I had to laugh the other day, though, when a post requested a referral to a financial planner who “could explain all the options for paying for college that people use.”  This person wanted unbiased advice and essentially the a la carte menu of possibilities. That would be a little like me walking into the paint store and saying, “I just want to see all the colors people use to paint their walls.”  Have you ever seen how many colors there are, how many different shades of the same color, and how many brands of paints?  That’s before you get to oil or acrylic.  Don’t get me started on brushes. And have you ever taken a sample of favorite paint home from the store, put it on the wall and hated it?  This original poster would have been better off with a survey.

Your advisor should advise YOU.

Here are the many ways I’ve seen college get funded:

• Kid decides not to go to college or not to go right away.
• Kid decides to live at home and attend two-year college.
• 529 plans.
• Paying out of income as the child goes to college.  In other words, not using savings at all.  (Heck, in one instance, the family’s annual tuition expense went down when the kid left a private high school and went to a state university and the family bought a new car.)
• Brokerage and investment accounts.
• Grandparents or other family members paid for it.
• Scholarships.
• Work-study programs.
• Loans.  (Remember, you can borrow for education but not retirement)
• Life insurance cash values.
• Investment properties (either selling them or using rental income).
• Inheritances and inheritance advances.

I could go on.  My point is that there is no right way to do this, you need someone who can listen to you, understand your values and know who you are, and help you navigate among the many options with a presentation of the beauties and pitfalls of each. That’s what good advisors do:  they listen well, they have opinions, they articulate them, and help their clients come to their own decisions about their financial lives.  This is why good advice is worth it.  It saves you time, money, anguish and agony.  A strategy for college funding is not always easy to just paint over.  Make sure you get as good of a look as you can at the start.

The decisions are emotional and financial…and not easy

The purpose of long-term care insurance (LTCI) is to provide insurance to pay for your care when you are unable to take care of your basic needs – like eating, toileting, transferring from a bed to chair, etc. – which generally accompanies a debilitating illness that is not life-threatening or at least takes a long time to kill you.  With your basic LTC policy, you pay premiums for life or for 10 years and then receive payments for claims you make to the policy when you need it. If you die without using it, you lose all your premiums. In this way, LTCI is more like your homeowner’s or auto policy.

The first conundrum is that you don’t know whether you’ll ever make a claim on the policy, and these things are getting expensive.  First of all, most people want to believe they’ll be healthy until one night they die in their sleep. No one wants to use the policy benefits.  Once they concede that they might need care, some people believe that this is what their spouse or children are for – to take care of them in old age. Others don’t want to be a burden to their kids, so they want a policy to cover these expenses, which are predicted to be astronomical in the coming decades.  Others want to self-insure, but their kids are worried about losing the family vacation home and want Mom and Dad to have the coverage to the point that the kids will pay for it.  Once you’ve gotten past this decision – to get it or not – now you have to decide what and how much.

The number of insurers remaining in the LTC market continues to decline, so your options are limited. LTCI came on the market and was heralded as this terrific, must-have product, but it has had little history.  There are not many insureds and they’re only starting now to make claims, so there’s little claims history.  What that means is that there is not a lot of statistical data available to create and price the product accurately so that there is enough money available to pay claims. Life insurance is over 200 years old and auto insurance and disability insurance are over 100 years old. Companies selling those products have lots of history and statistics upon which to create and price products. LTCI is about 35 years old at the most – not a lot of history.  As a result, big-name players are getting out (MetLife, John Hancock, Berkshire, etc.).  The questions become: Which company do I use and will it be around?  And if so, is it going to hike the premium on my policy such that I can’t afford it or have to cut back on coverage in the years to come?  As a consumer, it’s hard to tell if what you’re paying for you’re actually going to get. That’s a hard sell.

Then, to make it even more complicated, there are “hybrid” products that are actually life insurance products that provide a LTC benefit rider. If you need to access the death benefit to provide long-term care, you can.  If you don’t use that rider and die, the death benefit pays out to your beneficiary.  This all sounds great until you look at the premiums. Because the over premiums you’ll pay will be bigger, ideally you want the premiums and corresponding death benefit to serve multiple purposes if you can (like estate tax planning or funding a trust). That has its own complications because if you do use the LTC rider and leave little death benefit, that secondary purpose may be thwarted.

