could possibly give every time I’m in front of the camera…” In 1973 Bruce Lee completed the film Enter the Dragon and became in instant mega-star and martial arts legend. Through hard work, Bruce Lee became who he had to become to be that mega star. And I love that he included what he’d give back in return.

It is said that the human mind makes a wonderful slave but a terrible master. What you tell your mind often enough, it believes. Successful people learn to control their thoughts so that roadblocks to success become ‘challenges’. And everyone loves a challenge.

In applying the Secret of Clarity in your personal finances, get perfectly clear on exactly what success looks like for you. Is it being debt free? Is it being financially free? And what exactly does each of these mean for you? Certainly ten people would arrive at ten very different answers.

I’m currently using the 9 secrets to transform my own heath and fitness over a 40-day period. I made the decision, am totally committed and have perfect clarity around what I intend to achieve. Using proper nutrition and exercise I’ll slash 20lbs of unwanted body fat and reduce my waistline three inches. I’m calling it the Ultimate Fitness Quest and invite you to join me in a quest of your own. A team of health and fitness experts is showing me (and you) how to turn my body into a fat burning furnace. They promise me I’ll never go hungry and won’t have to spend hours in the gym. Apparently, little changes can make a world of difference. If you’d like to join in the fun or just follow along visit

Tuesday, June 1, 2010

Introducing the Ultimate Fitness Quest

9 Secrets of Achieving Financial Freedom- Part I

At the ripe old age of twenty-two I decided to study self-made millionaires in order to determine how they created their success. My hope was that by doing what they did, I could achieve similar results. Seems logical, right? I even hosted a TV show where I interviewed self-made millionaires including folks like the founder of Compass Bank and legendary banker, Harry Brock. While I made lots of mistakes, I learned that by modeling successful people’s behavior and actions you could get astounding results. I also noticed something else: virtually all self-made millionaires did a handful of things that other people didn’t do. Think of them as the ‘secrets’ of self-made millionaires. Most importantly, these secrets are skills that anyone can learn and use to create financial success in their own life.

I distilled these secrets down into what I call the ‘9 Secrets of Achieving Financial Freedom’. Once I had written the 9 secrets, it dawned on me that they are universal secrets to success and you should be able to use them to create success in any area of your life. So as a personal experiment, I intend to use the 9 secrets to transform my own fitness level over the next forty days. In this column over the next six weeks I’ll share both the 7 Secrets to Achieving Financial Freedom as well as my progress regarding my own fitness quest. By the way, wealth without health is not really wealth or said another way, “If a man has his health, it is said he can have a 1,000 wishes. If he has lost his health, he will have but one.”

The first two of the 9 secrets are the Secret of Decision and the Secret of Total Commitment.

One of the first observations I had regarding self-made millionaires was that they decided specifically what they wanted to accomplish and then became totally committed to their success. They displayed an attitude of certainty about their outcome. In Harry Brock’s case he was totally committed to changing the face of banking in Alabama from the stogy, ivory tower, white-shoe atmosphere that prevailed at the time to one focused on customer service and rapid expansion through a sales oriented approach to acquiring customers. He ruffled lots of feathers and fought many battles both in and out of the courtroom but prevailed and built one of the largest banks in America.

Knowing that the first two secrets, what achievement would you be willing to be totally committed to? In my 40-day experiment, I’m committed to reducing my body fat by 20 pounds while increasing my level of strength and cardiovascular fitness. I’ve brought in a team of health and fitness experts to coach me… and you too, if you’d like to shed inches from your own waistline. I’m calling it the Ultimate Fitness Quest and I’ve set up a web site with lots of resources to help you in your own quest. It’ll be an opportunity to test the 9 secrets in a realm other than personal finances and test myself at the same time. So if you’re ready to create your own 40-day transformation just in time for summer, visit and be sure to read my column each week here in The Birmingham News!

Tuesday, May 25, 2010

Protecting Your Assets from Lawsuit- Part V

In this final article in this series on how best to protect your assets against a lawsuit, I want to cover one final area as well as help you develop a coordinated asset protection strategy.

