Estate Planning
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At a recent Camp Mustache where I gave a presentation I also offered one-hour personalized consultations. Most of the advice I give is identical among all people I consult with. Most themes come up again and again. About 20% of what I advise is unique to the individual.
This particular group was comprised of high net worth people. These people save a massive percentage of their annual income and are in a position to retire early; mid-30s is average. Incomes were all over the map. Some had high income; some had modest income. All invested heavily in index funds and/or real estate.
An attractive young woman was next in line for a consultation. She had amassed a reasonable amount of liquid funds and was planning her retirement strategy. I knew she wasn’t married by looking at her tax return. I asked if she had a special someone in her life. She said no. I then made the offhand comment, “If you ever decide to get married you will have a prenup.”
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There comes a time when your responsible spending and investing habits grow your net worth to a level you will never spend in a lifetime. As the years pass you discover charitable causes you want to help. Giving is something that brings meaning to our lives. By making a difference, our hard work and intelligent planning creates the real reason we choose the life we lived.
The hard part of charitable giving is the number of worthy causes to choose from. Another issue is maximizing the value of the gift. There are three issues connected to charitable giving: choosing the charitable organization, determining the level of gifting, and using the tax code to maximize the value of your gift.
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Years ago I started a book project called The Zero Percent Tax Bracket. The idea was to write a book with all the ways a person can bring in money and legally not report it as taxable income. As I started pulling information together it became clear marketing such a book would be difficult. Since I was not focusing on tax protesting or other such BS it would not attract the wing nut crowd nor was I interested in becoming the next Charles Givens. A book called The Zero Percent Tax Bracket would probably languish on the back shelf of a bookstore with only modest sales. The idea was sound but I did not like the marketing plan.
Today I am resurrecting the idea. As a book it would need a serious shove to turn a profit for the publisher; as a series of blog posts it is an excellent way to outline all the ways to line your pocket without owing a penny in tax. You will not find all of these tax-free methods listed in the tax code. It is the unusual interpretation of tax law that always appeals to me as long as jail time is not involved. (Jail time might be okay if it is a fairly short stint of three-hots-and-a-cot, plus free healthcare at the expense of the taxpayers. Taxes are no fun, but collecting benefits—even free jail lodging—does.)
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Over the years I have used attorneys for a variety of needs. When I started a hedge fund the initial deposit was $25,000 and I was happy to pay it. We laugh at lawyer jokes and sometimes lawyers deserve the bad rap they get, but most of the time attorneys are a powerful part of your team preventing expensive problems before they happen. There is a reason why they are called counselors.
I encourage landlords and business owners to keep a relationship with an attorney. Buying and selling a property requires an attorney in my opinion and landlord/tenant issues can be reduced when a lawyer is consulted before actions are taken. There are also the surprise attorney needs. Who do you call when arrested for a DUI? (The first person who says Ghostbusters will be escorted out the door.) You don’t plan on certain events in life; they just land in your lap. Business owners and landlords have greater legal needs, but the average guy on the street finds himself in need of professional help a time or two in life as well (wills, probate, trusts, sale of property, et cetera).
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There are critical times in the course of life when financial independence is at risk of destruction. A lifetime of planning, saving, and investing can go up in smoke in a few short years without an adequate plan to protect the most vulnerable member of a marriage (or any relationship, for that matter) after the death of a spouse or loved one. The trauma and grief after a loved one dies is acute. Deep pain and emptiness creates risks for the surviving spouse. Well intentioned, and lonely, people will try to connect with the bereaved. A couple committed to a lifetime of financial discipline will acquire a massive nest egg of retirement wealth. The surviving spouse is a prime target, a highly desired, person for this reason. Even people with honorable intentions can wreck havoc on the surviving spouse’s finances.
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People serious about early retirement turn to rental real estate to turbo-charge the process. Saving and investing can get you to retirement fast. With real estate you can go from zero to retired in a few years. It does require careful planning to make it work.
There are three steps in successful income property ownership: buying right, management and taxes. Over the years I have seen many people lose money, even go broke, due to rental properties. I have also seen ordinary people make more money than doctors or lawyers with real estate.
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