Redkey Gordon P.C.

California Legislators Pass a Common Sense Law to Help Senior Homeowners

It's the simple things in life and law that make life easier and more rewarding. Despite a reputation for grandiose speeches and hyperbole, the California legislature has passed a new law that is as effective as it is modest. Kudos to the State House!

Written by Assemblyman Mike Gatto (D-Glendale), a new law, AB 139, is unlike most of the over-reaching and bombastic legislation that originates in the State Capital. As reported in The San Diego Times-Union, "State ushers in refreshingly modest law," this new law makes one aspect of estate planning easier for California homeowners.

The measure, which passed unanimously in both the Assembly and the Senate, creates "a new, non-probate method for conveying real property upon death through a revocable transfer upon death deed." It's a simple way for people to transfer their home (or one-to-four-unit investment properties) upon their death – without having to pay for a living trust or having it all sorted out in probate court.

California had provided simple "payable upon death" forms for many valuable items, such as automobiles and stock accounts, but not for real property. Creating a trust has many advantages, but legislators realized that without a trust, the estate would be handled in a potentially lengthy probate process.

The new one-page form requires the parcel number, the name of the owner (grantor), and the people who inherit the property and their relationship to the owner. It must be notarized. And the law contains a clause that deals with potential coercion. That's all.

The primary residence is the biggest asset in many seniors' estates; in fact, for many, the primary residence is their only asset. The new law will help make transferring their property to heirs far easier.

Reference: San Diego Times-Union (January 18, 2016) "State ushers in refreshingly modest law"

Will Your Business Die When You Do?

Some businesses do not outlive their owner's involvement, but many do. What does it take for a business to continue when the founder is no longer at the helm?

If you think of your business as a legacy that you wish to pass on to a family member, a partner or a valued employee, start planning now to create a business succession plan. Don't limit your thinking to a family member taking over for you. There are many different ways that small businesses continue after the owner has passed control of the company, but all require advance planning.

Interestingly, business.com's recent post, "The Show Must Go On: The Importance of Business Succession Planning," explains that there are some key underlying factors that determine whether a business succession plan is necessary. In some instances, it's easiest just to sell the business entirely, but other times there are partners who may want the business to continue operating after the founder is no longer involved. After determining if the business has the potential for long-term viability, an owner should have a succession plan that includes selecting a successor and getting the business appraised.

Selecting a Successor

Sometimes a small business owner will select a family member to assume the leadership role. However, you may not know if that person has the skills or experience to make a go of it and ensure that the business will continue to grow. You can't assume your children will want to continue the family business, and there actually may be other business partners or key employees who are better suited to take over. In any event, it's important to select and train your successors in all phases of the business. Then the business owner needs to be able to step aside and let the successors start to make the transition.

The Valuation of the Business

There are three ways to determine the value of a business. Let's look at each one. In the Asset Approach, the value of a business is determined by examining the stated assets and deducting the liabilities. However, this look focuses mainly on the balance sheet and doesn't consider important elements such as market conditions or good will. The Income Approach analyzes business income, requiring a review of past earnings, projecting future earnings and factoring future cash flow and capitalization to arrive at the present or future value of the business. Finally, the Market Approach, which is basically a comprehensive analysis of comparable companies that have been sold in the same industry, accounts for differences in the size, duration, and market risk of the business. An objective evaluation of present or future value of a business requires the services of a business valuation expert such as a CPA with business valuation credentials.

Creating and implementing a well-thought-out succession plan helps business owners in several ways. If the value of the business is determined, there should be no need for valuation in the event of death, and the price for a partner's share can be agreed upon. Also, a succession plan, along with a comprehensive estate plan, can expedite the settlement of an estate if the owner dies.

To develop a business succession plan suitable for you and your business, you should involve trusted advisors, including a CPA, tax advisor and Robert A. Gordon of Redkey Gordon Law Corp, a trusted estate planning attorney.

Reference: business.com (January 21, 2016) "The Show Must Go On: The Importance of Business Succession Planning"

Will Boomers Refine the Concept of Inheritance?

Did you spend your entire life accumulating wealth just to leave it to the next generation, or do you plan to spend it all and have a good time while you are still living?

The same generation that redefined American culture is making changes to the concept of inheritance as well. A recent article in Forbes, "How Boomer Parents Feel About Leaving Inheritances," looked at two studies concerning inheritances to find that Baby Boomers are of two minds when it comes to leaving inheritances to their children. Some have no intention of leaving anything behind. They don't lack for generosity; they just have a different way to share. Others are planning on leaving assets to their offspring, but are not sure that their heirs will be able to manage an inheritance wisely.

The Hearts & Wallets report, Funding Life After Work: Impact of Parenthood & Wealth Transfer on Retirement Solutions for Baby Boomers, reveals that roughly 40% of those surveyed plan to leave inheritances. About 30% expect to spend all their money, and the other 30% aren't sure. There's one item that the majority of the parents had in common: they're afraid of running out of money. And those who plan to leave inheritances are extremely terrified of running out of money!

Interestingly, ultra-wealthy parents appear to be more apt to give their kids inheritances, according to a US Trust survey of high net worth individuals with at least $3 million in investable assets. Some 57% of the respondents think it's important to leave a financial inheritance to the next generation—which is somewhat less than the 66% of Gen X'ers and 74% of Millennials who felt this way. However, only 27% of the parents surveyed have told their children how much they are likely to inherit. One reason for this is that only 20% strongly agreed that their children will be prepared to handle the wealth they'll receive.

The wealthier boomer parents interviewed were also more apt to leave inheritances than ones with fewer assets.

