Do I Need A Power Of Attorney?

A power of attorney can be a vital financial and estate planning document. However, it can be a double edged sword!  Let’s take a close look at this important document. 
A power of attorney (POA)  is simply a grant of authority or power by one person to another. The person signing or granting the POA is called the “principal” or the “grantor.” The person to whom the POA is given is called the “attorney-in-fact” or the “agent.” For purposes of our present discussion, we will deal only with financial powers of attorney. In a future column we will address healthcare powers of attorney and other so called “advance directives.” POAs may be LIMITED  (LPOAs) OR  or GENERAL (GPOAs).    An LPOA may authorize the agent to perform certain specified functions, and his authority to act for the principal is limited to the matters specified in the POA. A GPOA is a broad grant of authority, and can authorize the agent to do ALMOST any act involving property that the principal could have done himself. The one big exception is that of making a will. An agent acting under a GPOA has no authority to make a will for the principal. An agent acting under a GPOA may execute a document establishing a trust on behalf of the principal, but not a will.

A DURABLE POA  (DPOA) contains a clause that states that the POA remains in full force and effect even if the principal become incompetent. This is extremely important!  Most POAs prepared by attorneys for their clients are DURABLE POAs. In addition, the general DPOA should contain a clause specifically authorizing the agent to make gifts on behalf of the principal. The taxing authorities may refuse to recognize gifts made with a DPOA unless such a specific clause is present. A  DPOA may become effective when executed, or it may be a “SPRINGING POWER” that becomes effective upon the happening of a certain event. For example, the DPOA may contain a clause stating that the agent’s authority to act ”springs to life” when the principal’s physician  states in writing that  in her opinion, the principal is no longer capable of managing his affairs.

DPOAs can be extremely useful documents in many situations. Perhaps the greatest benefit of DPOA is the avoidance of conservatorship proceedings. If a person becomes unable to properly handle their affairs due to mental incapacity, physical infirmity, or advanced age, then family members may be forced to have the person declared incompetent and placed under conservatorship. This can be an expensive, time consuming and humiliating process.  A properly prepared DPOA can make conservatorship proceedings unnecessary.

While DPOAs can be extremely useful, they should not be taken lightly! DPOAs are serious legal documents. If you give someone a DPOA, they can act fully in your place, and you will be responsible for the acts of the agent.  Thus, DPOAs should be given only to those persons whom you completely trust. A POA may be revoked by recording a notice of revocation at the office of the county register of deeds.

Lets look at four cases that illustrate the uses and misuses of DPOAs.

Case #1.  Clark has several parcels of real property for sale. Before he can sell them, his  National Guard unit is called   to active duty to serve in Iraq. Clark gives his brother Kelly a limited DPOA allowing him to sign the deeds and other transfer documents on Clark’s behalf.

Case #2.  Mrs. Entwhistle has a large estate, and executes a DPOA naming her daughter as agent. Shortly thereafter she suffers a massive stroke which leaves her completely paralyzed and unable to speak. Using the DPOA, her daughter arranges for her mother’s care in a nursing home, sells real property, establishes a living trust to avoid probate and transfers her mother’s assets to the trust. She also uses her DPOA to make gifts to grandchildren and other family members to reduce the size of her mother’s estate. Conservatorship is avoided!

Case #3.  Achmed and Miriam are naturalized U.S. citizens. They immigrated to the U.S. several years ago from a Mideastern country where they were born and married. Achmed gets into serious legal trouble in the U.S. and flees the country to avoid prosecution. Just before fleeing, he empties some of their joint U.S. bank  and investment accounts, and hides the funds in a Swiss bank account. In his homeland, women are treated like property and have few rights, so Achmed easily obtains a divorce from Miriam by simply filing a form with the appropriate government office.  But here is the good news!  Before their troubles began, Achmed and Miriam had given each other DPOAs, and Miriam has all of the originals. Acting on her lawyer’s advice,  as agent she uses Achmed’s DPOA to transfer all of their jointly owned  U.S. real estate to her name alone. She also files the appropriate documents to revoke the DPOA that she had given Achmed. She simply used his DPOA to protect herself.

Case #4. Sabrina has a responsible job with a large multinational corporation. She is married to Carlo, who took early retirement due to a disability.  Sabrina is offered a temporary assignment at one of her employer’s foreign subsidiaries. She will be out of the country for six months, but will receive a substantial bonus. She accepts the posting, leaving Carlo to manage the valuable rental property that she inherited from her parents. Before going, she updates her will and executes a DPOA, naming Carlo as agent.   Some buddies take Carlo to Tunica for his first visit. Although he has never before gambled, he loves the atmosphere and the attention he receives from the attractive casino employees. He returns again and again. Although he won initially, soon his losses are mounting. He empties their joint savings account. When a certificate of deposit matures, he does not renew it. The rental income from Sabrina’s properties does not get deposited to her rent account. Knowing that she will be furious, Carlo gets desperate!  He seeks advice from a “friend” he met at the casinos. This “friend” always brags about the betting system that he uses to “beat the house” at Tunica. Seeking to win back the money he has lost, Carlo uses the DPOAs to take out  90% mortgages on Sabrina’s rental properties.  Worried to death, Carlo become distracted. In fact, he is so distracted that he forgets to pay the insurance premiums on the rental property. One of the heavily mortgaged properties burns to the ground.  The stress of this mess causes Carlo to have a heart attack. Sabrina returns from overseas to find her properties mortgaged to the hilt and the money gone!  She is legally obligated to pay the mortgage on the uninsured property destroyed by fire.

As we can see from the above cases, DPOAs can be a blessing if properly used and a curse if misused. That is why you should be very, very careful in your choice of agent. Circumstances change, people change, and circumstances change people. Although DPOAs may seem to be straight forward,  simple documents, “don’t try this at home!” Consult an experienced estate planning attorney. You will be glad that you did.

Beware The Simplifier

“Whatever does not kill you makes you stronger,” observed the German philosopher, Friederich Nietzsche (1844-1900). If there is any good, anything redemptive to be found in the current financial crisis and mess, then perhaps we should begin by considering these words of wisdom.

Investment guru Warren Buffett has called America’s financial crisis “an economic Pearl Harbor.” This reminds me of the words attributed to the Japanese admiral in charge of the attack on the U.S. naval base at  Pearl Harbor. When congratulated by his subordinates, Vice Admiral Nagumo is reputed to have said, “ I fear that we have awakened a sleeping giant and filled it with a terrible resolve.” That is exactly what happened.

