How Can Parents Help Adult Children with Financial Issues?

“There are times as a parent when you realize that your job is not to be the parent you always imagined you’d be, the parent you always wished you had. Your job is to be the parent your child needs, given the particulars of his or her own life and nature.” ~Ayelet Waldman

For those of us who have children, the months of May and June, with Mother’s Day and Father’s Day, remind us how important we are in our children’s lives. My mother used to tell me that “When God turns a mother on, he never turn her off.” So we are always the parent. It doesn’t matter how active we are in their lives, or how far away they live, or how independent they are; being a parent starts at birth and goes on and on in some way or another.

Some of the most difficult conversations that we have with our clients about their financial situations are those that have to do with parents who are caring for adult children. This situation may arise because the children have health issues or special needs; lost a job; went through a divorce; incurred bad debts; or made lifestyle choices that have brought them back to being a dependent in some way. And this situation takes many forms: the children may live with the parent; they may live on their own but can’t afford the bills; they may have incurred debt they cannot pay; or they may have asked the parent to cosign for college costs, their first house, or some other financial need.  And with the recent recession, jobs being scarce, foreclosures hitting all time highs, and student debt soaring, it isn’t uncommon for adult children to take refuge in the homes of their parents.

In the end, it doesn’t matter why the children are dependent as adults; what we try to focus on is how the parents can best manage once again assuming the job of caretaker to the child in their adult life.  All parents can probably understand this situation, even if they don’t agree with it.

In most cases, the issue with supporting an adult child is that it may be detrimental to the parents’ financial health and detrimental to the child’s financial independence.  Unless the parents’ funds are unlimited, this choice comes with serious potential consequences.

But you are a parent. And you want to help. Or you have a child who, for health reasons, you will always need to be there to help. As in most situations, there is a right and wrong way to help.

A parent providing a monthly income is a wrong approach. It will end when you do…and then what will happen? Parents providing a significant down payment on a house for the child is another wrong approach. If your child is buying a home and cannot afford the down payment, chances are this is a house the child cannot afford. Providing all the money to help the child start a business is another wrong approach. This makes you a partner in the business, and if it defaults the creditors will come after you for the money. Finally, reducing your retirement assets to provide money to the child is a wrong approach. A serious family meeting should occur before this is even a consideration. Your financial health is at risk; and if you have other children, the continuity of the family can be jeopardized if one child is favored over another.

But…if you have adequate assets, gifting from you to your children may be a great idea. Loans to a child for a business or home purchase may also be the right thing to do. Drawing up a contract and charging interest on the loan is a good idea and it can work well. If you have multiple children, reducing the dependent child’s portion of your estate may also be right. Not only is it a lesson learned, but other children who have not received help are more likely to feel they have been treated fairly. The “Sink or Swim” approach can be a good idea, too. It might sound a little heartless and unfair, but if you are providing assets and financial assistance for a child, you need to believe that when the time comes when you are out of assets and need help, they will be there for you in return.  If this isn’t likely to happen, then “Sink or Swim” could be the right thing to do. Establishing special needs trusts may also be the right approach because they can keep you financially secure and help your child in the short- and long-term.

The fact is, as parents we want to help our children with their financial situations and we think this is what any good parent would do. Just remember: Helping our children with their financial situations by teaching financial responsibility, modeling wise financial decisions, and making them independent is what makes a good parent great. 

What is Your Most Important Asset?

From www.LifeHappens.com

Can you name your most important asset? If you said your home, your car, your jewelry, or other possessions…guess again.

It’s your ability to earn a living.

Think about it: All of your plans for the future–from buying a home to putting your kids through college to building a retirement nest egg–are based on the assumption you will continue to earn a paycheck until you retire.

But what would happen if those paychecks stopped?

That’s where disability insurance comes in. It provides an income for you and your family if you are unable to work because of illness or injury.