Many boomer parents who won't leave inheritances aren't stingy with their cash—they're just giving their children and grandchildren money while they're still around to watch them use the cash to fulfill their dreams (and also watch to be sure it's used wisely). Some call this phenomenon "investing in their children while they are growing."

Those who do plan to leave inheritances see this generosity as "the ultimate insurance policy against ever running out of money" and earmark some of their assets for their children. They'll only tap in retirement for the amount they'll have beyond that. Yet these parents are afraid that they may have to tap into their principal one day.

Regardless of your position on inheritances, having an on-going conversation with heirs about your plan will be more instructive than making family members wait until the will is read to find out what you wanted, and why. If these conversations are difficult, consider including Robert A. Gordon of Redkey Gordon Law Corp, a trusted estate planning attorney in the family discussions.

Reference: Forbes (January 21, 2016) "How Boomer Parents Feel About Leaving Inheritances"

Make Your Retirement a Fulfilling and Enjoyable Experience, Not a TV Wasteland

Spending long days in front of the TV is no way to spend one or two decades of retirement. Most people underestimate the huge shift that retirement brings. Plan ahead, get busy and enjoy!

Failing to plan for the enormous changes that retirement brings leads many Americans to find themselves emotionally lost at sea when retirement finally arrives. In "The Biggest Oversight in Most Americans' Retirement Planning," Kiplinger's takes a look at what happens to people when they have failed to do any planning for this next exciting phase of life.

Many folks head into retirement with a sense of excitement and a bit of anxiety—but they haven't given much thought to their actual goals: they haven't spent sufficient time thinking about how best to use their unique skills and abilities in their future. Many folks do very little "avocational" planning when preparing for retirement and plan to just "take it as it comes." But those who put some time and effort into planning prior to the day they stop working will have more meaningful and interesting lives. You can devote your time of service to others, newfound creativity, or even start a new business.

If an individual uses good time management and active planning, retirement—and the freedom that comes with it—can be the best part of your life. But for too many people, retirement is a big disappointment. Loneliness, depression, and alcoholism are common afflictions of retirees.

But that's not you. You have a plan!

You're getting your finances ready for retirement. At the same time, you are going to set some worthwhile goals. Take time each week to determine where you excel, to define your interests, and to consider what types of things you'd like to learn and what experiences will give you the most satisfaction. Then, look for ways to employ those skills and goals. Retirement isn't the end of anything. Quite the contrary, when you plan and prepare, it's really the beginning of new pursuits.

The last thing you want to do is waste these precious days on cat videos or bad television shows! Start planning for your retirement in the same way you would any other phase of your life. What do you love? What makes you feel happy and fulfilled? What are you doing now in your spare time that you want to do more of? If you don't know, start on a journey of self-discovery. Ask people who know you well what they think you might enjoy. Above all, start planning now so that your retirement is fun, fulfilling and enriched with meaning.

Reference: Kiplinger's (October 2015) "The Biggest Oversight in Most Americans' Retirement Planning"

Maybe the Biggest "OOPS!" In Estate Planning

We can't say it often enough: make sure to update your beneficiary designations. Even if you never get divorced or have children, you should still check those designations every few years.

Updating beneficiary designations is usually the simplest part of estate planning, but it's also the most likely part of estate planning to be overlooked. You have beneficiaries on pretty much every account, from 401(k)s to life insurance policies. Do you know who your beneficiaries are?

USA Today says that it's not just because many of us have the majority of our assets tied up in products like these. The article, "Your ex could get rich if you don't update your beneficiaries," explains that it's also because beneficiary designations on a 401(k) or IRA are legally binding and often take precedent over anything in your will. This can lead to some serious unpleasantries if your beneficiary information isn't updated.

Many times a person who has worked at the same company for 20 years has a beneficiary designation that they set up on their first day of work, and they never think about it again. However, their lives are rarely the same fifteen or twenty years down the line. For example, they might be divorced and remarried, or they might have children or grandchildren who weren't even a twinkle in someone's eyes way back then. Leaving an estate to an ex-spouse or disinheriting your own children is not a rare event when people don't update their beneficiary designations.

Even if family circumstances are friendly, when that money passes to someone else, they can't just give it back. The IRS allows gifts of under $14,000 tax-free annually, but anything over that is going to be subject to taxation.

Always remember that the beneficiary designation trumps a will. You can avoid a lot of trouble (and fees!) if you approach beneficiary designations the right way. One trick to avoid taxes as long as possible is to skip a generation with a tax-deferred retirement account like a 401(k) or IRA that you leave to your grandkids instead of your kids. Once you reach age 70½, you'll have to withdraw money from these accounts, but leaving the cash directly to a younger family member allows them to keep it growing tax-free for a few more decades.

Think about your accounts and how you'd want them to be passed on to your family, instead of leaving inheritance up to chance. Part of this is reviewing your beneficiary information regularly.

Many accounts allow you to designate beneficiaries with a simple online form, so you can ensure the orderly transfer of wealth in just a few minutes. Some others may take more time to update, but you'll be glad you did it—and so will your heirs!

Here are some common events triggering a need to update beneficiary designations:

• Marriage or divorce;
• Birth of a child or grandchild;
• Death of a previous beneficiary; and
• When a minor beneficiary comes of legal age to inherit. 

Here are some of the financial products that are most likely to designate a beneficiary:

• CDs, checking accounts or other bank accounts;
• Life insurance;
• Retirement accounts (401(k) or IRA);
• Some stocks, bonds, and mutual funds.
• Pension plans;
• Annuities with a death benefit;
• Corporate profit-sharing plans; and
• 529 college saving plans;

Reference: USA Today (January 14, 2016) "Your ex could get rich if you don't update your beneficiaries"