All over our country, we are now waking up and realizing the folly of having too much house, too little savings, too much debt, too many expensive “big boy toys,” and too much stuff. Many people are resolved to change their financial lives and their relationships with money. Those who watch consumer trends believe that this may have a significant impact on consumer spending. Writing for Harvard Business Online, marketing consultant John Quelch has identified a new type of consumer that he calls “The Simplifier.” This new brand of consumer is pessimistic, cautious, and thrifty.

Simplifiers have four identifying characteristics:

First, they recognize that they have more “stuff “ than they can use or need. Our culture has accumulated so much “stuff’ that we have seen the development of a new profession, the professional organizer, to help us manage it. Baby boomers are spending weeks and months sifting through and disposing of even more possessions when their parents die or their living arrangements change. The past few months have seen a surge of books, websites, and blogs devoted to helping boomers dispose of clutter. More and more people are empting attics, basements, closets and garages, abandoning the “you-never-know-when –you-might-need –it” mindset they learned from their parents.

Second, Simplifiers want to collect experiences rather than possessions. They realize that that experiences, like education, is something that can never be taken from them. They realize that the same is certainly not true of possessions. Also, Simplifiers want to give experiences instead of goods as gifts to their children, relatives, and friends. There are few things that compare to the experience of traveling. For example, it has been twenty-three years since my wife and I visited London, but that experience is just as fresh today as it was in 1985. After the jet lag passed, we both agreed that we felt that we had returned to our real home.  We felt that we were from there. For the past eight years, I have made an annual business trip to San Antonio and each time, I visit the Alamo.  Every year, I stand there in awe of what took place in the crumbling walls of that old church that became a fort, knowing that larger than life men like David Crockett and Jim Bowie chose to fight and die there for freedom. I do not know of any possessions that can convey such depth of feeling as can  the experience of being there.

Third, Simplifiers find that their stuff has become an embarrassment.  When gas prices spiraled out of control a year or so ago, big SUVs suddenly changed from a pleasant indulgence to the signal of an irresponsible purchase of a gas guzzler.  I know. I was sooooo glad to trade-in my Jeep Grand Cherokee with its big hemi for a Honda Accord!

Fourth, Simplifiers are rejecting conspicuous consumption. They reject marketers’ continual pressure to spend more money on possessions instead of education, health care, and charity. They are disgusted with retailers who try turning every holiday and remembrance day into an orgy of buying gifts, cards, flowers, and candy.  They are angry with banks that seduce their children with generous offers of credit cards, and then trap them into paying obscenely high interest rates. They have no sympathy for those industries that are suddenly pleading for government bail-outs, after years of practicing poor, inefficient management.  The Simplifiers are going to vote with their pocketbooks, and woe to the merchants who do not realize this. Many of them will have new signs on their doors, and those signs will read “CLOSED.”

Will you join the ranks of the Simplifiers? Will you embrace thrift and savings, reject debt and consumerism?  Will you learn to shop in your own closet? Will you turn a cold and hard eye to marketing efforts? Will you stop believing the empty promises of politicians and business people who presume to know what is best for you, and instead adopt a “show me” attitude? Will you teach these things to your children? Will you teach your children that as consumers, they are targets? Will you teach your children that there is ultimately no true contentment and joy in things, but that true happiness in life comes from your relationships, experiences, and spiritual life?  If you will do these things and teach them to your children, then whatever you have suffered from the present financial crisis will make you strong indeed.

What Is The Most Important Financial Advice You Can Give Me?

Don’t let you or your loved ones end up like Bruce Friedman.

Dear readers, I know that you’ve never heard of Bruce Friedman, but I hope that you never forget him. I urge you to spend a few moments learning from the sad story of an unhappy man.

Bruce and Anne Friedman were happily married for 20 years.  Anne was a school principal in New York City. While on vacation, she died suddenly of a massive heart attack. Anne had always assured Bruce that he was the beneficiary of her state teacher’s retirement fund, and as her surviving spouse, he filed a claim for the $950,000 in benefits. To Bruce’s considerable shock, his claim was denied. The state retirement fund informed Bruce that when Anne became a participant in the fund 28 years earlier, she  had named her parents and her sister as her beneficiaries. As both  her parents were deceased, the state awarded Anne’s entire retirement benefit to her sister. Her husband Bruce received nothing. Bruce took the matter to court, claiming that as surviving spouse, he was entitled to the retirement benefit that Anne had promised him during the years of their marriage. He lost in court. He appealed and lost. He appealed again and lost again. The New York Supreme Court decision pointed out that since Anne had never changed her original beneficiary designation, she obviously did not wish to make her husband the beneficiary of her retirement fund.  We can pity poor Bruce Friedman, whose hopes for a financially comfortable retirement were shattered. Incidentally, Anne’s sister received ALL the retirement benefit, and refused to share it with Bruce.

Dear readers, it’s easy to see what caused this financial catastrophe for Bruce. Apparently, Anne simply never got around to changing her beneficiary designation form when she and Bruce married. And apparently she assumed that she had made the change,  but she had not!  The results were surely not what she had intended, and her husband Bruce was the big time loser.

Basically,  in Tennessee there are three ways that property ways by which property passes at death: (1.) by wills and trust agreements; (2). by joint ownership (real estate, bank accounts, brokerage accounts, etc.); and (3.) by beneficiary designations (life insurance contracts, annuity contracts, payable on death accounts, pension and profit sharing plans, Individual Retirement Accounts (IRAs), Keogh plans, 401(k) and 403(b) plans, and other types of retirement accounts). 

As a financial advisor, I routinely see new clients whose beneficiary designations name a former spouse, a deceased relative, etc.  They simply forgot to change those important documents when their circumstances changed.  While people may change their wills, they often forget that a significant part of their assets passes to their heirs by beneficiary designations rather than by will.

What should you do to avoid a tragic situation like Bruce suffered?  Promptly review ALL financial documents that have beneficiary designations. Typically this will include life insurance, annuities, retirement accounts, etc.  Your CPA, attorney or financial advisor can assist you. Be sure that you retain copies or duplicate originals of all beneficiary designations. Your or your loved one’s financial future may depend on an up-to-date and correct  beneficiary designation form. Remember poor Bruce Friedman!

Love Your Neighbor

“…’You shall love your neighbor as yourself.’ There is no other commandment greater than these.” ~Mark 12:31, NKJV.

We are all familiar with these words that appear many times in the Old and New Testament and also in essence in the teachings of other faiths. What do these words really mean to us? Do they make us uncomfortable or even frighten us? Sometimes I think that they do.

We are living in frightening times. Uppermost on everyone’s mind is of course the economy and how it will affect us. As a financial counselor and CPA, I see this daily in the faces of those who sit with me in my conference room. As I read the newspaper, and see notices of job lay-offs, business closing,  salary and benefit cuts, etc., I think: “How will these things affect my  relatives, clients, and  friends? These people are my neighbors!”

