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As a financial planner, I am accustomed to helping clients make decisions on a large scale. In my profession, we often tend to look at the big picture.

Legacy planning, for example, deals with some significant issues such as options for distributing your estate. Do you leave money to children, other family members, or charities? What are appropriate amounts? What is the best way to leave that money?

Many of my older clients are focusing on this type of planning and on finding answers to such big, life-changing questions. One of these issues is how to decide when you or your parents are ready for assisted living. That is such a major question that we have made it the topic of our upcoming quarterly workshop on May 31. (For more information or to register for that class, to be held Wednesday, May 31, at 9:30 am MDT, click here.)

As one of my clients reminded me recently, however, there is another side to legacy planning. It may involve smaller decisions and lesser monetary amounts, but it is not necessarily less important. This is the issue of what to do with treasured personal items and family heirlooms. Disputes over these things can cause deep and painful family rifts.

It’s tempting to address this issue the old-fashioned way—by ignoring it. That may be fine for today, but it isn’t going to be any help at all years down the road when children are trying to sort out your stuff and decide who gets what.

Here are some alternative approaches, gleaned from several of my clients:

1. Perhaps the most common suggestion was to give things away while you are still capable of making the decisions about them. One woman, for the past several years, has given some of her collectibles, dishes, and other small treasures as Christmas gifts to her children and grandchildren. The recipients are thrilled with the gifts, in large part because Grandma is there to tell them the history of the various pieces.

2. Another approach is to include with your will a list of specific items that you want to go to various people. If you do this, it’s important to keep the list up to date. It’s also good to write down what you know about the history of each item.

3. Stop and think about how to define "family heirloom." That term isn’t necessarily limited to things that are worth money or that are very old. Great-Great Grandmother’s fine crystal would certainly qualify, but so might the mounted antlers of the five-point buck you shot, the ugly but interesting mirror you have by the back door, or your report cards from elementary school.

4. Ask family members what they would like to have after you are gone. You might want to employ this technique carefully, however. One of my clients recently offered his stepdaughter her choice of the items he had brought back from his travels. She chose a beautiful Middle Eastern carpet, and he said she could have it. The only problem was that he had previously promised that same carpet to his daughter. When he realized his mistake, he had to do some quick and uncomfortable tap-dancing—backwards.

5. Don’t limit your thinking to family members. If no one in the family wants old photos, documents, or other things that might have historical value, consider donating them to a museum. Local museums and state archives might be delighted to receive things that your kids or grandkids would regard as junk. If in doubt, ask before you toss.

Regardless of their economic value, your family heirlooms may hold meaningful memories for those who care about you. Don’t ignore them; they might be a priceless part of your legacy.

Do you crave a compelling and meaningful life? Do you want something extraordinary out of life? The new "Fully Alive" workshop with Laura Longville can help you find what you seek.

This three-day workshop will be held in the beautiful Black Hills of South Dakota on June 23-25. Its purpose is to help you discover and connect your life to a purpose and vision—the key to living with your heart fully alive.

It’s no surprise that many people long for more out of life. If you are tired of surviving, running on autopilot, and feeling empty, you may be ready and willing to do something different. This specialized program will help you create a vision for yourself that will invoke passion, tenacity and direction. The workshop is designed to get you away from your daily routine and stressors and allow you to focus on creating a life of fulfillment and success.

For more information about the Fully Alive Workshop on June 23-25, click here. Mention you heard about the workshop in the Financial Awakenings blog and you’ll save $300.

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As long-time readers know, over the years I have had a love/hate relationship with cats. Maybe a better term would be a like/hate relationship. Okay, maybe it’s a barely tolerate/hate relationship.

An article on the front page of the daily newspaper this week kicked that relationship up to a whole new level. The article featured a picture of a half-grown mountain lion in a tree. That’s not so unusual. We have mountain lions in the Black Hills, and pictures of them aren’t exactly rare.

The reason this cat made the front page was its location—in the back yard of a home that’s just a valley and a ridgeline away from my house. This kitten, plus its mother and a sibling, had apparently moved into town. You have to admit that they have good taste; they relocated to Carriage Hills, one of Rapid City’s most expensive neighborhoods.

