Monthly Archives: July 2012

Probate & Estate Planning

The term “probate” generally refers to the court procedure for validating a will and passing ownership of property from a decedent to others.  Said another way, probate is the process by which the decedents property is collected, debts and taxes are paid and the remainder is distributed to the heirs.  The process is overseen by the appropriate court in each state.

While things often go smooth with the process, factors that can complicate it are the existence of minor beneficiaries, disputes among heirs, insolvency and other circumstances that necessitate formal probate.  In many states, it can take a year or longer to probate an estate, even if there are no legal challenges.  With that being said, it is both the cost and time of probate that make probate avoidance an important estate planning goal of many people.

There are many ways to avoid probate, either totally or in part.  Listed below are some of the common mechanisms to transfer property without the necessity of a will, and therefore probate.


Gifts made prior to the donor’s death are not subject to probate.  These gifts are referred to as inter vivos (Latin for “during life”) gifts.  The reason such gifts are not subject to probate is obvious: once given, the subject matter of the gift is no longer part of the decedent’s estate.  In order to make a valid gift before death, all of the following elements must be present:

  • The intent on the part of the donor to make a present transfer
  • Delivery of the gift, either actual or constructive
  • Acceptance of the gift by the recipient

Joint Tenancies

Joint tenancy ownership is a terminable interest that terminates at death.  When one joint tenant dies, the other joint tenant(s) succeed to the property without probate.  But making someone else a joint tenant of property an individual owns alone, just to avoid probate, is often a bad idea.  The new owner could sell his or her half-interest, or the new owner’s creditors could go after it.

Pay On Death Accounts

Pay on death accounts allow an owner to have the proceeds disbursed to a beneficiary at death.  Using these accounts are the simplest way to keep assets held in bank and brokerage accounts from becoming part of an individual’s probate estate.  Not all states have a POD law.  However, individuals may still be able to make use of the accounts by doing business with a broker or a bank based in a state that has one on the books.

Life Insurance

The proceeds of life insurance are paid directly to the beneficiary or beneficiaries and are not subject to probate.  Gifting life insurance is a popular way of transferring wealth without significant tax implication.  The gift tax is assessed on the value of the policy at the time of transfer (not on its cash value at the time of the insured’s death).  To be an effective gift for tax purposes, the policy must be given away at least three years before the donor’s death.


Trusts are a flexible mechanism for transferring property either before or after an individual’s death and avoiding probate.  A trust may be created during the life of the donor or at the death of the donor.  A trust can be either revocable (on which case the trustor is free to change their mind and retrieve the property within the trust) or irrevocable.  Virtually anything can be the subject of a trust.  The only significant limitation is that a trust cannot be used for an illegal purpose or to support an illegal activity.

200+ Miles & 4 States on A Bicycle

Every since I first hopped on a bike, I knew that it would be a long love affair.  There is just something about the feeling you get when you know that the machine you are riding is 100% powered by your efforts.  That feeling of the wind in your face when you go down a hill.  That feeling that is as close as you’re ever going to get to flight without jumping out of a plane.

Many of you know that I race for xXx Racing – AthletiCo when I am not being daddy or handling client finances.  This team was founded back in 1999 when a group of messengers decided that it would be cool to try their hands at some sanctioned racing.  One of the founding fathers was a guy by the name of Eric Sprattling.  Eric was known for being a pretty good distance rider and one of the things he would do as part of his training would be to ride to the three surrounding states in our area.

Well, Eric passed away in 1999 after he suffered a brain aneurysm near the conclusion of a race.  In 2010, our coach began an annual 3 states ride in Eric’s memory.  2011 was the first time I participated and while it was hard (145 miles and 8 hours), it was one of the most rewarding experiences I’ve had on the bike.  A few weeks back I got this hair-brained idea of what it would be like to ride the 4 states in our area.  That’s right – what would it be like to ride Illinois, Indiana, Michigan and Wisconsin all in one day?  Well, read on to find out!