Protecting your home. Protecting your home against lawsuit may be one of the biggest challenges. Most couples hold title to their home under ‘joint tenants with rights of survivorship’. This means that if one spouse dies, the home automatically transfers to the surviving spouse without going through probate. Yes, it’s simple but exposes what, for most people, is their most valuable asset to lawsuit. To complicate matters, most states provide homeowners a ‘Homestead Exemption’ which significantly reduces property taxes. If you were to transfer title into a trust, or LLC, you’d likely no longer be eligible for the exemption…a high price to pay over the life of your home. Most mortgages also have a ‘due on sale’ clause that requires you pay off your mortgage should you transfer title out of your name. There are some possible strategies:
  1. If you are in an occupation considered ‘risky’ from a lawsuit perspective such as a physician, you could transfer title to your spouse. If you receive a judgment against you that exceeds your insurance limits, this strategy may provide the protection you need. One weakness is that there is no protection against judgments directly against your spouse.
  2. You could take out a large loan against your home and invest the proceeds (your equity) in one or more of the strategies we’ve already discussed. In effect, your home is now much less valuable or a target of would-be creditors. The weakness here is that you must make large mortgage payments.
  3. In my book, J.K. Lasser’s New Rules for Estate & Tax Planning, I discuss a little-know titling for married couples called, “Cross Contingent Remainder Deeds”, available in some states that prevents creditors from forcing the sale of your home unless the judgment is against both spouses.
To Do: While protecting your home may be a challenge, it may also be your most valuable asset. Consider whether one or more of the above strategies would be appropriate.

We’ve covered a lot of ground in this series and it would be easy to get overwhelmed and do nothing. As a result, at some time in the future, you may find yourself in a situation in which you wish you had taken action. Consider approaching asset protection one of two ways:
View it as a ‘process’ whereby you create ‘building blocks’ of asset protection. Start by listing all of your assets and liabilities on a piece of paper. For a form, visit the Resource Center at; click on ‘Links’, then ‘Asset/Liability Review’. Decide what assets you feel need protecting now and begin with the simplest and least expensive strategy. As you acquire additional assets, you’ll revise and update your strategy periodically.
Work with a professional who has expertise in the area of asset protection. There are a number of attorneys who are skilled in this area as well as some financial advisors and accountants.

Most important is that you implement a plan customized to your situation BEFORE you realize you need one.

Tuesday, May 18, 2010

Protecting Your Assets from Lawsuit- Part IV

Protecting Your Assets from Lawsuit- Part IV

Thus far in this series on protecting your assets from a lawsuit, we’ve covered lifestyle issues, insurance planning, federal and state exemptions, titling of assets and the use of trusts. Legal documents are another way to protect your assets and today I’ll cover three categories: legacy planning, life insurance planning and prenuptial agreements.

Legacy Planning. When I review the wills of new clients, the documents often leave assets outright to the surviving spouse or, if there is no surviving spouse, to the children at a young age, say 21 or 25. A transfer directly to the surviving spouse continues to subject those assets to a potential lawsuit. As for the children, outright distributions at a young age expose assets to two risks. First, in my experience, many people in their twenties are ill-equipped to handle large sums of money and will either spend the money or invest it poorly. Second, the divorce rate in America continues to hover above 50%. Leaving your assets directly to children can expose those assets to a future divorce. Combine the odds of a divorce with the odds of a lawsuit during an adult child’s lifetime and you can easily see the importance of developing an asset protection strategy. In our practice we developed a concept we call, “Legacy Trust with Asset Protection Attributes”, whereby assets, at death, are transferred to a trust for the benefit of the surviving spouse or children for their lifetime. They receive monthly cash flow from the trust as well as principal distributions for predetermined events or situations…education, health, down payment for the purchase of a home…for instance. Should the trust beneficiary be threatened by a divorce or lawsuit, the trust language shields trust assets.
To Do: Take a moment to determine the total value of your estate including life insurance; review your will to determine how your assets will be left to your heirs; and decide if a Legacy Trust is a strategy worth considering.