Dear readers, all around us, our neighbors are hurting. They are afraid. They are filled with anxiety, uncertainty, and dread. Our neighbors are worried about losing their jobs, their homes, and the comfortable retirement they have planned. They fear becoming sick or injured, knowing that out-of-control healthcare costs may very well ruin them financially. Many of our neighbors are financially supporting not only themselves, but children, grandchildren, and elderly relatives as well. They wonder how they can possibly continue to do this.  Many are afraid of an explosion in crime that often accompanies hard times. Many of our neighbors are worried about how financial pressures will affect their families. Will already stressed marriages survive? Will  maturing children be able to find jobs and become self-sufficient?  Will increased stress cause loved ones to turn to substance abuse in a desperate attempt to cope? What does the future hold?

The above are not happy thoughts, but I assure you that your neighbors are thinking them.  Psychotherapists tell me that their appointment books are full. Divorce and bankruptcy lawyers tell me that their business is booming. The neighbors that I am writing about may be you. Let’s look at some ways that we can help our neighbors in these difficult times.

First of all, get to know your neighbors.  Several weeks ago, our neighborhood organized a crime awareness meeting. Officers of the Jackson Police Department spoke to us about what we could do to prevent crime in our neighborhood. Those fine officers told us that one of the main reason there are so many residential break-ins and home invasions is that people no longer know their neighbors. We all lead such busy, compartmentalized lives that we don’t take time to really get to know our neighbors. We are not involved in their lives. We no longer take the time to visit on front porches or across backyard fences. We don’t talk with them to shares our troubles and triumphs. Since we no longer really know our neighbors and they don’t know us, we don’t watch out for one another. We don’t keep an eye on their homes and cars. We tend to mind our own business so much that we don’t notice when things are not going well.   In reality, some of the finest and most interesting people that you will ever meet live down the street or around the corner. The problem is that once we get to really know our neighbors, we will start caring about them and they will start caring about us. Sadly, this bumps some of us out of our comfort zones.

Secondly, listen to your neighbors.   Talking is important, but listening is so much more important. We all know how to talk, but listening is a skill that must be acquired.  Loving your neighbor is not about giving advice, solving problems, or taking on their burdens; it is about listening and caring.  We have a tendency to avoid people with troubles.  Anyone who has suffered a serious illness, a death in the family, job loss, bankruptcy, divorce and other marital problems, etc. will tell you that some of their friends disappeared from the scene. Unconsciously, we fear that their misfortune is contagious and will contaminate us. The conscious reason however, is that we feel awkward.  Remember those awful junior high school dances? The boys were on one side of the gym and the girls on the other. Each side stared at the other side, giggling nervously, not knowing how to cross the wide distance and ask for a dance. We simply don’t know what to do or what to say! We know that our neighbor has lost his job, and we are so sorry for him and his family. However, we are afraid to ask “How are you doing?” because we are afraid of the answer. We don’t know what to do with the answer, for in our culture, we expect a clear solution to every problem.  If we ask the question, “ How are you making it?”, we feel responsible for the answer and solution as well.  If our friend answers, “I am scared,” we feel that we must have a solution to offer. Now that scares us, the listeners! We feel that we must do something!  In reality, our hurting neighbors don’t expect us to have the solution at hand. All they want us to do is to listen and to care.

Third,  seek out your neighbors. People that are having financial difficulties are ashamed. They are embarrassed. They think that others will think less of them. This is especially true with men, for in our culture, a man so often feels that the measure of his worth is determined by his financial success or the lack of it.  A man bears a terrible weight if he feels that he cannot adequately provide for his family. If you sense, if you feel, if you hear that your neighbors are having financial hardship, don’t wait. Go to them now in friendship, and offer them fellowship.  You don’t have to take solutions, but it would be nice to take a meal, take them out to dinner, or invite them to dine in your home. Perhaps you can do something anonymously. A gift certificate for a ham will help feed a family for a week or more.  When people in distress know that they are surrounded by people who genuinely care, their burden becomes lighter because it is shared. The time has come in America when we must become serious about sharing each other’s burdens.

Fourth, do business with your neighbor. Shop in local stores. Dine in local, family owned restaurants. To the extent possible, buy goods and services locally. Do what you can to support our local economy.  Keep your eyes and ears open. Your neighbor may have lost his job, but might have skills that you can use. Perhaps you can hire him to help  paint your house or build a deck. Perhaps you can hire his son to mow your yard. If we begin to seriously think of the welfare of our neighbors that surround us, we will ALL benefit.

Fifth, share with your neighbor. To a greater or lesser degree, we all are feeling the pinch of hard economic times. Some are genuinely suffering, while other are only inconvenienced. We can share with our neighbors by giving to them directly, by giving to our churches and synagogues, and by supporting local charitable organizations. The West Tennessee Healthcare Foundation, RIFA, the Salvation Army, and other fine charitable organizations are most worthy of our financial support.

Look around you. If we love our neighbors as ourselves, we will see their sufferings as our own. It is time for Americans to break out of the isolated, comfortable shells we have occupied for so long. The economics of our world has changed. Leadership expert John Maxwell is fond of saying; “Change is inevitable; growth is optional.” If we will consciously seek to grow in concern for and love of our neighbors, we will all benefit, and become better people in the process.

“How To Become Poor and Stay Poor”

“I’ve got all the money I’ll ever need if I die by four o’clock.” ~ Henny Youngman.

 Very few people voluntarily choose  a life of poverty. Most of those who do are monks and nuns who have chosen  religious vocations. While the rest of us don’t plan to be poor, there are some surefire ways to end up poor. Let’s take a look at ways to ensure a life of poverty.

1.      “We don’t need no education…”  Drop out of school, fail to complete a basic education, and the odds are heavily stacked against your chances of achieving success in life. If you are in college, don’t waste your time studying. Go to the clubs every night and have fun. First you’ll lose that free education lottery money, and then you’ll probably flunk out.  However, you or your parents won’t have to pay those tuition bills or buy expensive textbooks anymore.  If you think that education is expensive, try ignorance.

 

2.      Develop an addiction.  This is an excellent way to waste money and ruin your health.  Cocaine, heroin, crack, crystal meth, etc. are quick ways to a life of poverty, crime,  and hell. If you choose to partake of these illegal and dangerous substances, the chances are very high that you will end up in jail. Time spent in prison will drastically reduce your earning power and chances for a decent job. I personally know a bright young man who tried to join the military, knowing that he desperately needed  structure and discipline to turn his life around. Guess what? A prior drug conviction kept him out of every branch of the armed services. Now he works a dead-end job and continues substance abuse. What a way to go.  Chronic alcoholism is an age-old choice that has ruined many careers and relationships. Habitual gambling works very well also. It is true that some drug and alcohol abusers can function and some compulsive gamblers win.  It is also true that the addictions almost always win in the end.