It’s exactly their good taste, or their taste for what’s good, that bothers me. I don’t appreciate living in the vicinity of carnivorous cats who are big enough to swallow either of my kids in one gulp. One of the reasons we moved to this neighborhood a couple of years ago was so my wife and kids could be closer to nature. That was fine as long as "nature" meant wild turkeys, bunnies, and deer. Mountain lions are something else again.

My first instinct as a parent is to either lock the kids in the house from now on or start making plans to move back into the middle of town where nature isn’t quite so natural. On second thought, I realize neither of those would be a practical solution.

Instead, I need to see this danger realistically. My kids aren’t out exploring the neighborhood ravines at night, so their chances of encountering a mountain lion are remote at best. The current family of urban lions are being tracked and removed, so they won’t be a risk for long. We don’t put out feed for the deer or turkeys, so we aren’t making our yard into a tempting mountain lion buffet. We’re probably more at risk of being attacked by a mountain lion than of being hit by a meteor, but it’s still a risk too slight to lose sleep over.

My first reaction to this lion story, though, reminds me that we tend to become quite fearful of risks that are dramatically bought to our attention, even if those risks are not at all realistic. This is true when it comes to investing as well as other aspects of our lives.

In investing, as well as in exploring forests where mountain lions might live, it’s foolish to engage in risky behavior. It’s just as foolish to become obsessive about protecting yourself from dangers that are extremely unlikely to come to pass.

Among the scary investing stories that make headlines are plunges in the stock market and CEOs who bring companies to ruin and take employee pension plans with them. Those are genuine risks, but risks that are highly unlikely to affect diversified investors.

The real risks when it comes to investing are less exciting. One of the biggest investing risks is to try to get rich in a hurry by trading in individual stocks. Another is to keep your money in superficially safe investments such as CDs, which actually lose purchasing power because of inflation.

Perhaps the biggest risk in investing, however, is one we don’t think of as a risk at all. That is being either so fearful or such a procrastinator that you don’t invest your money at all. Now that is a risk worth losing some sleep over.

Join me for a discussion of our natural resource asset class this Thursday at 4 pm, MST.  I will be discussion the commodity funds that we currently use, the closing of the Oppenhiemer Real Asset Fund, and comparing the returns from natural resource stocks with commodity funds.  You will need to register at our website, by clicking here and we will email you the handouts and the telephone number to call on Wednesday.

Our next Legacy Workshop will be one that is sure to be eye opening and highly useful.  We will be helping clients establish a baseline that will serve as a measure to know when they, or a parent, are ready for assisted living.

This is an area that I’ve never seen addressed in the financial planning process.  Recently, Ben Coombs, CFP®, one of the first Certified Financial Planner’s in the nation, addressed this difficult topic.  Ben is in his 70′s and facing his transition into old age.  He recently started addressing this topic with his clients and has written a very helpful outline on how to establish a baseline.   We will be using Ben’s work as we assist workshop participants in establishing their own plan.

As I was developing the workshop, I struggled to get enough time to fully address each of the 8 major points in the plan.  Finally, I decided to break the workshop into two parts.  Part I will be given in the second quarter of 2006 and Part II in the third quarter. 

I am letting you know well ahead of time about this important workshop, because we are going to do something a little different.  Since this topic is so important and involves both parents and children, we will allow clients to invite children or parents to accompany them or join us via our webinar.  Make plans today to bring your family to this workshop. 

Mark your calendars for May 31st at 9:30 am MST and go to our website (click here) to register.  Lunch will be served with a presentation after lunch by Paul Thorstenson, CPA, on the latest tax information seniors need to know.

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Is your financial planner’s job to help you do what you want to do—or to talk you out of it?  The short answer to that question is, “Yes.” Or possibly, “It depends.”

As I’ve written before, probably often enough so people are tired of reading it, if you consult a fee-only financial planner you are a client rather than a customer. The planner’s loyalty and fiduciary responsibility is to you rather than to a company selling investments, and the planner’s job is to act in your best interest.

There are two aspects to that responsibility. One is to find ways to help you do what you want to do. The second is to steer you away from actions that would jeopardize your financial success or security. In doing both of those, however, a wise planner will be careful not to let his or her own biases and beliefs get in the way of your goals.