At 45, attorney Peter Zatir attributed the fatigue he was feeling to middle age. Add to that a busy law practice and five active kids-the youngest just a year old-and it’s easy to see how he could have written off the early signs of a serious illness. When he finally visited his doctor, the diagnosis was grim. He had an aggressive form of thyroid cancer and was given less than a year to live. As Peter lay awake at night, his financial situation was one thing he didn’t lose sleep over. Watch his story to find out why…

And if you have any questions about disability insurance, call us at 412-341-2888 or email info@mfgplanners.com.

More Than Money: Creative Financial Gifts for Graduates

 “If you don’t make the time to work on creating the life you want, you’re eventually going to be forced to spend a LOT of time dealing with a life you don’t want.”  ~ Kevin Ngo

More Than Money: Creative Financial Gifts for Graduates

I always used to find it difficult to come up with a creative gift idea when I was invited to birthday, anniversary, and graduation parties. Rather than give the obvious “money in an envelope,” I wanted to offer something more permanent. And sometimes it was not appropriate to give money, no matter how appreciated it might be.

So over the years I have taken note of what others give at these times and kept a list of good ideas. With graduations, both college and high school, right around the corner, I pulled out some clever and financially-focused ideas from that list to share with you.

Of course, there is always the contribution to a 529 for the high school graduate, or a US Savings Bond or Direct Stock Reinvestment Plans for any graduate. You can even make a contribution to an IRA or a Roth IRA for the working student. Something always appreciated is paying off a student’s credit card bill; or for college graduates, you might make the deposit on their first month’s rent or buy the outfit for their first day at work. These are creative variations on the cash gift.

Books on personal finance are always a good idea, too, and they abound on Amazon. Some of my favorites are by Dave Ramsey, and one of the most unusual financial books I like is Consequences: A Unique Approach to Financial Planning for Young Adults, by John Blankenship. This book is not the typical “Investing 101” text, but more of a lesson that teaches young people about financial decisions by exploring consequences associated with the choices they make.

I have a friend who gives board games with her gift of money. These are usually Monopoly or The Game of Life–games that make a statement about handling finances and life. Some more unusual ones are Rich Dad Cashflow 101 board game, by Rich Dad Poor Dad; I’m Debt Free Game by GMB Products; and Charge Large by Hasbro.

And a more personal option is to purchase a session with a Financial Consultant. A first-time session should cover Budgeting, Use of Credit, Investing 101, as well as planning for future goals such as home ownership or retirement.

Whatever the gift, the fact is obvious that all graduates need money. But more importantly, they need to learn how to manage that money wisely. A unique or fun approach beyond the “money in the envelope” might get them thinking about good money management early. And the earlier the better.

10 Ways to Screw Up When Picking Life Insurance Beneficiaries

By Barbara Marquand

Naming who should get the life insurance money after you die sounds simple, but designating beneficiaries can get tricky. Mistakes are common, financial advisers say — and they can be heartbreaking and expensive. When mistakes are made “you’re not creating problems for you,” says Keith Friedman, principal of FBO Strategies, an estate planning and insurance firm in Stamford, Conn. “You’re creating problems for the people you leave behind.”

Here are 10 life insurance beneficiary mistakes to avoid.

1. Naming a minor child

Life insurance companies won’t pay the proceeds directly to minors. If you haven’t created a trust or made any legal arrangements for someone to manage the money, the court will appoint a guardian, a costly process, to handle the proceeds until the child reaches 18 or 21, depending on the state.

Instead, you can leave the money for the child’s benefit to a reliable adult; set up a trust to benefit the child and name the trust as the beneficiary of the policy; or name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act. Consult an estate attorney to decide the best course.

2. Making a dependent ineligible for government benefits

Naming a lifelong dependent, such as a child with special needs, as beneficiary puts the loved one at risk for losing eligibility for government assistance. Anyone who receives a gift or inheritance of more than $2,000 is disqualified for Supplemental Security Income and Medicaid, under federal law.

Work with an attorney to set up a special needs trust, and name the trust as beneficiary. A trustee you appoint will manage the money for the dependent’s benefit.

Here’s more on life insurance planning for parents of children with special needs.

3. Overlooking your spouse in a community-property state

Generally you can name anyone with whom you have a relationship as beneficiary, even a secret lover.