The day was scheduled to be relatively calm from a wind standpoint and the temps were projected to get up to about 87 degrees.  From a rider standpoint, this is about as good as it gets during the summer, especially considering that we’ve been well into the upper 90’s for the past few weeks.  The route out to Michigan has some pretty high speed sections (45+ MPH speed limit) so I decided that it would be the portion I would ride first.  Given that I was starting at 5AM, I hoped that this would help me avoid some of the heavy traffic that would surely start as people began to get started on their days.

4AM comes after about 6 hours of sleep and I begin with a big breakfast and a final load up of all the gear I would have.  I’d have my usual tools to fix anything major that would go wrong on the bike, but I would also carry a few extras along with an extra water bottle.  I’m out the door at 5:15AM and it’s a quick 7 miles before I hit my second state of Indiana.  The sun is just starting to come up as you can see in this picture.

After my quick photo op I get rolling again and press on through the oil facilities of Whiting IN and in about an hours time I hit Gary.  Things are going okay and I am eating and drinking regularly to keep the engine room stoked.  I’m cruising along at an average of 19 MPH which is just what I am hoping for.  Once I leave Gary I hit US 12 which would take me through the Indiana Dunes, some more industrial areas and then through the Dunes Park.  The tree cover was excellent (which helped as the sun continued to ascend) and the only real hiccup came when I was supposed to take a route known as the Calumet trail.  Well, turns out this bike path is made of gravel and is more suited for mountain bikes than my skinny tired steed.  Needless to say, I just rerouted to US 12 and about 3 hours after I started I hit my third state, Michigan.

The route to Michiana MI takes you up a road called Lake Shore Drive.  The road itself is pretty picturesque with hillside villas on one side and beachfront property and the shoreline on the other.  On my cruise up this road at 8AM,  people were out running, biking and just enjoying the outdoors.  All of them had smiles and waves for me as I plodded along the rolling shoreline.  Kind of reminds you of those seaside drives of the coast doesn’t it?

The ride back to Illinois was pretty uneventful with the exception of how I felt at mile 70.  Typically I can do 100 miles without too much “discomfort” but for some reason I was starting to feel a little bothered on the bike.  The plan was for me to stop back at the house (mile 100) for a quick pasta lunch and refuel before I pushed north for the 4th state.  Thus, I just told myself to just make it home and I’d be okay.  The key to completing a ride of this length, at least for me, was to break it into small segments in which I could get a victory.  After a while, your body is going to just hurt no matter what, but it’s your mind that will make you stop and quit.

After a 30 minute rest and some lunch I pushed north up the bike path on the lakefront and headed into the burbs to play in our teams usual training grounds.  Well, this is where the ride “started” to get hard for me.  No matter how much I ate and drank, my power levels slowly started to come down as time progressed.  I would take a break every hour or so, which recharged me to an extent, but it was getting really hard to convince myself that I was going to make it back home.  Well, after 160 miles and 9 hours of riding, I finally got to my 4th state!

Well, this served as one of my milestones and gave me a little encouragement that I might be able to pull off the secondary goal – 200+ miles if I rode all the way home.  I stopped at a Subway close to the WI boarder (really wanted to eat cheese curds at Culvers, but figured it would make me sick) and had me some dinner and a quick 20 minute rest.  With the exception of breakfast and lunch, most of what I ate that day was “junk food” whose purpose was simply to give me the most calories for what I could carry on the bike.  Thus, it felt really good to eat some real food before heading home.

The ride home was slow, painful and involved me really considering hopping the first train back to the city that I could find.  I probably stopped at least 4 times over the 59 mile route, but after the last one (which was just 7 miles from my house) and a text from a teammate who was checking in on me (thanks Diddy), I found the wherewithal to power home and get ‘er done.

So what was the final tally of this insane ride?  Let’s see:

  • 4 states covered
  • 15+ townships/cities visited
  • 214 miles ridden in 12 hours 18 minutes
  • 7,179 calories burned
  • 8 liters of fluid (Gatorade included), 3 honey buns, 1 powerbar, 1 pack of cakesters, 1 lbs of orzo pasta, 1 subway veggie sandwich, and 2 fruit pies all consumed post breakfast
  • One mega suntan
  • Zero flats!