3.      Go to jail.  Nothing will send your job application and resume to the trash can  quicker than a criminal record.  Even if you don’t do “hard time,” convictions for shoplifting, writing bad checks, driving under the influence, etc. will almost certainly cause  the great majority of potential employers to reject you. You simply won’t be seen as trustworthy.

4.      Stay in a low-paying, dead-end job.  A low paying job is fine if you are early in your career and striving for something better. Or perhaps you really love what you do and can afford to work for little money. The sad fact, however, is that too many people hate their jobs and barely earn enough to make ends meet. You may just love working at that trendy store in the mall, but ask yourself if you want to be doing the same thing twenty or thirty years from now? Do you want to spend eight hours a day standing on your feet, then have to go home to cook dinner and deal with the demands of your family? Do you want to work for minimum wage and no benefits when you are the age your parents are now? We live in a country of boundless opportunities. We live in a country where the son of minority immigrants was able to rise to the rank of four star general, become Chairman of the Joint Chiefs of Staff, and complete  his distinguished  career of public service as Secretary of State. How was this possible? It’s called ambition. The choice is yours. Think about it.

5.      Hang out with under-achievers.  If  you wish to be poor,  hang out with drop-outs, lounge lizards, lay-abouts,  bums, substance abusers, and those who waste life’s opportunities. Soon, their habits, ambitions, goals, and outlook on life will be yours.  Your relationships decide your self-concept.   Your success in life will be decided by who you listen to and believe. This in turn determines how you see yourself.  All of our lives, we have heard “You are judged by the company that you keep.”  This is so true. The company you keep determines how others see you and how you see yourself.  If your friends and associates are not trying to better themselves in life, then neither will you.

6.       Go into debt.  Borrowing to buy a home, to finance an education , or to purchase investment property can be wise. Borrowing for consumer goods, meals, entertainment, etc, is NOT wise.  An excellent way to have a life of poverty is to max out your credit cards and keep borrowing more money until your debts  are overwhelming and you are forced into bankruptcy.

7.       Don’t save.  Here are directions  for a trip down the road of poverty:  Spend all you earn. Live above your means.  When you get a bonus or extra money, blow it on having a good time.   Live like there is no tomorrow. 

8.      Ignore your health.  Engage in dangerous activities that put you at risk. Be sure to smoke, as it is proven to cause lung cancer, emphysema and heart disease. We  know that using smokeless tobacco causes oral cancer.  Be sure to bake yourself in the sun, as that may lead to skin cancer. Don’t exercise. Eat a high fat, low fiber diet high in sugar. Don’t forget to abuse drugs and alcohol. Never buckle your seatbelt. Don’t waste time and money on regular medical and dental exams.  The main cause of personal bankruptcy is uncontrollable medical costs. You may have medical insurance, but a major illness or accident can still ruin your finances for life. Let’s say that you are in intensive care for a couple of months and require several surgeries.  You receive the best high tech medical  care  that America has to offer. Your hospital bill is over a million dollars, and your insurance pays 80%. Now you owe over $200,000, and can’t work because of your health.  Most of us know someone who has ended up like this.

Countless people born into poverty, even dire poverty, have overcome it with hard work and wise lifestyle choices. The great Swiss psychiatrist Carl Jung said: “I am not what happened to me. I am what I choose to become.”  Poverty is no laughing matter. It will always be present in the world. It just makes good sense not to pursue a lifestyle that will surely take you there.

Your Money Personality

Who is not familiar with the Bible’s wise observation”…the love of money is the root of all kinds of evil…”? (I Timothy 6:10, NKJV).  We can say with certainty that money---the use of it, the misuse of it, the lack of it, the desire of it, the excess of it, etc. --- is indeed a root or fundamental cause of so many of the troubles experienced by couples and individuals. 

Why does money affect us so? Why do we get so “knotted up” about money?  Money represents our deepest emotional needs: love, security, independence, self-esteem, control, etc.  Money is not just financial currency, it is emotional currency as well. Money is the criteria by which we judge and evaluate ourselves and other. Our attitudes toward and relationships with money were formed during our childhood and adolescence, but they were influenced more by what we saw our parents do than by what we heard them say. This is because talking about money is the great taboo in families. As a result, most of us grew up without being given good examples about how to talk about money, much less how to use it wisely.  We bring this into our marriages and sadly pass it onto our children. Then along comes our culture and society, and bombards us with destructive messages about the use of money. Advertising urges us to spend rather than save,  to acquire “things” for emotional gratification and self-esteem, and to consume like there is no tomorrow. These messages of our advertising culture have directly contributed to our national crisis of overspending, under saving and massive national and personal debt.  As the cartoon character Pogo said: “We have met the enemy and he is us!”

The current financial crisis is on everyone’s lips and in everyone’s mind. Where ever you go, someone will more sooner than later nervously ask “Where do you think the economy is headed?” “What do you think the stock market will do?” “When do you think things will begin to turn around?” These alarming financial times have caused many of us to seriously re-examine our attitudes toward savings, spending, investment, and debt. It has caused us to pause and reconsider our relationship with money.

In order to understand the effect that money has on us,  it will help if we understand our “money personality.” This will help us understand why we handle and mishandle   money as we do. Psychotherapist and money psychologist Olivia Mellan has identified five distinct money types or personalities.

1. HOARDERS.  These folk love to save money. They almost always have budgets and enjoy the process of making a budget. Hoarders tend to have a hard time spending money on themselves and even on loved ones. They are frugal and often view expenses for entertainment and vacations as frivolous. Hoarders find their security in the accumulation of money. Taken to the extreme, Hoarders may become misers, unable to enjoy their money even when they have more than ample amounts for future security.
2. SPENDERS. The very opposite of Hoarders, Spenders get satisfaction from buying themselves goods and services for their immediate pleasure.  They tend to get great satisfaction from buying gifts for others. Spenders have a hard time saving money and tend to hate budgets and find great difficulty in making and sticking to them. They have difficulty establishing and saving for long term goals.  Spenders are usually in debt.
3. BINGERS.  A combination of Hoarder and Spender, Bingers tend to save and save, then blow their money on shopping or spending sprees. During times of abstinence from spending, Bingers seem normal. Bingers tend to be compulsive bargain hunters, and justify their excessive spending on the basis of money saved.
4. MONEY MONKS.  If you believe that money is truly the “root of all evil” or evil itself, then you are a Money Monk. Folk in this category tend to think that money is bad, is dirty, and that if you have too much money, it will corrupt you. Money monks are uncomfortable with inheritances and windfalls.  Many have negative responses to money due to liberal social convictions, and tend to favor socially responsible investing.
5. MONEY AVOIDERS.  These folk feel overwhelmed by money. Dealing with money causes anxiety and making budgets, balancing checkbooks, doing taxes, etc. causes them to feel extremely uncomfortable. They are troubled by investing money and feel incompetent when faced with the details of their money life.   Some Money Avoiders act (or don’t act) out of math anxiety,  and others out of sheer discomfort with money. Many Avoiders’ main problems in dealing with money are due to  simple procrastination.

