What Are Some Tips for Managing My Money?
As with virtually all financial matters, the easiest way to be successful with a cash management program is to develop a systematic and disciplined approach. Spending a few minutes each week to maintain your cash management program, can help you keep track of how you spend your money and pursue your financial goals.
Any good cash management system revolves around the four A's — Accounting, Analysis, Allocation, and Adjustment.
Accounting quite simply involves gathering all your relevant financial information together and keeping it close at hand for future reference. Gathering all your financial information — such as income and expenses — and listing it systematically will give you a clear picture of your financial situation.
Analysis boils down to reviewing your financial situation once you have accounted for all your income and expenses. You will almost invariably find yourself with either a shortfall or a surplus. Ideally, you should be spending less than you earn. One of the key elements in analyzing your financial situation is to look for ways to reduce your expenses. This can help to free up cash that can either be invested for the long term or used to pay off fixed debt.
For example, if you were to reduce restaurant expenses or spending on non-essential personal items by $100 per month, you could use this extra money to prepay the principal on your mortgage. On a $130,000 30-year mortgage, this extra $100 per month could enable you to pay it off 10 years early and save you thousands of dollars in interest payments.
Allocation involves determining your financial commitments and priorities and distributing your income accordingly. One of the most important factors in allocation is to distinguish between your real needs and your wants. If you need to reduce your expenses, you may want to start out by cutting back on your discretionary spending. This can help free up cash that can either be invested for the long term or used to pay off fixed debt.
Adjustment involves reviewing your income and expenses periodically and making changes when necessary. Above all, be flexible. Any budget that is too rigid is likely to fail.
Using the four A's is an excellent way to monitor your financial situation to help ensure that you are on the right track to meet your financial goals.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.
What Is the Estate Tax?
The estate tax is a tax on property that transfers to others upon your death. Estate taxes are assessed on the total value of your estate — your home, stocks, bonds, life insurance, and other assets of value — that is over the applicable exemption amount. Everything you own, whatever the form of ownership and regardless of whether the assets have been through probate, is subject to estate taxes.
Also referred to as the “death tax,” the federal estate tax was first enacted in this country with the Stamp Act of 1797 to help pay for naval rearmament. After several repeals and reinstatements, the Revenue Act of 1916 put the current estate tax into place. Despite its long history, this tax remains controversial.
Estate taxes are calculated on the net value of your estate, which includes all your assets less allowable debts, expenses, and deductions (such as mortgage debt and administrative expenses for the estate). The applicable estate tax exemption is subtracted, and the resulting taxable value is multiplied by the applicable estate tax rate to determine any taxes due.
The most common exception to the federal estate tax is the unlimited marital deduction. The government exempts all transfers of wealth between a husband and wife from federal estate and gift taxes, regardless of the size of the estate. (The surviving spouse must be a U.S. citizen to qualify for this exemption.) However, when the surviving spouse dies, the estate is subject to estate taxes and, unless the appropriate portability preparations have been made, only the surviving spouse’s applicable exemption can be used.
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increased the federal estate tax exemption until finally repealing the federal estate tax altogether for the 2010 tax year only. The 2010 Tax Relief Act reinstated the federal estate tax with a $5 million exemption (indexed for inflation after 2011) through December 31, 2012. The 2010 estate tax provisions were made permanent by the American Taxpayer Relief Act of 2012, although the top federal estate tax rate was raised to 40%. The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the federal estate tax exclusion to $11.18 million in 2018 (indexed annually for inflation).The applicable exemption amount in 2021 is $11.7 million. In 2026, the exclusion is scheduled to revert to its pre-2018 level and be cut by about one-half.
|
Year |
Exemption |
Top Estate |
|
2011 |
$5 million |
35% |
|
2012 |
$5.12 million |
35% |
|
2013 |
$5.25 million |
40% |
|
2014 |
$5.35 million |
40% |
|
2015 |
$5.43 million |
40% |
|
2016 |
$5.45 million |
40% |
| 2017 | $5.49 million | 40% |
| 2018 | $11.18 million | 40% |
| 2019 | $11.4 million | 40% |
| 2020 | $11.58 million | 40% |
| 2021 | $11.7 million | 40% |
Check with your tax professional to be sure that your estate is protected as much as possible from estate taxes upon your death.
The information in this article is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.
What Key Estate Planning Tools Should I Know About?
By taking steps in advance, you have a greater say in how these questions are answered. And isn’t that how it should be?
Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how you would like your property to be distributed, but they also go far beyond that.
Just about everyone needs a will. Besides enabling you to determine the distribution of your property, a will gives you the opportunity to nominate your executor and guardians for your minor children. If you fail to make such designations through your will, the decisions will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be a time-consuming and costly process.
Trusts differ from wills in that they are actual legal entities. Like a will, trusts spell out how you want your property distributed. Trusts let you customize the distribution of your estate with the added advantages of property management and probate avoidance. While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisers before implementing such strategies.
Wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, all those with trusts should have a will as well.
Incapacity poses almost as much of a threat to your financial well-being as death does. Fortunately, there are tools that can help you cope with this threat.
A durable power of attorney is a legal agreement that avoids the need for a conservatorship and enables you to designate who will make your legal and financial decisions if you become incapacitated. Unlike the standard power of attorney, durable powers remain valid if you become incapacitated.
Similar to the durable power of attorney, a health care proxy is a document in which you designate someone to make your health care decisions for you if you are incapacitated. The person you designate can generally make decisions regarding medical facilities, medical treatments, surgery, and a variety of other health care issues. Much like the durable power of attorney, the health care proxy involves some important decisions. Take the utmost care when choosing who will make them.
A related document, the living will, also known as a directive to physicians or a health care directive, spells out the kinds of life-sustaining treatment you will permit in the event of your incapacity. The directive creates an agreement between you and the attending physician. The decision for or against life support is one that only you can make. That makes the living will a valuable estate planning tool. And you may use a living will in conjunction with a durable health care power of attorney. Bear in mind that laws governing the recognition and treatment of living wills may vary from state to state.
Estate Planning Tip
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The information in this article is not intended to be tax, legal, investment, or retirement advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.