All in all, I was very happy to pull this ride off.  It wasn’t easy by any measure, but then again, that was part of the reason I did it.  A part of me gets a great deal of satisfaction of pushing myself into new realms.  What some may consider insane is what I consider proving that you can do whatever you want in this world, so long as you put your mind to it.  Would I do this ride again?  Yes (I can’t say that I felt this way immediately upon finishing) but it will probably be quite some time from now.

If you’ve ever seen my helmet after a ride, you’ll affirm that the straps are usually covered in salt.  This last pic doesn’t do my jersey justice, but let’s just say that salt was fully embedded into every fabric of it’s being.

And lastly to Eric – Kyle says that you would have thought I was crazy for doing such a ride.  But then again, he said you would have been right there along side me pushing me on.  Well, I hope I made you proud sir and thanks for the inspiration!

Health & Finances

Q:  I have a small child and over the past few years my employer has really increased the amount their employees pay towards their health care cost.  It’s getting to the point that it’s making my finances tight.  Is there anything I can do to save on health care cost or should I just look for an employer with better health care benefits?

A:  Medical cost can certainly put a pinch on your finances.  However, there are several actions that you can take to try to keep things in line.  The following are a few ideas to help you survive these rocky times:

Participate in a Flexible Spending Account.  A flexible spending account (FSA) is a tax-advantaged savings account set up through one’s employer. It allows an employee to deduct an amount per family from their paycheck pre-tax and then spend it on qualified medical expenses.  By deducting the money pre-tax, it is not subject to payroll tax, thus decreasing the amount of tax one has to pay on their income.  This could reduce your income tax bill come tax time and result in a greater refund.  The drawback to FSA’s is that the money must be spent within the plan year. Any money left unspent at the end of the year is forfeited; this is known as the “use it or lose it” provision.

Prior to the enactment of the Patient Protection and Affordable Care Act, the Internal Revenue Service permitted employers to enact any maximum annual election for their employees. The Act amended Section 125 such that FSAs may not allow employees to choose an annual election in excess of a limit determined by the IRS.  The annual limit will be $2,500 for the first plan year beginning after December 31, 2012.

Review your coverage options.  HMO or PPO?  Premier level or standard level of coverage?  Higher deductible or lower one?  All of these questions should be reviewed annually to ensure that your health care coverage properly aligns with your current health status and budget.  If you know you’re health is failing in a particular year you may want to contribute to a FSA, go with a PPO and pay the lower deductible for the next year if you foresee your problem continuing.  In relatively good health and only plan on seeing the doctor for your annual physical?  Increase the deductible, only fund the FSA with the cost of that visit and watch your health care cost fall that year.  While these are condensed versions of what can be done, the benefits specialist of your HR department can help you review your options and make an accurate decision.

Get those routine check ups.  When we’re younger, we often “hope” that whatever is wrong with us will just magically fix itself.  Bad idea when it comes to your health as time may be of the essence when it comes to certain ailments.  Ignoring a problem will not typically make it better; in fact it will almost always have the opposite effect.  For example, Mr. Rogers often recants how he didn’t recall seeing a dentist any of the four years while he was away in college.  Result?  Two root canals, several treatments for periodontal disease, several “new” cavities and broken fillings and about $4,000 in dental cost that mostly had to be paid out of pocket because he exceeded the annual plan coverage amount.  Thus, make it a point to go to the doctor/dentist at least annually and get your check up, as preventative maintenance is much less costly then fixing a major problem.

Live a healthy lifestyle.  Healthy eating decisions, routine exercise and living a balanced life can help to significantly reduce health cost, stress and your overall living expenses.  For example, “brown bagging it” for lunch can reduce your monthly budget and put you in control of healthier eating options.  Mc Chicken sandwich or homemade tuna sandwich with a teaspoon of salad dressing and some relish?  Cost wise they are about the same but the tuna sandwich is lower in sodium, fat and calories.  Walking the last few blocks to the job versus taking the bus can reduce your weight and increase the efficiency of your cardio vascular system, which can in turn reduce stress and high blood pressure.