Prenuptial Agreements. I’m sure you’re all familiar with the concept of a prenuptial agreement whereby couples, prior to being married, sign an agreement limiting the transfer of assets should the couple later divorce. This is most typical where one or the other or both of the couple have children by a previous marriage. We have also used a prenuptial agreement in cases where a child is expected to inherit substantial assets either outright or in the form of a family business interest.

Life Insurance. From an asset protection perspective, one of the mistakes I see people make is to, inadvertently or otherwise, name their ‘estate’ as the beneficiary of their life insurance. In one case, a husband did this and also did not have a will. As a result, the insurance proceeds were distributed according to state law and resulted in $500,000 going outright to the widow (no asset protection!) and $500,000 being held under a state conservatorship for the nine-year-old son until he turned 19 at which time he’d receive his money including all the growth, outright. I’m guessing you can see the problem here.
To Do: Make certain that your life insurance has a named beneficiary and, for asset protection, consider the advisability of using an Irrevocable Life Insurance Trust as both the owner and beneficiary of the policy.

Protecting Your Assets from Lawsuit- Part III

The way most people title their assets does little to protect them in the event of a legal judgment. The three worst ways to own property, from an asset protection point of view, are in your own name, joint ownership or in a partnership.

Owning assets in your name. The main advantages include simplicity and flexibility but you have absolutely no protection from a lawsuit.
Joint ownership of assets. Joint ownership actually increases your risks of fallout from a lawsuit. For example, if you own a rental property with your friend and he receives a judgment unrelated to the apartments, his creditors could force the sale of the property or become your partner…their choice! If they choose to force a sale of the apartments, you will receive your share but the timing of the sale could produce poor results.
Owning assets in a partnership. Owning assets in a partnership may increase your liability exposure even more than ownership in your own name or joint ownership! This is because in a partnership, it’s possible for you to be held legally responsible for the misdeeds of one of your partners! Not only could the creditor take his share of any partnership assets, but they can come after your share of partnership assets as well. Under certain circumstances, the creditor can breach the partnership and seize personal assets.

The solution is to rethink how you hold title to your assets. While you have a number of good options, perhaps the best choice is what is called a Limited Liability Company or LLC. LLCs are easy and inexpensive to set up and easy to maintain, and are treated as a separate entity or ‘person’ from a legal perspective. This means that assets held within your LLC is segregated from other assets and cannot be seized by creditors with a judgment not related directly to that LLC. Alternatively, if there is a judgment related directly to that LLC, while the LLCs assets are exposed, assets outside the LLC are not. The idea is to ‘segregate’ assets from each other which means you may want to hold assets in more than one LLC. For example, you may want one LLC to hold your ‘risky’ assets such as a rental property, boats, airplanes, recreational vehicles and another LLC to hold ‘safe’ assets such as your personal investment accounts, jewelry and antiques.

Beyond the LLC, the most popular choice of legal entity for asset protection is the Family Limited Partnership or FLP. FLPs are typically more complex and expensive to set up and manage than LLCs but also offer some additional advantages. There are also Domestic Asset Protection Trusts and Foreign Asset Protection Trusts that are sometimes used by wealthy families or those whose occupation places them at greater risks, such as physicians. While beyond the scope of this column, these topics are covered in my book, J.K. Lasser’s New Rules for Estate & Tax Planning.

To Do: Review a list of your assets and decide which should be held in an LLC for ‘risky’ assets and which should be held in an LLC for ‘safe’ assets.
Notice to Readers: In last week’s column, I discussed the liability risk of serving on for-profit and non-profit boards. A reader correctly pointed out that Alabama has statutes that significantly limit liability for non-profit board members.

