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Beat Estate Tax Forever

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Handling a Large Inheritance Can Be More Difficult than It May Seem

As they plan their estates, many people consider themselves fortunate if they are able to leave substantial inheritances to their children — and the children will be grateful to receive it. However, large inheritances bring certain responsibilities that can be overwhelming to some heirs, especially because they arrive during a grieving process.

Those who inherit a large sum and have not previously handled such amounts may be unsure of how to manage the money. The details can easily become overwhelming. Many heirs make the mistake of promising gifts or loans to friends and family before they sort out their own financial plans. Others make substantial investments too quickly, without analyzing the positive and negative aspects of different investment strategies. Still others make significant purchases; this is something we refer to as "The Lamborghini Effect."

New heirs must remember to slow down. Before making any investments or promises with new wealth, it is wise to consult with a financial adviser and to begin to learn about money management. Keep in mind that it can take years to adapt to new responsibilities and make long-term decisions about one's investments. Most importantly, protective estate planning documents must be put in place to ensure ongoing management and capture protections.

As solid decisions about investments are made with the help of a financial adviser, an estate planning attorney go further and assist an heir with plans to provide for his or her own legacy.

This topic — the impact of inherited wealth — is discussed in the second edition of Michael Gilfix's book:  Beat Estate Tax Forever (2014).  The book is available from the offices of Gilfix and La Poll.

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Next seminar?


I am interested in attending the next POM seminar. When is it and who is speaking?


The next POM Seminar will be held at the Bay Café on Thursday, January 16th.  Mr. Gilfix will be holding a discussion regarding his new book, Beat Estate Tax Forever: Planning for Future Generations. Wine and cheese will be served.  Please RSVP as this seminar is filling up fast!

How to Reduce Expenses After Retirement

A retirement savings plan and an estate plan go hand in hand. Proper planning can allow you to enjoy retirement in comfort and to leave an inheritance to children and grandchildren. However, in order for a retirement plan to be effective after you stop working full time, it is often necessary to make adjustments in accordance with changes in income. Here are a few ways to reduce expenses while still living comfortably in retirement.

First, consider dispensing with a second car or luxury car. You and your spouse may not need two cars outside the workforce. Dispensing with a luxury car may also mean that you can forego comprehensive insurance coverage, adding to your savings. You may also wish to review your life insurance and disability insurance needs. Depending on individual circumstances, these may no longer be necessary after retirement. You may also wish to reassess your home. A larger home that was ideal for raising children may be more spacious and more expensive than necessary during retirement. These savings can make more resources available to you for travel and leisure activities.

To enjoy a comfortable retirement and still leave enough to provide for your heirs, it is important to acknowledge that retirement will mean a change in lifestyle. Make the appropriate adjustments to reduce your expenses after retirement.

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Damage Done by Explosive Growth in ADHD Diagnoses

A New York Times article by Alan Schwarz (December 15, 2013) explores the dramatic growth in diagnoses of Attention Deficit Hyperactivity Disorder (ADHD). His timely and revealing article explains the role the pharmaceutical industry has played in this phenomenon over the last twenty years. The pharma industry has been successful.

In 2002, there were well under $2 billion in the sales of prescription stimulants. In 2012, such sales approached $8.5 billion.

The Centers for Disease Control and Prevention reports that 15% of high school students now have this diagnosis and that the number of children on such medications has increased from 600,000 in 1990 to 3.5 million currently.

What is perhaps most striking is the loosened definition of ADHD. A child may be diagnosed if, for example, she “makes careless mistakes” or “often has difficulty waiting his or her turn.”

This means that there is a similarly striking increase in the number of children who are diagnosed with this disability and have a right to an Individualized Educational Plan (IEP).

The cost to school districts is enormous. They must pay for aides, special services, and sometimes private tuition in a specialized school if the mainstream educational system is not able to handle a severely disabled child. As a result, there are fewer resources for those who are most severely disabled.

If given a choice, every parent would choose a course of action that will allow a child to perform brilliantly.

One doctor who has published prolifically on this point, told Reuters Health: “If a child is brilliant but is doing just okay in school, that child may need treatment, which would result in their performing brilliantly at school.” The New York Times article quotes Dr. Joseph Biederman, a “prominent child psychiatrist at Harvard University in Massachusetts General Hospital.” Dr. Biederman’s research has been substantially funded by the pharmaceutical industry.

Today one in seven children is diagnosed with ADHD by the age of 18. Because the medical literature and pharmaceutical information indicates that one never graduates from this condition, it is a life long diagnosis.

The article points out that the drug industry is now targeting adults.

In 2012, the article points out that almost sixteen million prescriptions for ADHD medication were written for individuals between ages 20 and 39. This is triple the amount from just five years before.

Impact on Public Benefits, Social Services

The excellent and very lengthy New York Times article did not identify or explore the impact on our public benefits and social services systems. With an explosive growth in diagnoses, there has not been a comparable growth in funding for needed support services. The impact on income programs – SSDI and SSI – has not been explored. Yet, the impact is profound. Millions of adults are now receiving or seeking “disability” status so that they can receive government income benefits and Medicaid and/or Medicare as their health insurance programs. This places enormous fiscal strains on such income and health programs. Again, those who are severely and, some would say, legitimately disabled are now sharing limited resources with a dramatically expanded pool of public benefits recipients. The bottom line is that they receive fewer services and, inevitably, lower quality services.

To understand how loose, all inclusive, and arguably inappropriate this is, look at the New York Times article and take the online test that asks “whether you could have ADHD, too.” They reprint a web page of drug marketer Shire and its quiz that, in effect, encourages adults to believe they have or might have ADHD. The New York Times conducted a poll of 1,106 Americans. Almost half had a result of “ADHD possible” or “ADHD may be likely.”

The quiz asks, for example, “How often to you fidget or squirm your hands or feet while you have to sit down for a long time?” It asks, “When you have a task that requires a lot of thought, how often do avoid or delay getting started?” The other four questions identify behaviors that, arguably, the vast majority of us have on a daily basis.

I took the test. I scored 14, which means “ADHD may be likely.” I wonder what would have happened if, when I was in high school, I was given this test. Would I have been medicated? Would I have been as successful?

There is no doubt that millions of Americans have conditions that can be helpfully addressed by sport, counseling, and sometimes pharmaceutical assistance. The inescapable conclusion of the article – a conclusion reinforced by my experience – is that the pharmaceutical industry has been far too successful in generating millions of additional ADHD diagnoses. All of us are harmed as a result.

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529 College Savings Plans Can Be Incorporated Into Estate Plans

The college savings plans known as “529 plans” are an excellent way to save money for your child's college education. Although contributions to the plans do not receive any federal tax breaks, the money withdrawn is not taxed, so any income earned within the plan is free from federal taxes and California state taxes. California's version of a 529 plan is known as the ScholarShare program.

Contributions to the ScholarShare program may decrease the taxable value of one's estate. They may also qualify for a yearly federal gift tax exclusion of $14,000 per donor, or $28,000 for married couples, per beneficiary. If contributions in a single year rise above that limit, then the account owner may treat up to $70,000 (or $140,000 for married couples) as having been made over the course of five years for the purposes of the gift tax exclusion.

It is also possible to change the beneficiary of a plan to the next generation by moving up to $14,000 per year to a new beneficiary. Such a move will not reduce your lifetime gift and estate tax exclusion.

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