All of the above, when combine with the previous three options, can lead to decreased health care cost, less frequent doctors visits and a better state of health in general.  But if your employer keeps raising cost at an unbearable rate, you might have to take these tactics to a new employer with better benefits and coverage.

Budgeting Basics for Small Business

When it comes to business financials, most entrepreneurs would rather focus on building their business than looking at pages of numbers.  The truth be told, it’s not essentially for a small business to have a budget.  Hey, how many people do you know who don’t balance their bank accounts?

However, the reality is that every small business owner can benefit from preparing an annual budget.  Firstly, there may come a day when you need to apply for a bank loan, buy a new piece of machinery or expand your locations.  It’s good to have a budget in place now than to have to pull one together when one of these events occurs.  Secondly, a budget isn’t about predicting your future but instead crafting it.  When you put your goals to paper a funny thing often happens; you achieve them!

What Is A Budget?

Simply put, a budget is a financial road map for your organizations performance.  While the process can be quite complicated large organizations, smaller companies tend to focus on two basic budgets: operations and cash.  While the budgets focus on two slightly different things, they will both typically cover a one year time frame.

Operating Budget

How much revenue will you generate next year?  How much will you spend on marketing?  Will you make a profit during the Summer months?  These are questions that are usually answered once the operating budget is complete.  The goal of this budget is to provide the blueprint for how the business is going to operate in the coming year. As a result, it typically relies on information from functional areas such as sales, marketing, distribution and customer service.  At the end of the process one should have an income statement that shows how much profit the business expects to make at the end of the year.

Cash Budget

Unlike the operating budget, the cash budget is a little more of a financial exercise as its purpose is strictly financial. What we mean by that is that it’s designed to ensure that the business has enough cash to fund its activities throughout the year.  Emerging and growing companies often find themselves strapped for cash even though sales are increasing and they are profitable. The goal of the cash budget is to ensure that you don’t run out of cash, especially at an inopportune time (like when you need to load up inventories for the next quarter).

How To Budget

Budgeting doesn’t have to require a trip to your accountant or the use of fancy software.  With a little time, commitment and thought any small business owner can prepare a useful budget.  As the operating budget is probably the most used and easily understood of the two budgets, here are 6 tips on how to go about preparing it:

1) Review prior period data.

If you’ve been in business for a while, take a look back at your past performance.   If possible, review your results for the past two or three years. Unless you are starting a new business or developing a new product, this will be the best indication of what’s going to happen in the next year.

2) Develop reasonable assumptions.

After reviewing the data, develop some assumptions about the future.   What will sales growth be? Is the market for your products or services expanding? How effective will your marketing program be? What will your competitors do? Most business owners have strong sense of intuition about these things so listen to it and then incorporate it into your plan.

3) Determine expected revenues.

Use your historical data and assumptions to make sales projections. Some companies establish a target that is realistic and attainable while others prefer a “stretch” budget that will be difficult, but not impossible, to achieve.  Expected revenues should include not only the number of products you expect to sell, but also at what price you will sell.  If you plan to increase the price, do you expect customers to continue to buy at the higher price, or will sales decrease by some degree?

4) Calculate the expected cost of goods sold.

When calculating the cost of goods sold, be sure to include all direct and indirect costs: material, labor, packaging, storage, etc.

5) Calculate expected operating expenses.

This includes fixed costs such as rent, salaries, utilities, office supplies, etc.  Your bank and credit card statements will have most of these items in it, which should make your job easier.  Just don’t forget to include things like price escalations and increases (e.g. rent, property taxes, etc) otherwise you’ll make your profit look better than it really will be.

6) Calculate expected operating income.

Subtract your expenses from your revenue and presto, there’s your operating budget! 

Once your budget is complete, take some time to look it over and see if everything appears reasonable.  If it doesn’t look right, go back and make adjustments where necessary.  Periodically throughout the year you should revisit your numbers to see if you are on track to hit them.  In bigger companies they revise their number periodically via a forecast.  This isn’t necessary for the small business owner, but if you feel that things need adjusting to hit your target, feel free to take the appropriate corrective action.  Remember, your budget is just a guideline for your financial operations, not a set of concrete numbers that have to be adhered to.