Protecting Your Assets from Lawsuit- Part II

Last week I began a series on asset protection by discussing how you can reduce your risk of lawsuit through making changes in your lifestyle and protect assets by purchasing an umbrella insurance policy. When working with our clients, we do a Liability Risk Assessment whereby we attempt to determine if there are any obvious liability risks that need to be addressed with a particular strategy. I have had people tell me that they are not concerned about liability because if they feel threatened, they’ll simply transfer assets out of their name. This won’t work because of the federal ‘fraudulent transfers rule’ that states that funds transferred in an attempt to avoid creditors is illegal and the court will order the transaction be reversed.

Professional Liability Insurance. If you own a business, you’ll want to explore professional liability coverage which may come in a variety of forms including malpractice insurance (doctors, lawyers and other professionals), errors and omissions, product liability, premises liability coverage. From time to time, you may be asked to serve on various boards of either non-profit or for-profit organizations often serving with little or no pay. This can be very dangerous to your wealth. Generally, my recommendation is to avoid such appointments. If you are considering joining a board, make certain there is significant Officers and Directors liability insurance. Remember, as a director, you are liable for the misdeeds of the people who are running the organization and rarely do you have access to much information about their activities. I have a personal friend who forfeited hundreds of thousands of dollars after the board on which he served received a massive judgment.
To Do: Get with an insurance agent who specializes in commercial insurance and have him or her do a complete insurance review with particular emphasis on liability coverage.

Beyond insurance, both federal and state law provide a variety of protections that are vital that you know about and consider taking advantage of to protect your assets from lawsuit.

Federal Exemptions. Federal law protects all assets held in certain retirement plans including company sponsored profit sharing, 401k, 403b and pension plans (Employee Retirement Income Security Act- ERISA). In addition, in a law passed in 1995 (Bankruptcy Abuse Prevention and Consumer Protection Act), Individual Retirement Accounts (IRAs) are exempt from creditors for up to $1 million if the owner files for bankruptcy protection. Assets rolled over from a qualified plan such as a company retirement plan to your personal IRA do not count towards this $1 million limitation and remain fully protected from a law suit.
To Do: Consider shielding assets by investing through retirement plans. If you want to invest primarily in alternative investments such as real estate, oil and gas, or non-public business enterprises, consider setting up a self-directed IRA. You’ll need a custodian who specializes in these types of accounts.

State Exemptions. Each state has its own set of exemptions laws that provide a varying level of protection of assets from bankruptcy. For a state-by-state summary, visit the Resource Center at; click on ‘Links’, then State-by-State Bankruptcy Exemption Laws.

Friday, April 30, 2010

Stewart Welch: Protecting Your Assets - Part 1

Protecting Your Assets from Lawsuit - Part 1 - Stewart Welch III

There is a litigation crisis in America where the mantra is, “Sue everybody and we’ll sort it out later’. It is estimated that there are over 1 million lawyers in America…one for every 300 citizens. So what are the chances of you getting sued sometime during your lifetime? Turns out they’re pretty good. In fact, some research suggests that you’ll be involved in an average of five lawsuits during your lifetime. So if we can agree that there is at least a risk of you getting sued, wouldn’t it make sense to develop an asset protection strategy?

Over the next few weeks, I’ll cover a wide range of strategies that discusses lifestyle; insurance; titling of property; trusts; and estate documents.

Monitor your lifestyle. At the most basic level, your lifestyle can either minimize or elevate your risks of a lawsuit. Some of the obvious things would include not drinking and driving; observing the speed limits; securing a fence around your pool; etc. For example, research proves that talking on the phone while driving is the equivalent of driving while slightly intoxicated. Driving while texting on your phone is the equivalent of driving while drunk. I was recently sitting at a red light when a young lady whose attention was momentarily diverted scraped my bumper. No one was hurt but the damage to my scraped bumper was still $1200 and the costs of repairing her car, I suspect, was much more.
To Do: Take a moment to think about how you could reduce lawsuit risks related to your lifestyle.

