What was the goal you wanted to accomplish by reading this book? Did you want to find a viable way to reduce your debt, put more money into retirement plans, figure out how to invest your money? Perhaps you’re thinking, Well, now I know all about wills and trusts, but that won’t help me with my Visa bill, will it?
Oh, but it will. What you need to know and believe is that when you have taken care of others, you have responded to the higher values of your existence—people first, then money. It’s as if, on a material level, you’re giving thanks by taking care of those who helped you enter the world, those to whom you gave life, those who have guided your passage through your life. By taking these actions, you remind yourself of who you really are and what is important to you, what is important in this life. This knowledge is a powerful force. I think it is almighty. The force starts to push forward like a bulldozer, clearing out all the obstacles that prevent you from living the life you deserve to live. As you complete the rest of the steps in this book, these obstacles will continue to be cleared away. Unlikely as it may sound to you now, you will be closer and closer to paying off your Visa bill, taking that trip to Italy, or whatever your goal happens to be.
Please take the actions outlined in this chapter. Do one this week—make a call, get quotes for insurance, ask your parents about what would happen if they had to go into a nursing home. One action this week will clear you to take one action next week, and so on, until you have become responsible to those you love.
Posted in It is not respectful to yourself, to others, or to your money not to plan for your future. It is not respectful to yourself, to others, or to your money not to take full advantage of the 401(k)s or IRAs or the other retirement plans that are available to you. It is not respectful to yourself, to others, or to your money not to face your debt, to learn the basics of investing, and to guard over your money, making sure that every penny you’re spending is a penny that must be spent. What day you pay your bills, when you send in your taxes, and what hidden costs you pay for your checking account all can make a difference in how much money you have and how much money gets attracted your way. We all think that a bigger paycheck would be the answer to our financial woes, but that is rarely the case. Respect starts with the money you are earning right now and what you do with it.
Inheritance taxes are paid not by the estate, but by the people who actually inherit the money. How much they pay is determined not only by how much they inherit, but by their relationship to the person who has died as well.
For instance, if you lived in Connecticut and died, leaving $25,000 to your child, that’s fine. Your child would not owe any inheritance tax. But leave $25,000 to a devoted lifelong friend, and suddenly there’s inheritance tax: 9 percent. I always tell people who live in Connecticut (or Nebraska, for that matter, where that same $25,000 would cost your child 1 percent and your friend 15 percent) that if you want to leave a modest amount to a friend, and if you have kids whom you trust, leave it to your kids and have them gift it to your friend at the rate of $10,000 a year to save that 9 or 15 percent. Anyone can give $10,000 a year to anyone else gift-tax-free, year in and year out.*
Depending on which state you live in, you may have to pay yet another tax, a state death tax. Some states call it an estate tax, some an inheritance tax, but yet another tax it is.
Most state estate taxes are pretty much identical to federal estate taxes. The federal estate tax that you or your beneficiaries will owe will be based on the value of the estate, regardless of the relation the people have to the deceased. If you have an estate worth $700,000, before it’s all settled, the executor would write a check to the federal government to pay the estate tax; in this case the check would be for $37,000. The rest would go to the beneficiaries. In reality, it’s the estate that is responsible for paying the estate tax.
The same is true when the state gets involved. They will figure out the part of the estate that’s taxable, and the estate will have to pay the state estate tax. In most states today the state just takes its share from the federal government, which makes it fairly easy. In most states, if you pay the tax directly to the state, you can take that as a credit against your federal estate tax bill. (It won’t cost you more, in other words; it’s just an accounting
hassle.)
There are a few states left that do collect an additional state estate tax: Connecticut, Massachusetts, Missouri, New York, and Ohio. If you live in these states, check with an accountant when you’re planning your estate or expecting to inherit a lot of money. Don’t get caught unprepared.
Long-term disability (LTD) insurance is another kind of insurance that can protect you if a catastrophe happens that prevents you from being able to earn a living. Depending on the kind of work you do, an injury, an illness, or certain chronic conditions could cut off your income for a long time or even permanently. These policies will usually pay 60 to 70 percent of your current salary in the event of such a disability.
Suppose you do heavy labor and are laid up with a back injury, or you are a psychotherapist and lose your speech because of a stroke. When this kind of disaster strikes, an LTD policy can really save the day. You may think that you do not need one because you are protected by workers’ compensation. Remember that workers’ compensation covers you only if you are injured while performing your job. LTD insurance will pay for you whether you hurt yourself on the job or at home or on vacation.
In many ways this insurance is every bit as complicated in terms of finding a good policy as long-term-care insurance is. To find a good carrier, you might want to ask many of the same questions I listed under LTC insurance.
In looking for a good policy, here are some elements that you need to understand and some questions to ask:
What percentage of income will the policy pay? Most policies pay a percentage of what you are earning; typically they ii range from 60 to 90 percent of your current salary. The higher the percentage, usually, the more expensive it is. Many companies have a cap on how much they will pay monthly; for large employers it is usually $5,000 a month.
4l How long is my elimination or waiting period? Just as with LTC policies, this is how long you will have to wait till the company starts to pay. A normal waiting period is three to six months.
Till what age will they pay? Most policies pay only until you are sixty-five years of age.
Do you cover me if I am disabled because of illness as well as in an accident? The answer should be “Yes.”
What if I can only work part-time because of my disability? You want a policy that will pay according to how much you can and cannot work. So if you can only work part-time, they should pay you a portion of your disability payments. The term for this is residual benefits.
H Is the policy guaranteed renewable? Here you want to hear absolutely “Yes”—you do not want to have to qualify each and every year for benefits.
1 Is it “owner’s occ” or “any occ”? Do you feel as though I just started talking a different language? This question is very important. What it asks is under what circumstances the company will pay you. Will it pay you only if you cannot perform any job whatsoever, or will it pay if you cannot perform your job? Suppose you’re a musician and you lose some of your hearing. You might be able to function and sell pencils on the street corner, so you are not necessarily “disabled,” but you can’t do your job. If you have an “any 0cc” disability policy, it will pay you only if you cannot perform any occupation, so you would not be able to collect benefits for your loss of hearing. If your policy were “owner’s 0cc,” it would pay as long as you, the policy owner, cannot perform your own occupation.