The good news, I guess, if there is any is that business owners can get LTCI and get the premiums as a deductible expense. Be sure to ask your accountant about this. It’ll be the easiest question of the bunch.

How to make the most of family bonding time

When I’m working with clients, I will often ask questions like these:

• Do you think you will inherit money from your parents or extended family?

• Do you believe you will have to support your parents or other family members financially now or in the future?

• Do you think your parents would be willing to contribute toward college education?

• How is the health of your parents? Are they taking any medications?

I would guess that somewhere around 80% of the time, I get blank stares or guesses as a response to these questions.  What that tells me is that aging parents are not sharing with their adult children the status of their financial lives.  This probably started generations ago and was passed down when the adult children were young and parents didn’t want to share financial information with young children who might share that information with friends and neighbors.  The habit stuck.  Now the information is not shared for any number of reasons—privacy, embarrassment, unequal inheritance allocations, etc.

This is bad news for everyone.  It’s bad news for aging parents who need to assign the task of Power of Attorney to someone, who want to maintain family harmony, who may need financial or other support in the future as they age.  And it’s bad news for adult children raising their own children, probably instituting the generations-old habit into the next generation, and are clueless about what their parents might need or what they might be able to anticipate inheriting in the future (or not!)

Take time during your family vacations to talk, bond and laugh.  You do not need to talk finances.  But you do need to start building the relationship and trust with your family members so that when there is an opening to talk about serious financial issues, the bridge is there to make that conversation happen easily, timely, and when everyone has their faculties.  The last thing you want to do is have this conversation when someone is medically, physically, or psychologically impaired by illness or old age.

Get the conversation going.  Start with the weather.

It’s a great act of love for your family

I understand first-hand the importance of getting these documents done.  My mom died when I was 21, and my sister and I were the beneficiaries of her estate (for which I am deeply grateful) but were also the beneficiaries (victims?) of some pretty poor choices in her estate plan because she got lousy advice.  My grandfather died and made me the executor of his estate, but then I watched my aunt usurp that planning because a trust was not put into place.  My cousin died and made me his sole heir and I had to probate his estate in Georgia.  Then, a very close personal friend of mine dropped dead of a heart attack at 43, and he was 10 days away from signing his trust documentation.  Took me three years to probate that estate.  As you can see, I come from a long line of dead people.  Let me tell you:  No matter how much you think your family loves you and loves each other, there is no worse combination than death, family and money.  I’ve seen very few exceptions. Death has an uncanny ability to bring out the worst in everyone.

The best thing you can do for your loved ones is get your estate planning done.  It will save them the headache and heartache of wondering what it is your wishes would have been for you when you died, not only what to do with your corpse but what to do with your kids, your pets, and your assets.   It will save them a ton of money and pain of the probate court system.  We live in a very wealthy part of the world where it will be easy to accumulate $1 million or more over 30 years.  You need to have your estate planning in order.  Yes, the laws are in flux right now. But that does not excuse you from making sure that you’ve done your estate planning.  Hire a good lawyer.  Pay the fee.  Get it done right.  Get your assets titled into your living trust.  Do it today.

As a member of the Estate Planning Team, I can work with clients to implement a tax strategy called the Deferred Sales Trust, which just got its private letter ruling from the IRS this summer.  This strategy allows owners of highly appreciated assets—real property, businesses, private stock—to sell those assets and defer the capital gains taxed owed. Those clients can then earn money on the money they owe the government and can come out ahead financially with proper planning.  Even in a down economy.

How the DST works

The process starts with a property owner transferring ownership of the property to a dedicated trust, which promises to pay the client with an “installment sales contract.”  The trust then sells the property, stock or other capital asset to the buyer. The contract promises payments to the owner or their trust and those payments can be structured to continue to future generations with additional estate planning.  The tax code does not require payment of the capital gains tax until the seller starts receiving installment payments.  The DST is not unlike a no-risk “seller carry-back” financing structure.

The Deferred Sales Trust has the ability to generate substantially more money over the long run than a direct and taxed sale. It is also superior to a direct installment sale as the concerns of a defaulting buyer are eliminated.  Check it out:  www.mydstplan.com/jlanning