Insurance as your first line of defense. A number of years ago, a client and his family were driving to the airport in Denver, Colorado after a week of snow skiing. It was a beautiful sunny day with clear roads. Suddenly, he hit a patch of ice and his car slid into the oncoming lane. Fortunately, he and his family had buckled up and were not injured. Unfortunately, the two young ladies in the other car had not buckled up and both came through the windshield causing severe facial lacerations. They sued and won a judgment in excess of $700,000. If my client’s auto liability coverage had been, say $50,000, where would the young ladies’ attorney gone to satisfy the balance of the judgment? Answer: His personal assets. Fortunately, we had wrapped his auto and homeowners insurance with a $1 million Umbrella Liability policy.

In my experience, most people do not carry umbrella liability coverage, yet it’s perhaps the least expensive and most effective way to shield your assets from lawsuit. An umbrella liability policy typically has a very large deductible, say $300,000 or $500,000, but then covers any liability that arises from an auto or homeowners claim up to $1 million above your deductible. In order to avoid having a ‘gap’ in coverage, you’ll need to make certain that your auto and homeowner’s coverage limits are equal to your umbrella deductible.
To Do: Meet with your property and casualty agent and have him or her add an umbrella liability policy for a minimum of $1 million. This policy often costs less than $300 per year but you may have to increase coverage for your auto and homeowners insurance.

Friday, April 23, 2010

I am planning an "Extreme Fitness Quest" in which I will apply the 7 Secrets I used to attain Financial Freedom to my Nutrition, Health & Fitness. I'll be inviting people to join me for 40 days beginning in May. What do you think?

Thursday, April 22, 2010

Creating Alternative Sources of Income

Over the past several weeks, I’ve discussed retirement strategies based on whether you’re in your twenties to thirties; forties to fifties; or are in your sixties with retirement just around the corner. To review those column’s go to the Resource Center at; click on ‘Links’; then ‘Stewart’s Column’.

One retirement solution everyone should consider is creating one or more alternative sources of income. While this may seem to be a daunting task, you may just discover that it’s easier than you think. Consider these success stories:

Years ago, a stockbroker discovered the love of running. While being a stockbroker provided the income to drive his lifestyle, for fun he began to organize runs with small groups of people on a weekly basis. One thing he noticed was that there were a number of novice runners who were interested in becoming more proficient and had goals of running in, and completing a marathon. He developed a novice running club and charged a small fee as he organized and taught a disciplined running regime that would prepare these novices for a marathon. He found that the club members loved the program and began to spread the word. He also discovered how much he loved combining his love of running with his new passion for teaching and seeing how it changed lives. Turns out that he wasn’t just teaching running, he was also teaching life skills.

A friend of mine was looking for an alternative income source; specifically he wanted something he could turn into passive income where his involvement would be minimal. He looked at many options and finally decided on an Internet-based discount retail purchasing web portal that allowed him to purchase everyday products at a discount plus add additional friends, family and other families where he would receive cash incentives for their purchases as well. If these new ‘customers’ also recruited customers, everyone would benefit. He worked diligently for three years building his new ‘business’ and today, spending only three hours per week has a monthly income exceeding $20,000!

Do you have to have a bunch of money to start up your own business? Consider a recent case. This gentleman in his late sixties was not content to drift into the sunset of retirement and, after much research, decided on a franchise business to buy. He had a great idea, a good business plan but lacked the capital to launch his business. He took the business plan to a group of investors who funded the project on a partnership basis.

What you should do. Make a list of all of the things that you love to do. Start with things that you are really passionate about. Note that for each item, there is someone who is making a pile of money with a business based on what you love to do. You could model them or create an innovative alternative. Brainstorm the possibilities and see what you come up with. In this economy, now is a great time to start a business. If you can make it work now, it’ll take off once the next economic boom gets under way. For more information about starting your own business, visit

Tuesday, April 13, 2010

“Retirement for the Ages- Part III”

