Coffee heat rising

Personal Finance

Eine Kleine Estate Planning

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Update: Bear in mind that much of what follows applies specifically in the state of Arizona. Each state has its own laws and regulations about the way property is held by more than one person, wills, and how heirs and appointed representatives can access, manage, and dispose of a deceased person’s property. You should check with a lawyer in your state to learn the best ways to pass down real estate and financial assets and how to make your wishes apply when you’re incapacitated.

So, when my lawyer and beloved tax preparer announced that she’s retiring, it crossed my mind that it’s been quite some time since my will was redone. It sets up a trust that expires when my son turns 21…and he’s now almost 35.

This morning I met with a Scottsdale lawyer and learned a number of interesting things. My vast financial holdings, of course, are so…uhm, less than infinite that they’re not very complicated. The main things I learned are these:

1. When a house is held in joint tenancy and one person dies, the other person gets title to the property without having to pay taxes or jump through probate hoops.

For reasons unknown to me, M’hijito and I are tenants-in-common on the downtown house. That entails a little more complication after the demise of one person. I don’t remember why we elected to do that…there may have been a reason. But since that house is going to have to be dealt with sooner than later, I expect the reason is moot.

2. When you own a house free and clear and there’s a single person you’d like to have inherit it, you should designate that person as the beneficiary for the house. Then he or she gets it without paying taxes on it and without hoop-jumping.

3. Same is true with bank accounts. If the heir is designated your beneficiary in the bank or credit union’s records, all the person needs is a death certificate to get access to the funds.

4. And you should also designate a beneficiary to your 401(k), 402(b), IRA, and mutual funds. Similarly, this avoids probate and gives the person immediate access to those funds that aren’t tax-deferred.

5. You now not only need a medical power of attorney to go with your living will, you need a mental health power of attorney. This allows your designee to get mental health care for you should you suffer dementia to the point where you need hospitalization.

6. Of course, you still need a durable power of attorney to permit your designee to pay your bills and otherwise deal with financial matters when you’re incapacitated.

7. If you haven’t updated your medical and durable powers of attorney recently, you need to do so ASAP. Recently the laws were changed so that some specific paragraphs need to be set out and initialed to make these instruments do what they’re intended to do.

8. When you owe on a mortgage, it’s a good idea to have a term life insurance policy that will provide the heir with enough to cover the cost of the mortgage. In M’hijito’s case, it’s de rigueur, since most of my funds are now in tax-deferred instruments, and he would lose about half the money to taxes if he had to withdraw enough from my IRAs to make payments. Besides, I want him to be able to keep the IRA funds until he reaches retirement age, since it’s very unlikely Social Security will be available for him.

She urged me, however, to talk with a real estate lawyer before taking out an insurance policy to cover the upside-down mortgage on the downtown house. Since I won’t be able to work much longer—certainly not at the pace I’m doing now—it  may be in our best interest to consider a strategic default now, not later.

{sigh} Really, I don’t want to have to default. But neither do I want my son to be left holding the bag, which is where he’s going to be after I die, unless the credit union agrees to drop the principal to something near what the house is really worth. Even if he collects enough insurance to pay off the mortgage, all that means is he has to throw $210,000 of insurance money down the toilet. Better that than that he should be shackled to unaffordable payments that are also flowing into the same black hole. But neither option is good: they both amount to financial self-immolation.

Wow. What a world! Ten years ago, if you’d said I would ever seriously think about walking away from a debt, I would have said you were nuts. Now it seems like it’s nuts not to seriously think about it. Who would ever have imagined such a thing would come to pass?

THIS Is a Disaster? More news from the insurance front

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The insurance adjuster came by to see what was what with the air conditioning unit. Nice guy: in from San Antonio to help the local Hartford office cope with the flood of claims erupting from the late hailstorm.

He said the air conditioner was pretty well bashed and thought the company would replace it. That wasn’t surprising. The west-facing side of the thing, a set of tinfoil louvers that have something to do with the way the coils operate, had taken quite a smushing, and, the unit’s maker having gone out of business, the part is no longer being made.

But I was surprised when he said the roof was damaged, and The Hartford probably will pay to replace that—a brand-new roof, we might add.

And then, even more amazingly, he announced that the various dings on the KoolDeck around the pool, many of which appeared about the time of the great hailstorm, also qualify for an underwritten repair job!

So for the cost of the $2,000 deductible, it looks like I’m about to get something like $10,000 to $15,000 worth of work done on the house.

A new heat pump is going to cost about $5,000 or $6,000, not counting the cost of installing it so it doesn’t overlap the skylight. The roof on this house, which I had put on a year or two after I moved in, cost something in excess of $5,000. And heaven only knows what it will cost to repair the KoolDeck…does anything happen for less than two grand?

Now that’s what I call a windfall!

Images:

Large Hailstones in Leipzig. Soon Chun Siong. Public Domain.

Hail clouds often exhibit a characteristic green coloration. National Oceanic and Atmospheric Administration/Department of Commerce. Public Domain.

It Never Rains but It…HAILS?