“Life insurance is not a judge of someone’s morals,” Friedman says.

However, in community-property states, your spouse typically would have to sign a form waiving rights to the money if you designate anyone else as beneficiary. Community-property states are:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin.

4. Falling into a tax trap

Life insurance death benefits are generally tax-free — except when three different people play the roles of policy owner, the insured and the beneficiary. In that case, the death benefit could count as a taxable gift to the beneficiary, says Amy Rose Herrick, a Chartered Financial Consultant and life insurance agent with offices in the U.S. Virgin Islands and Tecumseh, Kan.

Say, for instance, a wife owns a life insurance policy on her husband’s life and names their adult daughter as beneficiary. The wife effectively is creating a gift of the policy proceeds to her daughter, Herrick says. The person who makes the gift — the wife — is the one who would be subject to the tax, if the amount of the gift exceeds federal limits.

The problem could be avoided in most cases by having the husband own the policy, insuring himself. However the situation can get tricky in community-property states. Consult a financial adviser to decide the best way to structure the policy.

5. Assuming your will trumps the policy

A life insurance policy is a contract. Regardless of what your will says, the life insurance money will be paid to the beneficiary listed on the policy. That’s why it’s important to contact your insurer to change your beneficiary if needed.

See more information on wills vs. life insurance policies: Who’s the boss?

6. Forgetting to update

“Designating beneficiaries are not ‘set it and forget it’ events,” says Tara Reynolds, vice president at MassMutual. You should review your policy every three years and after major life events, such as marriage, having children or divorce. Change the beneficiaries when circumstances change.

Unfortunately, many people forget to do so.

“Half of my practice is second or third marriages,” says Peter Blatt, a tax attorney and financial adviser in Palm Beach Gardens, Fla. “It’s not uncommon to find the ex-spouse still listed as beneficiary on the life insurance policy” when reviewing a client’s portfolio.

7. Neglecting Details

Be specific when you name beneficiaries. Instead of “my children,” list their names, Social Security numbers and addresses, says Ed Graves, a professor of insurance at The American College in Bryn Mawr, Pa.

Otherwise, “the insurance company has to launch a search and that can take a lot of time,” Graves says.

When naming multiple beneficiaries, decide whether you want the money divided “per stirpes,” which means by branch of the family, or per capita, which means by head.

8. Staying mum

“The most important thing is to tell someone so they know you have a life insurance policy, where it is and how to find it,” says Joshua Hazelwood, vice president at MassMutual.

Open communication with beneficiaries now can save a family from chaos later – or even worse, never claiming the benefit.

9. Giving money with no strings attached

Naming your young-adult children as beneficiaries without setting any conditions for how the money is dispersed can be a setup for financial failure. How many 18- or 21-year-olds can handle a huge influx of cash? One way is to set up a trust with specifics for how the money can be released and what it can be used for until the young adult reaches a certain age.

“It allows me as a parent to instill what I feel is valued in my absence,” Friedman says. “I don’t want to leave my children with millions of dollars when they’re 18 with unfettered access.”

Insurers are beginning to introduce policies that let you arrange for the death benefit to be paid out in installments. Minnesota Life Insurance Co.’s new indexed universal life product, Omega Builder IUL, includes that option, calling it an “income protection agreement.”

10. Naming only a primary beneficiary

“Most people just think they’re going to make their spouse beneficiary, but don’t take into account the spouse might predecease them,” Friedman says. “It’s conceivable that something would happen to you and your spouse together.”

Blatt says he even sees cases where people fail to name any beneficiaries. When there is no living beneficiary, the life insurance benefit typically goes into the estate and is subject to probate. That leads to two complications. One, heirs might face a long wait to get the money. Two, the life insurance proceeds, which normally would be protected from creditors, can now be open to creditors’ claims.

Advisers recommend naming secondary and final beneficiaries. If the primary beneficiary dies before you do, then the money passes to the secondary beneficiary. If the secondary beneficiary has passed away when you die, then the death benefit goes to the final beneficiary.