Most people are a combination of several money types, and do not exemplify only one tendency. Each type has both good qualities and shortcomings.  In order to change your relationship with money, begin by identifying your money type, then determine what changes you need to make in order to have a successful, satisfying, and personally fulfilling relationship with your money. It may be wise to seek the counsel of an experienced CPA or financial planner to help you identify and make these changes.

If you would like to receive a Money Personality Quiz to help you identify your money type, please contact my office at 731.668.5665.

“Threats to Marriage in Hard Times”

“Marriage is more than finding the right person. It is being the right person.” ~ Charles Shedd.

 Money is the leading source of conflict in marriage. Money is connected to our deepest emotional needs for security, power, control, independence, and self-worth. Many of us do not understand this, so when we fight with our spouses about money, we really don’t understand what the battles are about.  While  the present economic downturn has affected us all,  it is stressing many marriages to the breaking point.

 Husbands tend to worry most about losing their jobs. Wives tend to worry most about losing their home and becoming destitute. Both worry about being able to afford good educations for their children and a comfortable retirement. These tensions can result in irritability, anxiety, depression, blaming,  shaming, and anger. The increased stress from financial pressures  very often causes  a couple’s sex life to suffer. When there is tension over money, some couples go to extremes as their anxiety increases. Savers tend to become super-savers, spenders often become super-spenders. These over- reactions push financially stressed-out couples farther apart.

 When an economic downturn  suddenly threatens a marriage, it may be the result of problems that were present all along. When times are good and money is more plentiful, people are more tolerant of each other. If  you don’t like the other person, you can go shopping or buy “big-boy toys.” Being able to spend freely can enable you to ignore or cover-up relationship  issues  and family problems. Some  people spend money to ease emotional pain.  When things go bad economically and money is tight, suddenly people have to TALK to each other. Many financial problems lead to more serious marital problems because there is a fundamental communication problem.

 Much marital tension may arise when couples have different attitudes toward risk taking.  In the late ‘90s, the stock and real estate markets were going up, and the spouse who was a bigger risk taker looked smart as the family’s assets grew. Now, as values are going down, the spouse less inclined to take risks may be pointing the finger of blame, saying, “See, if you had just  listened to me, we wouldn’t be in this shape.” This  certainly  can take a toll on a marriage. Does this sound familiar? It does to many!

 If you feel that your marriage is being threatened or even torn apart by financial pressures, what can you do? What should you do? Here are some modest suggestions:

 

1.       Seek professional help. See a marriage counselor. Most issues of conflict in marriage, especially financial issues, are due to problems in communicating.  If you need a referral to an experienced marriage counselor, contact my office.

2.      Consult a financial advisor or CPA who can help you and your spouse work together on your financial challenges. This can include budgeting,  spending, saving, investing, debt management,  financial conflict resolution,  etc.

3.      Realize that the fees you will pay marriage counselors and  financial advisors will be much less than what you would pay divorce lawyers.

4.      Have regular, respectful money talks with your spouse. Meet with your spouse weekly or monthly to discuss your worries over money, review your options,  brainstorm  about solutions, and work together to develop a plan that reduces both partners’ stress.  If emotions tend to run high, have your meetings in a public place, such as a restaurant.

5.      Do Money Dialogues. This is a powerful exercise where you write down an imaginary dialogue  between yourself and Money. On paper, tell Money about your frustrations with it and how Money makes you feel. Share this with your spouse as you feel comfortable .

6.      Fight for your marriage! Don’t let money and communication problems destroy your marriage. Many of us can remember the days of our marriages when we made a lot less money, had many fewer things, and were much happier with each other. Seek to recapture those feelings. Get to know your spouse again.

7.      Watch what you say. Talk to your children about money and the family’s finances TOGETHER. Don’t seek to cast blame on your spouse.

8.      Let go. Purge your need to control or be in control and watch power struggles in your marriage vanish. Talk to one another. Take the TV out of your bedroom. Make love, not war.

9.      Go places together.  Collect experiences, not possessions.

10.  Wives, understand that money troubles directly affect a man’s self esteem as a provider. Husbands, understand that money troubles directly affect a woman’s sense of security.  Live with each other with understanding.

We live in a country with a fifty per cent divorce rate, and financial pressures caused by the present economic crisis threaten to push this even higher. Don’t be part of this dismal statistic. Remember the words of  pastoral counselor Walter Chantry: “How soon marriage counseling sessions would end if husbands and wives were competing in thoughtful self denial.”

Lending To Family and Friends

“Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry (thrift).” William Shakespeare (Hamlet, Act 1, scene 3).

Somewhere in the back of our minds, we all have  a mental list of the types of contacts that we dread receiving.  First and foremost is the call in the middle of the night, informing us that a loved one is sick, injured, or dead. Next is probably the fear of receiving a letter from the IRS. If you are like me, high on your list is the dread of receiving a request from a friend or relative to borrow money.

Let me introduce to you a new term---“social loans”---- loans between people who know each other. The decline in the  economy has seen a corresponding doubling of social loans in the last 18 months. The reasons are obvious: the economy in general, job losses, and the drying up of credit through traditional means. The need is obviously very real, but the cost of lending to family and friends can be very great, in terms of both money lost and relationships damaged. Readers of my earlier columns will remember that I have pointed out many times that money issues are the chief cause of family conflicts. Let’s look at some concerns that lending to family and friends raise, and then some possible solutions.
While we want to help our family and even close friends through hard times, we naturally wonder what loaning them money will do to our relationships. What if they can’t repay? What if they won ‘t repay? What tensions will it cause in the family? Will we dread going to family reunions? If I lend to my relatives, what will my spouse think? Will she or  he resent it? If I lend to Cousin Gomer, will he pester me for more?  Will the money I loan make a difference in my relative’s life, or is it just “throwing good money after bad?” I know that my sister desperately needs money, but I just can’t afford to help her. Should I bail my grandson out of debt again?