Suppose you and your spouse came to me with your long-held dream of living on a piece of land out in the country. You want the privacy, the views, the chance to have horses, and the peace and quiet. You realize that buying some land and building your dream house on it will be a major project. You’ve decided you can do it if you use half of the money you have saved for retirement. That will pay for about half the cost of the property and building, which means you can comfortably afford a mortgage on the rest. You also figure that the value of the property will increase enough over the years to make it an asset rather than a liability by the time you retire.

Personally, I’d like living in the country about as much as I’d like eating cheap frozen dinners every day. I’d hate the commuting, the need to plow my own driveway, and the chances of being snowed in for days with no electricity. I like to see horses at the rodeo, but I have no desire whatsoever to own one. For me, a place in the country would be a nightmare rather than a dream.

As your financial planner, though, I’d better keep those prejudices out of your affairs. Certainly, it would be my job to make sure you looked at this plan carefully before you leaped into it. I would have an obligation to give you my educated opinion about whether the property would actually increase in value or whether you were using overly optimistic figures. It would be my job to help you examine your idea with the cold, clear light of reality. Unless that examination found some major fallacies in your plan, though, I would be violating my responsibility to act in your best interest if I tried to talk you out of doing what you wanted to do.

On the other hand, if you came to me wanting to use half of your investment portfolio to buy stock in a new company drilling for oil in Antarctica, I would be violating my responsibility if I helped you do it. Letting you put your assets into such a high-risk scheme would clearly not be in your best interests, no matter how excited you were about the idea.

When you seek the advice of a financial planner, you are looking for just that—trained, professional advice. You don’t want someone who will passively stand by while you walk off a financial cliff. Neither do you want someone who tries to make you conform to his or her ideals instead of helping you work toward your own dreams.

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A couple who are my clients have three adult daughters, all in their 20s. Two of them have chosen not to go to college for now, though they both intend to do so eventually. The third has completed two years of college classes but has put her education on hold for a few years because she’s busy with her own two toddlers.

My clients recently decided they would like to give each of the three kids some money to be used for education. Their reasoning was that it would be more helpful for their daughters to receive a few thousand dollars now than to inherit a larger sum years from now. Instead of just handing over some cash, they wanted to initially designate the money specifically for college or other education. Then, as each daughter turned 30, any money she had not used for school would be given to her outright.

After doing some research, we decided the best option would be to set up a 529 plan for each of the daughters.

I’ve written before about the advantages of 529 plans when it comes to saving for college. These state-operated plans can be set up by parents, grandparents, or other relatives. Contributions to the plan are not tax-deductible, but no federal tax is due on any earnings that are withdrawn to pay for college. The money can be used for tuition, books, and room and board, and can be used for any accredited school in any state. If the owner of the account dies, the account then goes to the beneficiary.

One of the big advantages to a 529 plan is that the account is owned by the donor, not the beneficiary. This gives the donor control over the funds. In addition, the funds are not counted as an asset for the beneficiary when it comes to qualifying for other types of financial aid. A second advantage is the plan’s flexibility. If one beneficiary doesn’t use the money for education, the donor can shift that money into an account for another beneficiary. In addition, there are no age limits for beneficiaries of these plans.

Those last two provisions were the main reasons we decided 529 plans were the best way for my clients to give college money to their adult children. The accounts can be set up now with the daughters as beneficiaries. If and when each one decides to continue her education, she can take money out of her account for tuition, books, and other expenses. If she doesn’t go to school, or doesn’t use all the money, the account will become hers in a few years.

The disadvantage of transferring ownership of the accounts to the daughters is that they will have to pay taxes and a penalty on the earnings if they use the money for something other than education. Since only the earnings are taxed, and since the penalty is ten percent of the earnings only, we didn’t see this as a significant problem.

One of the advantages of transferring ownership is that the daughters can then, if they wish, make their own children beneficiaries of the accounts. This would give them a solid head start on college saving for their own kids, while still giving them access to the account if they should need it themselves—either for education or for other purposes.

The intent behind 529 plans is to help families save for college. That saving doesn’t have to be limited to providing for young children. The flexibility of these plans makes them an excellent way to help adult children who may be going to school as nontraditional students.

