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Candice_Taylor

Estate Planning 101 : Understanding Trusts

 
By Candice Taylor in Personal Finance
November 19th, 2011

The most common method for passing assets or property to loved ones after death is by last will and testament but trusts can provide greater control over your last wishes.

estate planning trustsMost people don’t like to talk about it but estate planning is a necessary task for anyone with assets wishing to ensure they are distributed fairly to beneficiaries such as a spouse, significant other, children or grandchildren.

While the most common form of estate planning involves creation of a last will and testament, creating a trust can offer a greater deal of control over how and when assets are distributed to beneficiaries.

What is a Trust?

A trust is a legally binding relationship by which property is held by one party for the benefit of another. A trust is created by a settlor who places his/her property in the care of a trustee who then legally controls that property for the beneficiaries. While any sort of property may be held in trust, growth assets such as real estate or investments are more commonly placed into trust. A trust can be created during the settlor’s life through a trust instrument or after the settlor’s death through a will.

A trust is solely governed by the terms and conditions under which it was created. The terms of the trust are recorded in a trust instrument or deed with the trustee retaining legal title to the trust property. The beneficiaries have equitable title to the trust property which provides a separation of control and ownership of the property.

While there are many different type of trust for varying purposes, the two most commonly used in estate planning are revocable trusts and irrevocable trusts.

What is a Revocable Trust?

A revocable trust is a trust which may be legally altered, amended or revoked by the settlor at any time. Provided the settlor is not mentally incapacitated, the trust instrument may be freely changed to suit the settlors interest. These days, revocable trusts are becoming very common as a replacement for a traditional will to minimize administrative costs associated with probate and to provide a centralized system for administration of the settlor’s final affairs after death.

What is a Irrevocable Trust?

An irrevocable trust is a trust, which cannot be altered, amended, or revoked by the settlor or any other party until the terms or purposes of the trust have been legally completed. Irrevocable trusts are commonly used by a settlor who has a large estate where it can be mutually beneficial to avoid estate taxes and other legal and financial liabilities. It is not a recommended option, unless absolutely certain because the settlor will not have a chance to change their decision once it is made.

There are many legitimate reasons for creating a trust but the most common reasons are for privacy and to prevent beneficiaries from spending their inheritance foolishly. Another reason for creating a trust is asset protection where a person can distance themselves from assets with the intention that future creditors will not be able to access assets, even though they may be able to force bankruptcy.

A traditional will also has the potential to create family disputes after your death by any family member who chooses to challenge your last wishes. By using a trust, you can protect your last wishes and specifically disinherit anyone who posts a challenge to your intended beneficiaries.





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Martin_Harris

Do You Need Senior Term Life Insurance?

 
By Martin Harris in Personal Finance
June 24th, 2011

As the population ages and the economy is in a downward spiral, it becomes important for spouses, parents and grandparents to protect their loved ones financially.

senior lifePeople today are living much longer lives than they had just a few generations ago. In many cases, this can mean that your beneficiaries, especially a spouse, will probably live for many years after your death but what will their quality of life be?

As a responsible provider, spouse, parent or grandparent, you should want to make certain that you have adequate life insurance coverage for your beneficiaries that will provide enough coverage for the duration of their lives or for however long it may take them to adjust financially to life without you being around to rely on for financial assistance.

For many older Americans, a senior term life insurance policy can be a perfect method to supplement the financial assistance you leave behind for your beneficiaries. Regardless of if you already have a whole life insurance policy or a nest egg set aside to cover this purpose, a senior term life insurance policy can assure your beneficiaries will have additional coverage to make ends meet.

If you are a senior who already has a life insurance policy, chances are you purchased that life insurance policy many years ago while you were working. The amount of life insurance coverage you purchased at that time may have seemed sufficient during that time period but the cost of living increases over the years have practically whittled away at the base of your commitment.

In many cases, the amount of life insurance coverage that was purchased in the past may not be adequate coverage for your beneficiaries today or into the future. As the cost of living continues to rise for most people around the world, you should remember to keep an eye on the amount of life insurance coverage you have set aside for your loved ones.

Numerous expenses may need to be dealt with after you are gone including funeral expenses, medical expenses, financial settlements, estate settlements and much more that is normally overlooked when we are in good health. Your beneficiaries will need to pay foremost of these expenses and the costs can add up more quickly than one can imagine.

With the average funeral costing in excess $10,000 today and just as the cost of living continues to increase, so might the costs associated with internment. Having an additional senior term life insurance policy could help your beneficiaries deal with these expenses without the additional stress of worrying about financial issues.

So, if you are a senior who already has a life insurance policy, or savings account set aside to financially compensate your family members, take another look at the amount of coverage you have and evaluate your situation because it may be the wisest decision you ever make.





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Martin_Harris

How to Create a Simple Household Budget

 
By Martin Harris in Personal Finance
March 22nd, 2011

Creating a budget for your household is easy to do and it may be one of the most important aspects of managing your personal finances.

There’s no doubt about it - a budget is one of the easiest yet most effective ways to gain control over your household finances and live a life free of financial worries. While many families are serious about or in dire need of budgeting, sometimes the concept of how a budget is drawn and followed is a concept that requires a little bit of help.

Here are a few simple steps for planning a budget for yourself or your family:

1.) Collect all of your necessary financial information. This will include all credit card statements, bank statements and receipts for purchases. Anything that documents your expenses over the last three months should to be collected if possible. What will you do with this information? You will to use it to categorize your household and personal expenses. This way you will know at a glance how much you spend on your home, your car, your food, healthcare, entertainment and so on. At this point you are not tracking your expenses, you’re simply deriving expense categories for your budget. If it makes it simpler, begin by drafting the categories you think the majority of your expenses will fall into.

2.) Next, you will need to gather your income statements or profit and loss sheets to determine how much money you really have to budget with. You can use either your net or gross income as your determining number, either way, just be consistent. Also, if you choose to use your gross income, make sure to account for your taxes on your list of expenses.

3.) With the same documents used to create your budget expense categories, now examine how much you might spend per month for each category. It is recommended that you write this number down. It may be an eye-opening exercise, but it will also help you predict how much you will spend in the future. You want your budget to be a realistic reflection of your spending habits, not a financial diet.

4.) You will need a method of analyzing your budget. This could be a simple spreadsheet where your columns are a list of your categories, your weekly or monthly available spending amount, how much you actually spend and the difference between the two numbers. Your rows will be the income and expense categories you’ve already established.

5.) Create a budget, keeping in mind that you will want a budget category devoted to savings goals too. Once your budget is created, spend a month or two following it. Keep your budget close at hand so you can track your finances closely. Assess your spending on a weekly or monthly basis. Re-evaluate your budget if you need to. Your budget is not set in stone and some of your expenses are variable, meaning you control how much you spend on them. For example, entertainment is variable and your mortgage is fixed.

A budget is nothing more than a spending plan. It isn’t a financial diet. It is a tool to control your money and be knowledgeable and smart about where it goes. It’s your money after all, and isn’t it great to have the upper hand?





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