Last week I began a discussion about retirement strategies for those of you who are in your sixties and can see the light at the end of the retirement tunnel. Some of you may have discovered that the light is actually an oncoming train! I began with the importance of figuring out just how much money you will need by using a simple retirement financial calculator at the Resource Center at; click on ‘Links’; then ‘Retirement Planning Calculator’. Strategies for creating a comfortable retirement included continuing to work on a full or part-time basis and downsizing your lifestyle. Here are a few additional strategies:
  • Focus on debt elimination. One of the best ways to approach retirement planning is to pay off all your debts including your home mortgage. Start by writing down every loan you have; how much you owe; what your monthly payment is; and what your interest rate is. Use one page per loan. Shuffle your pages so that the loan with the highest interest rate is on top. Use any ‘extra’ money to accelerate the payoff on this loan while paying the minimum payment on all other loans. When the top loan is paid off, take its payments plus your ‘extra’ payments and apply to the next loan. Continue this process until you are debt free. The ‘mathematics’ of this strategy will detonate your debt in a few short years.
  • Review all insurance coverage. When you add up all of the premiums that you pay for all of the various types of insurance coverage you own, it can easily add up to 15% - 30% of your after tax retirement income. Commit to reviewing every insurance policy you own with the goal of cutting premiums 50%. In some cases you’ll discover you are paying for coverage that you no longer need. In other cases, by shopping around, you find more competitive pricing. Finally, consider raising your deductibles (property & casualty insurance and health insurance) or lengthening the waiting period (long-term care insurance) before benefits begin. For this exercise, you may need help. See my next recommendation.
  • Get professional help. If all of this seems overwhelming, consider meeting with a qualified financial advisor. They are trained to help you work through these complex issues. For a list of fee-only certified financial planners in your area, visit
  • Reorient your investments. As a pre-retiree, it’s time to take a fresh look at all of your investments. What was appropriate during your accumulation years may need to be repositioned with a more income-oriented slant. For example, our pre-retiree portfolios are dominated by Blue Chip dividend-paying stocks instead of more growth-oriented stocks. And while the current interest rates on bonds is anemic, consider what your target allocation to bonds should be as interest rates ‘normalize’ over the next few years.
  • Create additional income sources. A great time to launch a small start-up business is while you’re still working. Most people have something they are passionate about outside their job. Do you have a hobby that you could turn into a source of income?
Next week, I’ll brainstorm with you ideas for creating additional sources of income without having to get a second job.

Wednesday, March 24, 2010

Family Gifts Can Be Taxing - Stewart Welch

A friend once called me with concern over a gift his parents made to his sister. His parents had given her $150,000 worth of stock to purchase a home. She then sold the stock and bought the home. The parents didn’t see anything wrong with this. After all, it is their money and they should be able to do with it what they please, Right? What they did not understand was that they created two potential tax issues. First, when the daughter sold the stock, she created a ‘realized’ gain and owes substantial capital gains taxes. Second, the gift created potential gift taxes that would be owed by the parents. To avoid this the parents must file a gift tax return and use a portion of their Lifetime Exemption Amount. The point is that care needs to be taken when making gifts to family members. It is possible to make ‘gifts’ even when you did not intend to do so. Let’s look at some typical examples:

· You add your child’s name to your savings or checking account. This is considered a gift the moment your child makes a withdrawal. If the withdrawal exceeds the allowed Annual Gift Tax Exclusion ($13,000 for 2010) it will be considered a taxable gift.
· You want to be certain that a particular person receives a specific piece of real estate at your death. Your solution is to add their name to the deed. When the deed is executed, you have just made a gift for gift tax purposes.
· You decide to buy a security such as a stock, bond or limited partnership interest and do so in both your name and someone else’s name. As soon as you designate the joint owner, a gift is deemed to have occurred.

Under each of the preceding examples where you created a joint ownership arrangement, at your death the entire value of the property is included in your estate. This is because you provided all of the financial consideration.

· If you guarantee a loan for someone else, you could end up being deemed to have made a gift for gift tax purposes. Assume that your child wants to start a business with start up costs of $95,000. Your child has no money or collateral with which to obtain a loan from the bank. You agree to guarantee the loan at the bank. By doing so, you have created a potential gift. The Internal Revenue Service has indicated that no gift is imputed unless there is an actual default on the loan that requires you to satisfy the debt for the benefit of your child. If this occurs, you are deemed to have made a gift for the full-unpaid balance of the loan less any repayments to you by your child.