First of all, decide if you can afford to make the loan. Can you afford the risk of losing your money if the borrower either can’t or won’t repay? If you can’t afford the risk, don’t make the loan.  Second, decide if it would be best to make  a loan or make a gift. A loan carries with it expectations of repayment, and if those expectations are unmet, then relationships suffer, and suffer, and suffer…………     Third, if you decide that you can make a loan, treat it like a  business transaction in all respects.  Get a promissory note with a reasonable interest rate. Please note that the IRS imposes restrictions on certain interest free loans, so get professional advice. Get security for the loan. Security can be a mortgage, an assignment of wages,  a vehicle title, or  valuable collateral that you can hold, such as stock certificates, jewelry, etc. Fourth, get a third party advisor, such as your CPA or attorney to close the loan and collect payments. This helps to remove the personal aspect from the transaction. Make it plain to the borrowers that in the event of non-payment, they will be dealing with the advisor and not with you. It is human nature to believe that our family and friends won’t be as tough on us as will a disinterested third party. However, from the lender’s perspective, the more businesslike you can make the lending transaction, the more seriously the borrower will take it.

If the borrower can’t or won’t repay, then all is not lost. You may be able to take an income tax deduction for a bad debt. These losses are treated as short term capital losses. They may be used to offset capital gains, and the excess can be used to offset ordinary income  to a maximum of $3,000 per year. Unused losses may be carried over to future years. In order to get a tax deduction for a bad debt, it is essential that you have the proper documentation. At a minimum, this means a signed promissory note and evidence of your attempts to collect on the debt.

What about co-signing a relative’s or friend’s loan with a bank or other commercial lender?  Bad idea! When I was growing up, my father told me time  and time again to never,  ever co-sign or guarantee someone else’s note unless I had both the ability AND the  intention  to repay the debt in full. If you co-sign  a loan, the chances are very high that you will have to make good on it. This is called being surety for a debt, and we find warnings against this practice going back to ancient times. Having to pay someone else’s loan you co-signed is like showing up at a banquet after the meal is over, and being forced to pay the bill.

Social loans to family and friends often create more problems than they solve. While lost money often can be replaced, broken relationships are so difficult to repair.  Some of the truest words ever written about money and relationships are found in Proverbs 22:7, “…the borrower becomes the lender’s slave.” (NASB). Slavery is the most unequal and undesirable of relationships.

Financial Anxiety

“Be anxious for nothing,…” are familiar words from the New Testament book of Philippians. Although many of us believe that we should indeed live that way, we are asking ourselves how this is possible. How can we help being anxious when everyone’s speech is peppered with words like “financial crisis, economy, bail-out, default,  stimulus, recession,  nationalization, socialism, etc. ?  Wherever we go, people are talking about the economy. In our homes, at work, at church, at the dentist’s office, at the grocery store, it is THE topic of conversation.  Almost everybody is seriously worried. The specific term for this feeling of worry is anxiety. My copy of Chaplin’s Dictionary of Psychology defines anxiety as the “…feeling of mingled dread and apprehension about the future without specific cause for the fear.” Fear is different from anxiety. Fear is something vivid from which to escape. Anxiety is the perception of danger looming but with uncertainty about the nature or direction of the risk.

Anxiety is about ambiguity and uncertainty. We are all wondering: How will this financial mess affect me and my family? Will I lose my job? Will the value of my home and investments recover? Can I afford to retire? How will I pay for my children’s education? Will my taxes go up? What makes us anxious is the great unknown.

Certainly, I am not attempting to minimize the seriousness of our nation’s economic problems, nor am I advocating a “head in the sand” type mentality. What I do suggest is that we refuse to be controlled by financial anxiety. Let’s look at what we can do to deal with these issues. First of all, stop looking for a catastrophe. Many people have a tendency to assume the worse and make bad things catastrophic.   Don’t fall victim to “the sky is falling” type of news. Don’t confuse general economic conditions with your personal situation. Get a clear picture of your personal finances. Assess your financial strengths and weaknesses. Do recognize that television news is repetitive. When we are continually surrounded by negative thinking, our ability to reason and solve problems becomes diminished. This fuels anxiety. Do remember that “bad news sells newspapers, “ and that television commentators, radio talk show hosts, and the print media become popular and thus successful by being sensational and confrontational. Do avoid negative, alarmist people, for they drain you of positive energy. Also, avoid the “all or none” mentality when considering financial matters. Don’t make a bad situation worse. Recognize that a downturn in the economy, even a serious downturn, is not the same as a total collapse.  A recession is not the same as a depression.

Second, approach your personal financial situation logically. When you encounter financial information that makes you feel anxious, ask yourself these questions:
What does this information represent to ME: (1.) a minor inconvenience, (2.) a major inconvenience, or (3.) a genuine catastrophe? In reviewing these things, keep in mind that we often make an error in thinking that just because something is possible, it is also probable.  A wise man once said: “My life has been a series of terrible misfortunes, most of which never happened!”

Third, be proactive! Prepare an action plan for your finances. Remember when we were in school and had fire drills? Consider your action plan as a “financial fire-drill.”  Begin by defining the problem. Next, figure out the desired outcome. Finally, develop action steps to deal with the problem and move toward the desired outcome. At this point, you may wish to get the assistance of an experienced financial advisor. Following the impersonal, generic advice of a radio or television talk show host or reading  popular financial self-help books  are no substitute for sitting down with a concerned counselor or advisor who takes the time to get to know you and your family.

Fourth, if you feel yourself becoming overwhelmed with financial anxiety, practice what I call “worry management.”  Ask yourself these three questions: (1.) What can I control today?  If you can control it, then do it. For example, you decide you can immediately reduce your spending by limiting dining out, stopping recreational shopping, and paying cash instead of using credit cards. (2.) What can I control later on?  For example, you prepare a financial contingency plan to deal with significant financial emergencies. You establish a home equity credit line, determine the requirement for emergency borrowing from your 401(k) plan at work, and get the coin collection you inherited appraised. (3.) What can I never control?  Do not; repeat: DO NOT worry about those things! For example, the great majority of us have absolutely no control about what happens in Washington. Realistically, all we can do is express our opinions to our senators and representatives in Congress, and vote. Instead of worrying about things over which you have no control, spend your time and energy on things that you can influence.

Fifth and finally, focus on positive things. Make detailed lists of the good things you can identify about your financial situation. Realize that having less is not the same as having nothing. This reminds me of a proverb that my mother repeated over and over when I was small:  “I wept because I had no shoes, until I saw a man who had no feet.”