Thoughtful Spending: From “Gotta Have It” to “Gotta Think It Over”

The price of anything is the amount of life you exchange for it.”
~ Henry David Thoreau

It is not unusual for clients to tell us that they find it hard to keep on budget, or they find it impossible to come up with additional funds for savings and investing, or they just always seem to overspend.

When we delve further, we often find that impulse buying and those “little things” are to blame.

Impulse buying is purchasing items you just happen to see. These are not on your shopping list; they are not necessities; they are not budgeted. But there they are, staring at you as you wait in the checkout line, or hanging on the mannequin as you pass by, or jumping out at you as you browse the store. Even harder to ignore are those items that pop up on your computer screen or cry out to you from Amazon or Google. Merchants count on you seeing and buying. And without a great amount of discipline, it is difficult to avoid the temptations.

Spending money on daily or weekly “little things” reminds us that impulse buys can become habitual expenses. Think about the “little things” you spend your money on every day. Purchasing unnecessary items such as lattes, bottled water, fast food, cigarettes, magazines, and so on can be a significant waste of money. Chances are you don’t even realize how much you’re actually spending on these seemingly “little” purchases.

So how can you get all of this under control?

Some strategies can be used while you’re shopping. Before you take out that cash-or worse, the credit card-to make a purchase, take out your smartphone instead. Take a picture of what you are thinking of buying and walk away. Wait until the next day to look at the photo. In most cases, the impulse will have passed.  

When buying online, most sites allow you to use a wish list or add items to a shopping cart for future purchase. Do this and then wait one day. The item you have to have today probably won’t be a “must have” tomorrow. And if the urge to buy it is still there, consider what you earn at work on an hourly basis and calculate how many hours of your life you will need to exchange to buy the item.

If that doesn’t do it and it is really something you would like to have, decide what you need to do to pay for the item in cash rather than credit. Saving the cash to make the purchase will again delay the impulse, and once you have accumulated the cash you may decide to use it for something more worthwhile.

It’s also important to think long-term. Start by honestly identifying those “little” expenses and considering whether you could redirect that spending somewhere else. For those little items that you buy out of habit, take the picture, print it out, and for one month list on the picture the item’s cost and how many times you bought it. At the end of the month, total your cost and multiply by 12. What amount of money are you really spending for those “little” things? Are they worth the cost? Could you have used the money more wisely? Could you substitute a more cost effective option?

At the end of the day, it all comes down to thinking before you buy. A purchase delayed could be a purchased denied, and most likely that’s a good thing.

Who Needs A Business Valuation?

In the business world, the rearview mirror is always clearer than the windshield.” ~Warren Buffett

Who Needs A Business Valuation?

MFG Honored to Receive Firm & Advisor Recognition – Wealth Watch – February 2015

What you do makes a difference, and you have to decide what kind of difference you want to make.”  ~ Jane Goodall 

Four Advisors Win 2015 Five Star Wealth Manager Awards 

Congratulations are in order for Mary Grace Musuneggi, Christopher S. Musuneggi, Rosalind Frazier, and Christine Pikutis-Musuneggi, all recipients of the 2015 Five Star Wealth Manager Award. The Five Star Award recognizes an exclusive group of Pittsburgh wealth managers who provide quality services to their clients. Mary Grace first won the Five Star Award in 2012. This marks the third consecutive year Christopher has won the Five Star Wealth Manager Award, and it is the second consecutive Five Star Wealth Manager Award for Rosalind. Look for their Five Star Award announcement in the July issue of Pittsburgh Magazine.

MFG Named to Pittsburgh Business Times’ Largest Area Investment Firms List

Each year, the Pittsburgh Business Times names our area’s 25 largest investment firms and takes a closer look at the firms who “just missed the list.” The Musuneggi Financial Group is proud to be listed as #30 this year.  See the full list in the January 30, 2015 issue of the Pittsburgh Business Times.

Taxing Tax Planning

Have You Had Your Family Meeting?

Here at The Musuneggi Financial Group, we made 2014 the Year of the Family Meeting. We focused on educating you about the importance of sitting down with your loved ones to have those sometimes difficult-but necessary-talks about Estate Planning, Long-Term Care Planning, and your Family Letter.