Providing loan guarantees can also create negative estate tax results. If you’re involved in this type of situation, proceed with caution and get competent legal advice.

Portions of this article were excerpted (or modified) from Mr. Welch’s book, J.K. Lasser's New Rules for Estate and Tax Planning.

Monday, March 15, 2010

Searching for Income - Convertible Bonds

In response to the economic crisis that began in 2007, the Federal Reserve has purposefully driven interest rates down in order to stimulate our economy. This artificially low interest rate environment has wreaked havoc on retirees who are dependant on interest from their investments to pay their bills and run their retirement lifestyle. As a result, retirees are constantly scanning the investment horizon in search for higher returns. One investment vehicle that has garnered attention is the convertible bond. A convertible bond is a bond issued by a publicly traded corporation that gives the bondholder the option to convert the bond to a certain number of shares of the corporation’s common stock at a specific price. Convertible bondholders are essentially creditors of the issuing company who have the right to become owners.

Convertible bonds are not a new investment product and, in fact, became popular in the latter part of the 19th century when the railroad and telephone companies used them as a means of financing their expansion. One of their primary advantages includes the ability to capture additional profits should the stock price rise above the conversion price. If the stock does poorly, you have the safety of owning a bond and collecting interest. As with all financial products, advantages come at a price. You will receive a lower yield than you would for a comparable non-convertible bond, so if you never convert to shares of stock, you have earned a sub-par return. Also, many convertible bonds are callable at the option of the issuing company at a price that effectively limits your profit potential should the stock price rise significantly.

Analyzing which convertible bonds to purchase is a daunting task for most investors since it requires an in-depth understanding of bonds, stocks and corporate analysis. Your best bet is a convertible bond fund run by an experienced money manager. Consider no-load Vanguard Convertible Securities (VCVSX) run by manager Larry Keele, whose fund currently yields 3.8%. Convertible bond pioneer, John Calamos, along with his nephew, Nick Calamos, manage the Calamos Convertible fund (CCVIX), which currently yields approximately 3.1%. This load fund can be purchased on a no-load basis through Charles Schwab & Company.

Are convertible bonds or bond funds an appropriate investment for the individual investor? Sometimes referred to as ‘chicken stocks’, convertible bonds can provide risk adverse investors a way to participate in the often volatile stock market while reducing risk. However, the risk profile for convertible securities more closely resembles stocks. Take a look at the recent stock market extreme volatility for calendar years 2008 and 2009. For 2008, the stock market was down 37%. Vanguard’s and Calamos’ convertible bond funds were down 29.79% and 25.88% respectively. In 2009, the stock market rose 27% and these funds also rose 40% and 34% respectively. Convertible bonds are not for everybody but they are a valuable investment tool to add to your toolbox. Based on the recent stock market run-up since the March 9, 2009 lows, a lot of the short-term profit potential may have been wrung out of this strategy, so consider waiting on a market pull-back or plan on a long-term investment.

Stewart Welch

Monday, March 8, 2010

Hop on the Bus for Free Financial Advice - Stewart Welch

Last week I discussed the importance of being prepared for the unexpected, specifically for incapacity. Another threat looming large is the dismal economy we currently face where layoffs continue to plague workers across the country. If you have money in the bank and a secure job, consider yourself lucky. Most Americans have little or no savings and are therefore unprepared for just about any hiccup in their financial lives. Well, help is on the way, again. Last year, three organizations joined forces to provide consumers with basic advice on personal finances. The Consumer Education Foundation of The National Association of Personal Financial Advisors (NAPFA), TD Ameritrade Institutional and Kiplinger’s Personal Finance magazine have developed a bus tour across America and are offering you free access to professional financial advisors to answer your most urgent financial questions.

The program is called Your Money Bus Tour and will be coming to the Metro Birmingham area this coming Wednesday. The bus will park at the Hoover Library where Hoover Mayor Tony Petelos will kick off the event at 11:30 a.m. and Director of the Alabama Securities Commission, Joe Borg will offer tips for consumers. The kickoff will be held in the café area of the library.