I am on my way to attend the annual gatherings of the Nazrudin Project and the FPA Retreat.  This year, these two professional meetings are being held back-to-back in Scottsdale, AZ.

I’ve attended over 20 FPA Retreats.  It is the cornerstone of my annual continuing education that keeps me current on trends and changes in all the exterior aspects of financial planning.  It is top on my "don’t miss" list!

The Nazrudin Project is a leaderless gathering of some of the top thinkers in financial planning.  It was the Nazrudin Project that spawned George Kinder’s ground-breaking work, which led to the work that I am doing with Onsite and the books I’ve co-authored. 

I look forward to bringing back the latest exterior information in investment strategy, estate planning, retirement planning, and some new insights into helping clients improve and expand their relationship with money.

Bob Veres, www.bobveres.com, is regarded as one of the top financial journalists to the financial planning profession.  One of the valuable services he provides is a bi-weekly media review of significant articles to the profession.  Today, he released his review of the article Rich Colman and I wrote, "Solidifying Your Clients’ Asset Protection Strategy: Multiple Entries in Multiple Jurisdictions" that appeared in the April edition of the Journal of Financial Planning.  Here is his review:

Whew!  For advisors who wonder about offshore trusts, and whether there might not be a better way to shield client assets from frivolous lawsuits without the hassles of having them domiciled on the Isle of Man, this article will give you as much complexity as you could want. 

It starts off with a nice disclaimer, saying that these techniques are NOT to be used to shield assets from legitimate creditors.  Then it notes that Wyoming, Oklahoma and South Dakota have enacted asset protection statutes, while Alaska, Delaware and Nevada have passed domestic asset protection acts.  Florida and Texas allow for an unlimited homestead exemption.  IRAs, and particularly rollover IRA assets, are now generally exempt from creditors.

From here, the article outlines different layers of defense.  First, make sure your clients are properly insured against liabilities.  Second, put your valuable assets into different entities.  Put the house in a land trust, so that judgments do not become liens against personal property.  (Only six states–Illinois, Florida, Hawaii, Georgia, Virginia and North Dakota–have land trusts, but people in other states can set them up in these state jurisdictions.)  The business should be incorporated, shielding owners from suits against the company.  Other assets can be placed inside a limited partnership or LLC. Domestic Asset Protection Trusts, which are usually grantor trusts, don’t require a separate taxpayer ID or filing a separate return. 

The authors prefer Nevada’s state laws; after two and a half years from the date an asset is placed in a Nevada asset protection trust, the state will not allow the trustee to distribute those assets under court order or to a creditor.  (There may be some question whether non-Nevada residents can receive this protection; this has not been tested at the Supreme Court level yet.)

Finally, the authors recommend having the corporations, LLCs and trusts established in different state jurisdictions around the country.  The attorney bringing the action will have to deal with courts in various states, greatly raising the cost of the litigation.

At the end of the article, we get a mini-case-study, where you advise clients to form an S corporation or LLC for their business, and form living trusts for the husband and wife to own the shares of the corporation.  As a side benefit, upon the death of the clients, recipients of minority ownership interests may receive minority-interest and marketability discounts for tax purposes.  Second, put real estate in a Virginia land trust–the state being selected because of its superior land trust protection.  The beneficiary could be the husband and wife or their living trust; the trustee of the land trust will reside in Virginia.  Once again, the minority beneficial interest may qualify for a discount.

Next?  Create a Nevada asset protection trust with a Nevada trustee; the beneficiaries will be the husband and wife or their living trusts.  Ownership of the corporation and land trust is transferred to the Nevada trust, making these assets unattachable by judgment creditors after two and a half years.

We’re not done.  (!)  Next, form a Delaware LLC, which will own the beneficial interests of the Virginia land trusts.  Delaware allows for a Series LLC, so that one entity can own multiple assets and treat each asset as if it were its own LLC.  Finally, create a C corporation in another state.  The owner is either a Nevada asset protection trust or the living trust of one of the spouses.  The corporation provides services as an independent contractor; it could also manage rental property.  Costs?  In all, up to $30,000, depending on the number of entities and jurisdictions, including state filing fees, registered agent or trustee fees, costs of maintaining required local offices, and any state and local taxes.  (p. 62)