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Hailstones
Half-melted hailstones

{sigh} I give up worrying about this stuff. What’s the point? Trying to get abreast of the money thing is like trying to exceed the speed of light: it violates a law of physics.

The AC guy was here for the seasonal maintenance visit. He says the recent hailstorm trashed the coils on the aged Goettl HVAC unit on the roof. Goettl went out of the manufacturing business several years ago, and so the parts are no  longer available. Therefore, says he, the unit will have to be replaced.

Cost? About $7,890.

Because the storm is regarded as a “natural disaster,” insurers are covering the damage without raising people’s rates (although you can be sure everyone in the state will see their premiums go up next year as a result of this). All very  nice…except that by way of saving some cash on the already phenomenal homeowner’s insurance premiums, I raised my deductible to $2,000.

This statement the guy gave me shows the $1,500 tax credit the government supposedly will pony up and suggests the power company may or may not rebate $250. Presumably The Hartford will deduct those amounts from whatever they’ll pay toward this thing. So…that hailstorm is going to cost me a minimum of two grand.

And you know it’s not gunna stop there.

The AC guy thinks there’s no roof damage, but The Hartford is sending a claims adjuster over to examine not only the HVAC unit but also the roofing. The deductible, I’m told, will only apply once if I have to also make a claim for the roof.

Meanwhile, no one has looked at the downtown house, which also was hailed mightily upon and also has a high deductible.

So much for any silly ideas I had about catching up financially, having a little breathing space, being able to pay the underwater mortgage’s premiums with my teaching salary. Damn!

I’ll have to dig into the very savings that were going to be used to stock my bank account with enough each month to pay the day-to-day bills. The money from my next three months’ salary will have to go to make that up. And that will not leave enough to cover the cost of next year’s mortgage payments out of the remainder of what I will earn by teaching in 2011.

LOL! Is there any question why my belly hurts and my blood pressure is high?

hail1

The law of physics?

You can’t win.

Scraping by on $110,000?

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Over at Everyday Tips and Thoughts, proprietor Kris expresses some shock at the idea that a family profiled on CNN Money might not be able to live on $110,000. Particularly startling is the way CNN frames the decision the couple contemplates: whether to have the mother drop to half time, at a salary of $32,600, so she can be home with their two children: “Is that enough [along with the father’s $78,000 salary] to support their lifestyle?” Readers are registering their outrage that anyone would think $110,000 is too little to support what surely must be an extravagant and spendthrift way of life.

But…but, I say, but…

It depends on where they live. “Lifestyle” may not mean a dwelling in a McMansion and tooling around town in two Mercedes SUVs. It may simply mean they want to live in a sophisticated city that offers cultural amenities unavailable in cheaper areas. Often in such cities the public schools are inadequate—well, heck…in most American cities the public schools are inadequate. If you care about your kids’ education, you send them to private schools. Tuition at the day school my son attended—in Phoenix, a low-rent town—is now $12,740 for pre-kindergarten and $15,100 for K-8. That’s per kid. Yes, per year.

In a more desirable city, you not only have the breathtaking cost of schooling, you also have the staggering cost of keeping a roof over your head. Recently I looked into returning to San Francisco, my mother’s hometown and a place that I truly wish I could live. A one-bedroom apartment in a development that is universally panned on Yelp is $2,400 a month! God only knows what it would cost to live in a better area. Studios in San Francisco typically run around $1,800 to $2,000 a month.

That’s just for starters, before you pay for the lights, commute to work, buy baby’s shoes, or put food on your table. Imagine what it would cost to raise two children under those circumstances!

Yeah. It’s true: Dad’s salary of $78,000 would provide an adequate lifestyle for a family of four in Phoenix; $110,000 would keep them in comfort. But Phoenix is a hole in the middle of a cultural desert. You can’t put your kids in public school here, and even at a $15,000/year private school, the quality of education is just OK compared to high-ranking private schools in other states. Parents who can’t afford that but are committed to educating their kids well and keeping them physically safe often home-school. You spend your summers trying to stay out of 115-degree heat. Politicians like Governor Jan Brewer and Sheriff Joe Arpaio, who represent the prevailing mentality, are such crass troglodytes that when you get on an airplane and someone asks you where you’re from, you’re embarrassed to admit you live in Arizona—when traveling, many Arizonans tell strangers they come from somewhere else.

Some people prefer to live in more enlightened venues. Unfortunately places like San Francisco, Seattle, Boston, New York, Paris, and London cost a lot of money. In those cities, $110,000 wouldn’t go very far for a family of four.

The fact that Dad is earning 78 grand as an assistant principal and Mom is presently earning $65,200 as a literacy coach (!!) suggests they live in a high-cost-of-living city. He sure wouldn’t earn that in a right-to-work state like Arizona, where education has traditionally been short-changed. here is $65,000. And I kinda doubt anyone ever heard of a literacy coach around here. By “support their lifestyle,” they may mean living modestly in a great city with civilized amenities.

You can live lots cheaper in lesser cities. You’ll make some trade-offs, though… My college freshmen just turned in an assignment for which they were asked to tour the campus library, take notes, and write a narrative describing their experience. Several said they had not been inside a library in many years. These products of our fine school system, all them bright and hard-working young men and women, write like this:

“In the General Collection there are many books to chose from, looking in the PQ through PS one of the most famous authors was Charles Dickens. The title is The Old Curiosity Shop.”