You’ll are going to have an opportunity to meet one-on-one with a financial advisor from NAPFA. These advisors are volunteering their time and typically charge a minimum of $150 per hour for their consulting services. This is a true community services outreach program, not a sales promotion. Each attendee will receive a free Financial Tool Kit. The services are free and it is an excellent opportunity for you to get a head start on your finances for 2010. While you are welcome to ‘show up’ for the event, it would be best to make an appointment which you can do on line at Appointments begin at 9 a.m. with the last appointment at 6:45 p.m.

Anytime you meet with a professional advisor, whether it is a financial advisor, attorney, accountant or banker, it pays to be prepared. By doing so, you make the most of your time and their time as well. This is especially important at this event since the advisors are expected to handle a large number of appointments throughout the day. Here are a few tips to help you prepare for meeting with one of the volunteer advisors:

Make a list of what you own and what you owe. Known as a financial statement, this provides a quick reference to your advisor (and you), where you stand financially.
Develop a simple budget. Your budget will outline your monthly income and expenses. Your advisor can use this to quickly identify where problems are occurring and offer some easy-to-follow steps you can take to get you back on track.
Documents you’ll need to bring with you. Credit card statements and any loan agreements such as an auto loan will help your advisor understand not only how much you owe but what interest rate you are paying and terms of loan agreements.

If you would like a free form you can use to list your assets and liabilities or complete a budget, go to the Resource Center at, click on ‘Links’, then either Asset/Liability Review or Detailed Budget.

Monday, March 1, 2010

Estate Planning: Preparing for the Unexpected

All of us know of someone who has become incapacitated and unable to tend to their financial affairs. However, most people don’t realize that without proper advance planning, this situation can quickly turn into a nightmare. For example, assume that you are married and your husband is left mentally incapacitated as a result of a stroke. You own your home jointly and he owns $250,000 in stocks in his name. You need access to cash for special medical treatments so you plan to sell his stocks, right? Wrong! You do not have the legal right to sell his stocks and since he cannot give you permission, your only alternative is a potentially lengthy and expensive legal process to gain access to his assets…if the court grants you access.

The best defense is to prepare now for the possibility that you may become incapacitated in the future. There are four legal documents that you should consider.

1. Durable power of attorney. With this document, you appoint another person to be your 'attorney-in-fact', giving that person the responsibility of making financial decisions on your behalf. You may choose language that provides very broad or narrow powers. For instance, the document can be drafted to allow your attorney-in-fact to act on your behalf only if you are incapacitated (springing power) or it can allow your attorney-in-fact to act on your behalf at any time (general power). Your attorney or financial advisor can advise you which document will be best for you.
2. Revocable living trust. With this strategy, you set up a trust that is revocable (you can terminate it anytime) and transfer title to your assets to the trust. Typically you will be your own trustee, but will also name a successor trustee should you become incapacitated or die. This allows you, not the courts, to control who will continue to manage your financial affairs should you be unable to do so. The revocable living trust also protects your privacy whereas court proceedings may not. However, because of the cost and complexity of this trust, I only recommend it in special situations. For example, I had a client whose relatives threatened to have her declared incompetent and themselves declared trustee for her money as well as her legal guardian. As a safeguard, we used the revocable living trust to make certain that, regardless of the outcome, my client could decide who took control.
3. Healthcare proxy. Similar to the durable power of attorney, the healthcare proxy allows you to appoint the person who will be responsible for making healthcare decisions for you should you be unable to do so.
4. Advanced healthcare directive. With this document, you indicate the level of life-prolonging procedures, pain treatment, etc. that you wish should you be terminally ill and unable to communicate your desires. In Alabama, our legislature has drafted a document that combines the healthcare proxy and advanced healthcare directive. You can receive a copy by visiting the Resource Center at; click on ‘Links’; then click on “Living Will- State by State” .

As you read this column, I urge you to look beyond your own situation and send a copy of this column to friends and family members who may benefit from this advice.