Many of you asked us to help by facilitating your Family Meeting here at the office, and we were honored to be able to guide you through the process. Some of the meetings were eye-opening and heartwarming.

At one of our meetings, the parents came with the desire to start gifting their assets to their children and grandchildren. With an Elder Care Attorney in attendance, we were able to spell out the pros and cons of various planning options. Because the children were in attendance they were able to share their ideas, too. As the meeting progressed, one of the sons spoke up and said,

“Mom and Dad, we are so grateful that you would want to share your assets with us and our children. Wanting to help us to pay to educate our children is a wonderful idea. But what we would rather you do is keep your money, see that it is set up to provide you with all you will need during retirement, in your later years, and help to provide you with the best medical care and best long term care that you can afford. Because, you see, as much as we love you and would do anything for you, I have a stressful job, two teenagers and two dogs. I just can’t have you moving in with me, and I can’t take care of my home and yours. The best gift you can give us is to keep your money, plan well, and have all the things you need to take good care of yourself. Besides, you worked hard to pay for our education; we need to do the same for our children.”

His words brought tears to the eyes of everyone in the room. The parents were grateful for his appreciation and honesty, and we were glad to have an understanding of the children’s expectations.

Family Meetings are your opportunity to have an open conversation–with your family members and trusted advisors–about your later-life planning. But this is not just a financial affair; rather, Family Meetings account for family members’ emotions and lifestyle concerns.

If you haven’t done your Family Meeting, Estate Planning, Long-Term Care Planning, or Family Letter, call us at 412-341-2888 ext. 301. We will be happy to help you map out these important conversations and decisions in 2015.

Just a Reminder…

What Goes Up Must Come Down…Or Not

By Mary Grace Musuneggi

I am thinking this is a good time to revisit our October newsletter. Volatile markets should remind us to stop and remember.” –Mary Grace Musuneggi

Back in June 2008, I remember fielding calls from clients who were pretty sure they would spend their retirement years living under the Smithfield Street Bridge. As 2008 and early 2009 brought financial markets to their knees, we felt their pain. In lighthearted moments we would laughingly say maybe we needed to change the name on the door of the office from The Musuneggi Financial Group to The Musuneggi Dog Walking Gang. But the fact is it was more important for us to hold on to the belief that “this too shall pass”–and it did.

We are currently at the historic highs of the stock market…and we have bond rates that are at historic lows. Double Whammy! And although there is no crystal ball, and past history cannot predict future history, I do believe that history can lend some perspective.

In a recent article by Brenden Gebben, Portfolio Manager for Absolute Capital, he refers to the Ned Davis Research that says that during Bull Markets, on average, the stock market has historically sustained upward trends for 331 market days before a 10% correction occurs and upward for 1105 market days before 20% correction occurs. So from this view we are certainly due for a correction.

And what if we are? What are some things we need to do? What are some things we need to remember?

1. Avoid trading too frequently.

2. Stop. Don’t panic. Trust your strategies. Trust your money managers’ strategies; after all, that’s what you’re paying for.

3. Don’t get out of the market at the worst times.

4. Be sure you are diversified. There are other market segments beyond just domestic stocks and government bonds. Be sure you understand them all.

5. Rebalance sometimes. Often. Frequently. Or whenever it is appropriate for your risk tolerance and for your objectives.

6. Don’t ignore tax ramifications. Return on investment is not the same as after-tax return on investment.

7. Consider taking profits. When markets go down the most common theme we hear from our clients is that they have “lost” what they had previously earned. If you transfer profits to cash along the way, you keep those earnings to either spend or to reinvest in the markets when they go down. Buying opportunities.

8. And remember, in 1921 the Dow Jones was at 60 and recently it was at 17000. Obviously it has gone up. But to get there it has gone up and down and up and down and up and down along the way. Time can certainly be more important than timing.

No matter what the markets are doing, your investment decisions need to be those that are right for you. At the right time. In the right allocation. To review your current strategy give us a call.