Recognize that just because some people are having trouble does not mean that you will have trouble. Consider keeping a  Gratitude Journal in which you daily write of the positive material and non-material things for which you can give thanks. Count your blessings; they are so much greater than most of us realize!

Financial Scams

Question: In your career as a financial advisor, what is the worst financial scam you have seen?

Answer:    In my 30 plus years as a financial advisor and CPA, there have been many instances when I have had the satisfaction of helping clients avoid the clutches of thieves with cleverly devised plans to separate them from their money.  Unfortunately, by the time a reputable financial advisor is consulted,  it is often too late and the money has been stolen, almost never to be recovered.

Financial scams go by many names and take many forms. We hear of confidence games, Ponzi schemes, pyramid schemes, bogus investments, sweepstakes schemes, identity theft, etc.  Financial scams surely go back to the dawn of time as there have always been unscrupulous people willing to prey on the needy, the naive,  and the unsuspecting. The Bible contains several examples of financial scams, such as in the parable of the dishonest steward in Luke chapter 16.

There are so many varieties of financial scams that discussing them all would require a thick book instead of this blog, so I will comment on one of the most clever and remarkable scams I have uncovered.

Let us assume that you are a respected business owner who wants to expand  your business but needs additional capital to really make it big.  This is well known, and a friend or business acquaintance, mentions that he or she knows someone who knows someone that specializes in “unconventional financing.” Eventually you are put in contact with the “financing specialist” and a meeting is arranged. The person you meet beams with confidence, has a firm handshake and looks you right in the eye. You are impressed with his  experience and resume. The specialist carefully listens to your needs and proposes several different courses of action to help you. You come to trust this person, who seems honest and sincere and often peppers his speech with religious references and Bible verses, and constantly talks about family. Almost reluctantly, the specialist tells you of  a special program he knows about that would be wonderful, IF you can be qualify and IF you are accepted. He promises to look into it for you.

The specialist comes back to you several days or weeks later with a thick folder of legal looking documents. He tells you that there is a “secret program for trading United States Treasury securities.”  You are told that the  federal government only allows a handful of people to participate each year as the rate of return is so high.  You make your money by investing $200,000 in the program. Your investment “rolls over” several times a day, so that you may make as much as $20 MILLION in one year, depending upon the interplay of the interest rate set by the Federal Reserve and foreign currency exchange rates.  No one is allowed to participate for more that one year. You are shown impressive looking charts and  graphs. The specialist tells you that due to government confidentiality requirements, he cannot give you a copy of the material, but you are free to examine it in his presence. He further tells you that if you set up an off-shore foreign corporation to make your investment, then the earnings will not be subject to U.S. taxes.

 The specialist has a “government currency trader” call you, and that person speaks rapidly and makes you feel ignorant and unsophisticated because you do not quickly grasp how the program works. The specialist then has a “retired federal judge” call you to determine your suitability to participate in the “secret program.” By now, you are eager to get started making this huge sum of money. You happily wire the specialist his “modest” $20,000 commission to his off-shore bank account, and arrange with your bank to wire $200,000 to your offshore corporation, which the specialist has  set up.  All  the money transfers, and you wait for your profits to start. And you wait, and wait, and wait………..
WHAM! You have been scammed!  THERE IS NO “SECRET PROGAM” FOR TRADING U.S. TREASURY SECURITIES. Never has been. You are the victim of clever, polished, articulate con men and women who specialize in  swindling educated business and professional people. You had a need for funding.

The con man gained your confidence and made you want to believe
him. Angry and embarrassed, you contact the FBI. The FBI agent assigned to your complaint is sympathetic, but gives almost no encouragement for recovery of your funds. She has heard this sad tale many times before, and knows that the con men have carefully covered their tracks, and your money had disappeared.

The lesson here is simple: If it sounds too good to be true, then it is. ALWAYS consult with a trusted financial advisor, CPA or attorney. ALWAYS! 

ETHICAL WILLS: “Putting Your Values on Paper”

At turning points in our lives, many of us ask ourselves questions of the heart and soul.
       
Have I fulfilled my purpose?
       
What will I be remembered for?
       
What kind of legacy have I passed along to my family and others?

An ancient tradition for passing on personal values, beliefs, blessings, stories,    and advice to relatives and for future generations, an ethical will can mean more to friends and family than any material possession we could bequeath to them.

A legal will (“Last Will and Testament”) should always be prepared by an attorney and bequeaths property. A living will is a document that contains specific instructions about medically related issues. Both legal wills and living wills are legal documents under the law. An ethical will is not  a legal document; however what all three types of documents have in common is the fact that they provide instructions to other as to the intentions of the author. Legal wills bequeath valuables, while ethical wills bequeath values. Ethical will are also called “loving wills” or “personal values wills.” Ethical wills offer a communication link between the generations.

What’s in an ethical will? Why not include your philosophy, affection and values in your estate planning documents?  Every estate plan reflects transfers of personal values, good or bad, to future generations. Values are not permanent. They must  continuously be strengthened, changed, or refined.  Consider leaving a lasting written reminder of the personal values you believe to be most important.  As you think about what you might include in your own ethical will, you need to realize that there will be contributions from your past, present and future. Some of our values and beliefs have been passed on to us from our predecessors. Our own life experiences shape our character and help form a foundation of our values and principles.  Looking into the future, ponder what we might yet become and what we have left to do.


Here are some common themes found in ethical wills:

Common themes from our past:

• Meaningful personal or family stories
• Lessons learned from personal or family experiences
• Regrets

Common themes from the present:

• Personal values and beliefs
• Values and beliefs of the author’s faith community
• Expressions of love and gratitude
• Apologies

      Common themes for the future:

• Blessings, dreams ,and hopes for present and future generations
• Advice and guidance
• Requests
• Funeral plans

Here is a sample format for your ethical will:

ETHICAL WILL OF

(YOUR NAME) 

Dear_________________________________
If I had the choice to give you personal values or worldly goods, I would give personal values.  With personal values, you get worldly goods and much more.  Personal values include faith, loyalty,  honesty, ability, compassion, sportsmanship, and I hope, a sense of humor.

I have fully enjoyed life, being blessed with exceptional family  and friends. During my lifetime, I tried to make a difference. Hopefully, I have had some success in giving to  you and to future  generations the personal values I believe to be important. Perhaps these words will remind you of choices.

