The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Avoid These Financial Traps -- They May Be Hazardous to Your Wealth

Money. It's hard to get and easy to lose. It doesn't take long for the wealth you've accumulated to disappear if you don't manage your money well or have a plan to protect your assets from sudden calamity.

Snares like the ones mentioned below could easily threaten your financial security. Planning ahead can protect you and your loved ones from getting caught.

Undisciplined Spending

The more you have, the more you spend -- or so the saying goes. But not paying close attention to your cash flow may prevent you from saving enough money for your future. Manage your income by creating a spending plan that includes saving and investing a portion of your pay. Your financial professional can help identify planning strategies that will maximize your savings and minimize your taxes.

High Debt

With the easy availability of credit, it isn't hard to understand how many people rack up high credit card balances and other debt. Short-term debt will become long-term debt if you're paying only the minimum amount toward your balances. If you can't pay off your credit card debt all at once, consider transferring the balances to a card with a lower interest rate.

Unprotected Assets

Your life, your property, and your ability to work should all be protected. Life insurance can provide income for your family if you die. Homeowners and automobile insurance can help protect you if your home or car is damaged or destroyed and provide liability coverage if someone is injured. Disability insurance can protect your income if you're unable to work.

Unmanaged Inheritance

A financial windfall is great, but it also can be dangerous. Without solid advice on managing and investing the money, you could find that your inheritance is gone in a much shorter time than you would have thought possible. Your financial professional can help you come up with a plan for managing your wealth. Setting aside a portion of the money to spend on a trip or other luxury while investing the rest may be one way to reward yourself and still preserve the bulk of your assets.

Neglected Investments

Reviewing your investments to make sure they're performing as you expected -- and making changes in your portfolio if they're not -- is essential. But it's also essential to periodically review your investment strategy. You may find that your tolerance for risk has changed over time. You'll also want to assess the tax implications of any changes you plan to make to help minimize their impact.

Retirement Shortfall

If you're not contributing the maximum amount to your employer's retirement savings plan, you're giving up the benefits of pretax contributions and potential tax-deferred growth. Maximizing your plan contributions can start you on your way to a comfortable retirement -- hopefully with no traps along the route.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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When Protection Matters: Consider a QTIP Trust

Several years ago, Jack's father died. Jack grieved not only for his father's passing, but also for his widowed mother who had been married to Jack's father for 35 years. In due course, Jack's mother remarried. However, when she eventually passed away, Jack suffered a double loss: Jack not only lost his mother, but also most of his inheritance. Just the year before, she had given her second husband a substantial sum to start a new business.

Jack's father could have preserved Jack's inheritance, while at the same time providing for Jack's mother, with a qualified terminable interest property (QTIP) trust.

How It Works

With a QTIP trust, rather than simply leaving your assets to your spouse outright in your will, you specify that all or a portion of your assets should be transferred to the trust upon your death. The trustee you choose is legally responsible for holding and investing the assets as you provide. The QTIP trust pays your spouse a life income. After your spouse dies, your children (or anyone else you choose) will receive the trust principal. With a QTIP trust, your spouse cannot prevent the trustee from transferring the assets to your intended beneficiaries.

Current federal estate-tax law allows an unlimited marital deduction for assets that pass from one spouse to the other. To secure the deduction, assets generally must pass to the surviving spouse directly or through a qualifying trust. Thus, it's important to structure your QTIP trust so that the trust assets qualify for the marital deduction. This will allow your estate to avoid paying taxes on the trust property. The trust assets will be included in your spouse's gross estate for estate-tax purposes. However, your spouse's estate will be entitled to a unified credit that could eliminate some -- or perhaps all -- of the estate tax.

Problem Solver

Many estate planning decisions that are simple for traditional families can prove very complicated in today's age of multiple marriages and "blended families." There are many scenarios in which a QTIP trust can be used to prevent future problems. Consider a remarriage involving children from a former marriage. In this case, a QTIP trust can help control the ultimate disposition of assets. The trust also can be used when professional management of assets is desirable for the surviving spouse. After all, placing assets directly in the hands of a spouse who may lack investment or financial experience can be a costly mistake.

Inheritance Insurance

By setting up a QTIP trust, you make sure that your trust assets will eventually go to the individuals you choose to receive them. The result will be the same even if your spouse remarries, drafts a new will, or experiences investment losses. You'll be able to provide for your spouse and preserve assets for your children or other beneficiaries, regardless of how your family's circumstances may change.

Experience Is Essential

A problem-free QTIP trust requires an experienced professional trustee who can manage the trust for your surviving spouse and children in accordance with your wishes. Your financial advisor can help you secure the services of a qualified professional with experience administering QTIP trusts. Together, they can help to ensure that your assets are well cared for throughout the term of the trust.

This communication is not intended to be legal/estate planning advice and should not be treated as such. Each individual's situation is different. You should contact a qualified legal/estate planning professional to discuss your personal situation.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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I Received an Inheritance. How Is This Money Taxed?

How your inheritance is taxed will depend on your relationship to the deceased and other factors.

 

The amount of federal estate tax typically is determined by the amount of assets within the estate and your relationship to the deceased.

 

Spouses typically may inherit an unlimited amount of assets free of federal estate taxes. Estates bequeathed to non-spouses, in contrast, may be subject to federal estate taxes and state inheritance taxes depending on the level of assets within the estate.

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© 2014 Diversified Asset Management, Inc.

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