Literacy? What’s that? We got sunshine. We don’t need no steenking books!

How volunteering can help your business

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Little knowing what I was getting into, a while back I agreed to help with the program for the Arizona Bach Festival, a new musical series featuring internationally known classical musicians and the Grammy Award-winning Phoenix Chorale. When I said “help,” I was thinking “editorial help.” But what really happened was that I got volunteered to sell ad space for the program.

Well, of course, I don’t know the first thing about ad sales. But we just made our first sale! w00t!

In theory I’ve been offered a small commission on each sale, but in fact I plan to donate the proceeds back to the festival or to All Saints, whose music director is one of the moving forces behind this event.

Even though I’m just getting started, it’s already easy to see that I’m getting a great deal more benefit from this experience than a 15 to 25 percent commission. In fact, it’s forcing me to go out into the community and meet people—businessmen and women who can use my services and are likely to actually pay for them. How will this help The Copyeditor’s Desk, Inc.?

Let me count the ways:

• Renew and re-establish old business relationships
• Join or rejoin trade groups I’d allowed to languish
• Take time to talk with people whose friendships I’ve neglected
• Remind old friends that I’m still looking for business
• Find new opportunities to market my business as well as theirs

Just about any time you get out of your cave, it’s good for business. A couple of months ago, I volunteered to edit the Arizona Book Publishers Association newsletter. When the group announced on its website that I’ll be taking over with this issue, right off the bat someone e-mailed me asking if we would do editorial work for an offshore fulfillment house.

Business—that is, making money—is about getting to know people. So is volunteering. The two work hand-in-hand.

How Do You Organize Your Budgeting?

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Here’s the question: Is it better to mound up your spending money in one big pile, or does it make more sense to divide it into “piggybanks” dedicated to one purpose or another? Is it an overcomplication to dedicate x or y amount to, say, groceries or eating out? Wouldn’t it be simpler to give yourself a set amount of money to spend for a given period, and not obsess over how it’s spent?

In the envelope system, for example, you convert your month’s income to cash and literally stuff chunks of it into various paper envelopes—this much for groceries, this much for gasoline, this much for entertainment, and the like. When you run out of cash in a given envelope, you quit spending on that category until you get another paycheck.

Many of us do this in a virtual environment. A program like Excel makes it easy. I certainly do: my discretionary budget allocates specific amounts to various categories such as groceries, gasoline, etc.

Click for a larger view

The greyed-out figures are charges and returns that have been posted in the “Left from $500” column.

The nondiscretionary budget does the same, only in a different format because I have little choice over how much will be spent:

In this case, the greyed-out figures represent bills that have yet to arrive. The $130 I’ll have to spend this morning on getting the hated palm trees trimmed will come out of last month’s black ink. Next month there won’t be any residual black ink: power and water probably will exceed the budget. But that’s neither here nor there. The issue is…

Discretionary budget? Nondiscretionary budget? The first contains 11 items. The second contains 10. That’s 21 items I’m tracking in two subbudgets. But in any given month, a specific amount of cash is available for spending—in the summertime it’s $1,745. Does it really matter where the money is spent, as long as no more than $1,745 goes out the door?

Sometimes I think the business of tracking ever penny that’s spent on this or that category is just obsessive. Personally, I worry that if I don’t keep a grip on expenditures, at the end of the month there won’t be enough to buy groceries or pay the utility bills.

But maybe that’s wrong. Maybe it would be simpler (and saner?) to regard the $1,745 as one big pile of dough from which little bread loaves are baked when needed. If instead you planned that all extraordinary expenses—anything other than recurring bills and bare subsistence—would be covered by savings and then stopped worrying about what you spent in any given category, would you be at any more risk of running out of money at the end of the month?

We know that last January J.D. over at Get Rich Slowly stopped tracking his spending altogether. The roof apparently hasn’t fallen in on him, because he’s still posting to his blog (unless he’s posting on his iPhone from debtor’s prison).* He compares the practice of tracking each transaction, which he had long advocated, to training wheels, and suggests that after habits of mindful spending become engrained, it’s no longer necessary to track every single penny.

I’m none too sure about that. In the first place, there  have been a few times when a transaction came into question, and it sure was handy to be able to search a year’s records and find it instantly. And on occasion, various store clerks, managers, and bureaucrats have been mightily surprised when I came forth with a three- or four-month-old receipt. And third, sometimes it’s useful and convenient to be able to see at a glance how much I’ve spent and how much is left.

My thought is nowhere near as daring as JD’s. Rather than quit tracking altogether, I suggest that there may be no real reason to detail budgeting and spending. Maybe just establishing a puddle of money and staying aware of what you’ve spent overall, on everything, compared to the amount available, would suffice.

Is it enough for you simply to know you have $x,xxx this month to spend? Or do you want your budget organized into categories and subcategories?

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* Update: As a matter of fact, more recently J.D. decided the better part of valor is keeping track of every penny, after all.