Month: February 2022

Responsibilities Abound, Choose Wisely

in Wills and Power of Attorney

Procrastinators usually face problems.  The scramble to get things done in a timely manner. Often, they make less than optimal decisions.  This is especially true of people who procrastinate on the issue of estate planning.  

This type of procrastination generally can’t be turned in late because….well, you’re probably dead or incapacitated.  If you don’t take the time to plan properly now, it can cost your family big time in the future.  This is exceedingly true when it comes to choosing the right executor to handle your affairs after your passing. 

Responsibilities Abound

Most people think that being an executor is an easy job.  There truly isn’t much to it, or so they reason in their head.  In reality, it’s quite the opposite. 

Executors have numerous significant responsibilities.  They can collect from debtors, inventorying the assets of the estate and protecting them, filing estate tax returns and paying related taxes, dealing with creditors, handling investment decisions and liquidating and distributing assets and property to beneficiaries.  

So, who should you choose as your executor? Most people just assume a family member of a close friend will do it. However, that’s not always a safe assumption.  As this article from Kiplinger states, you need to talk to your potential executors and make sure they’re willing to take on the task AND they’re actually up to it.  

Things you should consider before naming an executor:

  • Will this person be too grief stricken at your passing to do the job effectively?
  • Does this person stand to gain from your will and if so, will that be a conflict of interest?
  • If the previous statement applies, do you think that it will lead to disputes between family members and/or other beneficiaries of the estate?
  • Is your potential executor a trustworthy person with a good knowledge of financial best practices?
  • If this person needs to hire professionals, will they be professionals you would trust?

To avoid these risks, we always recommend that you examine your potential executors carefully before giving them these kinds of responsibilities.  If you believe that your potential executors lack the financial acuity or moral authority to handle your estate you may need to look elsewhere to find a good executor, even if you believe you may end up hurting some feelings.  

In the end, having a plan is the key ingredient to estate planning.  However, to hone your estate plan and ensure it is successful in distributing the assets in a way that puts you at peace, you need to put in the extra leg work to make sure you have a good executor or team of executors to handle your final wishes.

When you’re ready to get started with your estate plan, give us a call.  We’ve helped thousands of people put together a solid basic estate plan and we’re ready to do the same for you.  

A Myth: 5 Big Lies About your Score

in Bankruptcy, Credit and Credit Cards

myth

We’ve talked a lot about credit scores and we’ve tried to debunk a myth or two about them.  Credit Scores are the topic of almost every conversation we have in our office with clients.  They’re always concerned about how a bankruptcy will affect their credit score going forward.  While we can tell you that bankruptcy will change your credit score, we can also tell you that your credit score will improve dramatically in the weeks and months following your bankruptcy.  Don’t believe me? Just as the Consumer Financial Protection Bureau. 

That said, there are a number of myths about credit scores and how they change and how that change impacts you.  

Myth #1: The higher the income, the higher the score

Your income and your credit score are almost entirely unrelated.  Obviously, the better your debt to income ratio is, the more likely you are to get credit. However, the bulk of your credit score is made up of three things: Payment history, how long a line of credit has existed and credit utilization. 

We’ve had clients making minimum wage who have excellent credit and clients making 6 figures with credit scores in the 500s.  Your income is not indicative of your credit score.  

#2: Carrying a balance increases your score

Apparently, more than 3/5 of consumers believe this.  It is also a total lie.  In fact, credit card utilization (i.e. how much you owe) is one of the biggest factors in determining your credit score. 

You should always shoot for having a utilization rate under 30%.  That is considered healthy by pretty much every major credit reporting agency.  Carrying a balance is eating up your credit utilization and also likely costing you substantially in interest.  

#3: Closing an old card will increase your score.

Nope. One of the major factors in determining your credit score is the longevity of your credit history.  The older the account the more it helps your cause.  In fact, you should do everything you possibly can to keep a card active, even if you don’t use it. 

Take it out from time to time, but at least once a year, and use it for a small purchase.  Pay it off on or before the due date to keep the card active.  The longer you have that account open, the positively it will reflect on your credit score. 

#4: There’s only one credit score

This is a major myth.  While the FICO score is the most commonly used score, there are a number of other companies that utilize and create credit scoring models.  

There are many credit scoring agencies out there and they all do things slightly different.  In fact, the score you just saw on whatever app you’re using may not be the same one that lenders view.  However, there is one universal truth.  If you have “Good” credit with one, you should be in the same ballpark on all the other ones as well.  

#5: Co-signing a loan won’t affect your credit

This is perhaps, the most dangerous myth about credit scores.   Co-signing is ALWAYS a bad idea.  We’ve discussed it before.  Co-signing increases your credit utilization just as if you charged up a significant balance.  Credit agencies consider co-signing the exact same thing as you taking out a loan on your own.

If the person you co-signed with misses a payment or, god forbid, defaults, you’re on the hook for that loan.  Those missed payments and the eventual default will lead to extremely negative consequences for your credit score and could potentially lead to lawsuits and other collection efforts.

Don’t let lies, misinformation and myths get in the way of making good choices when it comes to credit.  If you have questions about your credit, financial information or bankruptcy, call us.  Our firm has been helping people get out of debt for almost 40 years. 

The Charitable among us

in Bankruptcy

Charitable

Charitable donations are a regular part of people’s lives.  Whether it is a religious organization or a different kind of charity, our society and our laws frequently take steps to encourage donations to these types of organizations.  The IRS Tax Code allows for deductions from income for donations to these organizations and the bankruptcy code also specifically allows these types of donations to continue. 

While it’s true that the bankruptcy code doesn’t allow certain transfers of money before filing, reasonable charitable donations don’t qualify as a “fraudulent transfer.” A fraudulent transfer is, for example, let’s say that before you file bankruptcy, you sell your car to your sister for $10,000 less than it’s worth, or you just give it to her.  That’s called a fraudulent transfer because you are effectively “cheating” your creditors out of money they could have potentially recovered. 

The bankruptcy code allows the transfer of money or property to charitable organizations to an extent.  Under the code, you may transfer money to a charitable organization so long as it does not exceed 15% of your total gross income for the year in which the transfer was made.  In cases where it does exceed 15% of your income, it is still not considered a fraudulent transfer as long as it was consistent with what you had been doing in the past.  In other words, if you’ve given 20% of your income to charity, you may continue to do that.  That said, it is imperative that your giving is in line with what you’ve done in the past.  Otherwise, fraudulent transfer rules could kick in.  

Once a debtor files their case, fraudulent transfer rules aren’t quite as big of a deal.  You’re generally free to make charitable contributions.  In a Chapter 7, debtors should be very cautious of transferring property to ensure that it is exempt (protected from the trustee) before transferring it.  In a Chapter 13, you can continue to donate along with making your payments and it is counted as an ongoing expense.  You may continue to make these reasonable donations so long as you can also make a fair payment to your creditors.  

Of course, all of these situations require the guidance of an expert attorney.  That’s where we come in.  We have helped thousands of people successfully navigate the bankruptcy process.  If you’re ready to take the first steps towards financial freedom, give us a call.