I give the following personal values to those who will accept them:
            Religious faith  (explain)
            Loyalty (explain)
            Love (explain)
            Honesty (explain)
            Work ethic (explain)
            Curiosity (explain)
            Compassion (explain)
            Civility (explain)
            Sportsmanship (explain)
            Sense of humor (explain)
            Creativity (explain)
            Patriotism (explain)

   Thrift (explain) 

   Other (explain
 

Date____________________________    Signature_________________________ 

Location________________________
 

Prepare your own Ethical Will now.  Review it and change it regularly. Transfer

the same values while you are alive.  Make sure that selected loved ones and

friends read it now or later. 

Children and Inheritance: How to help make sure you never have a daughter (or son) like Paris Hilton

Most of us are familiar with the sad spectacle of the downward spiraling life of Paris Hilton.  This young woman had the good fortune to be born into one of the richest families in America. To be blunt, she has brought shame to her family and disgrace to herself by flaunting a lifestyle of conspicuous consumption and wild behavior. A few months ago, she received much media attention as she was hauled off to jail, screaming and wailing like a spoiled toddler. While some will no doubt defend Paris’ right to be a free spirit, I take a more old fashioned view. In the Gospel of Luke we read: “For everyone to whom much is given, from him much will be required; and to whom much has been committed, of him they will ask the more.” (13:48). Now let us look at a contrast.

At the beginning of the 20^th century, oil baron John D. Rockefeller was the richest man in America. Instead of leaving generations of spoiled, pampered lay-abouts, he left a legacy of children and grandchildren who were governors, a U.S. Vice President, a U.S. Senator, educators, business executives and philanthropists.

Now, I can hear some of you dear readers saying:” OK, Robert, that’s interesting, but we don’t have any Hiltons and Rockefellers in West Tennessee.” To this I reply: “No, we don’t, but no matter the size of the inheritance,  beneficiaries need to be protected from the same things. They need to be protected from other people and from themselves.”  It has been my experience that most families actually have more in assets than they realize. It is indeed true that we don’t see great industrial fortunes in West Tennessee. However, with 401(k)s, IRAs, life insurance, and real estate, many families have significant assets.  All parents should be concerned with how inheritance will affect the lives of their children. Some children are able to responsibly manage money at  age 18, while others are unable to at age 58. Research has shown that most people who receive significant amounts of money, whether by inheritance or by winning the lottery, do not keep it. Sixty per cent burn through their money by the second generation, and ninety per cent by the third generation.  Surely there is a better way!

Now I don’t know where the Hiltons went wrong in raising Paris, but I do know what Rockefeller did right. He successfully passed on to his descendents the virtues of hard work and civic responsibility.  Several generations of Rockefellers have been useful, productive citizens who not only carefully managed their considerable inherited wealth, but also used it to benefit and improve society as a whole. Long before the term “giving back” became a popular buzz word, the Rockefeller family was doing just that.

Patriarch John D. Rockefeller did at least two things that influenced his family’s attitudes toward the use of money. First, he started a family tradition when his children were very young. He held regular scheduled family meetings to discuss finances with his children. Now, this is one of the hardest things for parents to do.  Most parents find it far easier to talk to their children about sex than about money. We avoid talking about money because such talk so often leads directly to tension. It is so hard for us to talk to others, especially our children, about what money ---earning it, inheriting it, spending it, saving it, gifting it---means to us. Why is this?  Well, we happen to live in a society and culture with money as its center. Not only do we tend to judge others economically, we judge ourselves as well.  When the topic of money is brought up in the family, issues of shame, fear and guilt often appear. For many of us, money has multiple meanings, some obvious and some not so obvious. Money can mean personal security, freedom from want, and the ability to help others. It can also mean greed, revenge, dependence, jealously, favoritism, vulnerability, and deception.  Our attitudes about money shape our values and behavior, and these deep feelings become the blueprint for how we live our lives from a financial perspective. Our beliefs and ideas about money come to us from our families, and while children listen to what their parents say, they place more importance on what they see their parents do. If we are not articulate in communicating financial decisions within our families, issues can lay dormant, waiting to confront us in the future.

Ideally, parents should start the tradition of family meetings when children are as young as five or six, keeping the meetings short and fun. The guiding purpose should be to instill values, not to lecture. Children can learn by way of example how careful management of money is a key to success. Teenagers may think family meetings are weird at first, but will later come to appreciate being included if the parents take it seriously and if everyone’s opinion is given some weight. Grown children will appreciate being part of the family decision making process instead of wondering what they will find when they finally get access to their parents financial matters. Family financial meetings are not just for the wealthy; all families can benefit from honest and open communications about money vales and practices. Before each meeting, prepare a written agenda, and keep notes of the meeting. At the end of a meeting, decide what everyone is supposed to do before the next meeting. Years of such meetings will give parents the confidence that their children will be able to handle money. If you are uncomfortable with the idea of holding family meetings, ask a trusted financial professional, such as your attorney, CPA, or investment advisor to facilitate them.

The second thing that Rockefeller did to protect his heirs from misusing an abundance of money involved the wise use of trusts. He left the majority of his wealth in a series of trusts that insured that it would stay in the family for generations.  Like family meetings, trusts are not just for the wealthy. Trusts are created to protect beneficiaries from creditors, from predators, and from themselves.  Parents who are worried that their children may not use an inheritance wisely may find that trusts offer reassuring alternatives to direct bequests of large sums of money. For example, a trust may include a “spendthrift clause” that keeps the trust assets from being subject to the claims of the beneficiary’s creditors. With such a clause in place, the beneficiary cannot pledge the trust assets for his or her debts, including alimony.  Trust may contain provisions that ensure that children and grandchildren use their inheritance in ways that the grantors of the trust would prefer. For example, trust distributions can be tied to educational expenses, home purchases, medical expenses, or matching retirement account contributions.  Trust provisions can also tie distributions to the beneficiaries’ earnings or community service, to help ensure that they become useful, productive citizens. Trusts can also dole out cash in installments, rather than all at once.  For example, money can be distributed to beneficiaries in thirds, such as one third at 30, the second third at 35, and the balance at 40. Trusts can also offer significant tax advantages, often combined with charitable remainder features.

Critics of trusts say that they are rigid, full of administrative costs, and make heirs feel like their parents or grandparents are trying to control things from the grave. I have personally been involved in the administration of trusts for many years, and assure you that in almost all cases, the benefits of trusts far outweigh any of the downsides. Trust documents can and should be drawn to provide flexibility. So very often the trust provides the beneficiaries with much needed financial management and guidance until they gain the maturity and experience to manage their own funds.

The sad example of Paris Hilton need not be repeated in your family. Begin by taking the appropriate steps to instill the right values about money in your children. Talk to them about money. Help them learn to manage it. Don’t hesitate to use trusts for their financial protection. Your thoughtful actions can help insure that money becomes a blessing to your children instead of a curse.