Sunday, January 28, 2024

Common Estate Planning Misperceptions

One dictionary definition of the word “misperception” is a wrong or incorrect understanding of something. Often, misperceptions result in faulty decision-making or inaction to address a pressing situation. A financial example where misperceptions are common is estate planning.


Below are eight common estate planning misperceptions:

Estate Planning is for “The Rich”- No matter how modest their net worth, most adults own some property (e.g., a car, a bank account, and perhaps a house). Without estate planning documents (e.g., a will or trust), property will be distributed according the state intestacy laws.


My Will States Who Gets my IRA- Two of the largest assets for many people, life insurance and qualified retirement plans (e.g., 401(k) and 403(b) plans and IRAs) are transferred via beneficiary designation- not via a will. It is wise to name both primary and secondary beneficiaries.


PoD and ToD Are the Same- A Payable-on-Death (PoD) designation is usually used for bank products such as checking and savings accounts and certificates of deposit (CDs). A Transfer-on-Death (ToD) designation is typically used for brokerage accounts. In addition, 28 states allow real estate to be transferred with a ToD designation and 19 states allow its use for vehicles.


My Spouse Can Make My Decisions- Some people think that their spouse can make financial and medical decisions for them without ancillary documents. This is incorrect. For example, a spouse cannot sell someone’s interest in a property without a durable power of attorney or make end-of-life medical decisions without a living will and named health care surrogate.


Having a Will Avoids Probate- Wills govern any property held in an individual’s name (that does not have a named beneficiary) and provide for the administration of that property through the probate process. This includes paying a deceased person’s debts and transferring assets to heirs. Probate can be costly and includes court filing fees and attorney and/or executor fees.


A Will or Trust Trumps a Beneficiary Designation- Not true. If there is a conflict between the terms of a beneficiary designation and a will (i.e., between the person(s) named to receive a deceased person’s assets), the beneficiary designation takes precedence.


A Durable Power of Attorney Automatically Becomes Executor- Not necessarily. This would only happen if the same person were named in two separate documents: a durable power of attorney advance directive and a will. A durable power of attorney agent is only authorized to act while a person is incapacitated and the agent’s power ceases when the document creator dies.


Out-of-State Wills Are Not Valid if You Move- Wills from another state may or may not be valid but, even if they are, may not work well with the new state’s laws and procedures. It is best to have a prior state will reviewed by an attorney in the new state of residence.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.



Thursday, January 18, 2024

An Unconventional Way to Cruise: Seven Advantages


The Wall Street Journal recently published an article with an intriguing title: “The Secret to Sweet Dreams May Be Not to Sleep Together.” It described the not-so-uncommon situation of couples who sleep apart as a result of issues such as snoring, tossing and turning, insomnia, and CPAP machine noise.

What happens, however, when couples who sleep apart at home (or friends) go on a cruise and are confined together to a 200 to 300 square foot cabin for days? Often a series of sleepless nights that can put a sleep-deprivation damper on the cruise experience.

My husband and I were "in that movie" during a Mississippi River cruise last June. Not only did I get poor sleep (read: loud snoring), but he got sick and, a few days later, so did I. For our Panama Canal cruise in November, we decided to try an experiment: book one interior room and one ocean view room with a balcony directly across the hall from one another.

Our travel agent helped make this room arrangement possible as well as synchronize our mealtime preference and dining room table assignments. Once we arrived on board, we hung out exclusively in the verandah stateroom with a couch and a view as we would have with only one ocean view room.

Upon reflection, below are seven advantages (four of them financial) that we experienced by booking two separate rooms:

Better Sleep- Hands down, we both slept better. I caught a bad cold on Day 3 of a 12-day cruise (some passengers don’t cover their mouths!) and woke up several nights coughing and sneezing and blowing my nose. My husband’s sleep was not interrupted at all, nor did he catch my cold.

Less Chance of Infecting Each Other- We were not touching the same bathroom fixtures, TV remote, and other room items. Had I contracted COVID, instead of a bad cold, my husband might have had to be quarantined along with me (some ships enforce this by deactivating room keys) or we would have been separated anyway (i.e., if I was placed in a quarantine stateroom).

More Space- The interior room had about 180 square feet and the ocean view cabin had about 220 square feet, for a total of 400 square feet. The combined square footage was equivalent in size to some junior suites on the ship and we both had ample storage, closet, and desk space.

Double Gifts- Our travel agent ordered gifts for both rooms so we received two bottles of champagne and two orders of chocolate dipped strawberries instead of one. Ditto for two bottles of wine from the cruise line, one for each room.

Double Stateroom Credit- We both received separate credits for each stateroom. This included money from our travel agent (Cruise Planners) and AARP for each of us individually and extra credit for my husband as an Army veteran. The credits were applied to our separate stateroom bills to spend as we each wished (versus being combined).

Separate Billing- We registered individual credit cards for each stateroom. Therefore, each of us was free to spend money as desired without worring that our charges would show up on each other’s credit card bill.

Cruise Fare Savings- The cost for an interior room and an ocean view room, even with two single traveler supplements, was slightly less than the cost of having two people in an ocean view room. Crew appreciation charges are charged per person so there was no extra tipping expense.

A downside to having two staterooms was having to set up two apps and make separate specialty dining and excusion reservations (at the same time, of course) because these purchases were tied to our staterooms. Otherwise, it was a positive experience overall and we will probably do it again.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Thursday, January 11, 2024

ETF Basics: What You Need to Know

Mutual funds are 100 years old this year, but they have a formidable competitor for investor dollars. In recent years, exchange-traded funds (ETFs) have been gaining market share versus mutual funds. This post describes what ETFs are and how they differ from mutual funds.

Like mutual funds, exchange-traded funds (ETFs) are a popular investment that provides broad diversification that helps reduce investment risk. In a sentence, most available ETFs are passively managed portfolios of securities that track a market index and trade like a stock.

More specifically, ETFs, which began in 1993 (vs. 1924 for mutual funds), are a cross between stocks and index mutual funds that track market indices such as the Standard & Poor’s 500 (tracked by ETFs known as SPDRS, ticker symbol SPY).

A big difference between index funds and ETFs is that ETFs are listed on a stock exchange and trade like stocks. Thus, their prices constantly fluctuate throughout each trading day (i.e., intraday trading), unlike the price (net asset value or NAV) of mutual fund shares which is determined once at the close of each trading day.

A second difference is expenses. ETFs generally have lower expense ratios (expenses as a percentage of assets) than comparable index funds. Competition is stiff among ETF providers, which has helped keep a lid on expenses. Some ETFs charge expense ratios as little as 0.03%.

A third difference is their tax efficiency with respect to taxes on investment earnings. With ETFs, investors control the timing of the sale of their shares and resulting taxable income. With mutual funds, decisions to sell securities and distribute capital gains are made by the fund manager and individual investors have no control over their timing.

The most popular ETF, so-called “Spiders” (trading symbol: SPY), an acronym for Standard & Poor’s Depository Receipts, tracks the Standard & Poor’s (S&P) 500 index of large U.S. company stocks. Another popular ETF, trading symbol: QQQ, tracks the NASDAQ 100 index of small U.S. company stocks.  

There are also ETFs that track indexes for various industry sectors (e.g., energy, financial services, healthcare, real estate, and technology), different company sizes (e.g., large-, mid-, and small- capitalization stocks), and dozens of foreign countries or regions of the world.

Experts recommend starting simple with just a few ETFs.  The AAII (American Association of Individual Investors) Journal suggests three types of ETFs as core investments: a total stock market ETF (tracks all U.S. stocks), a total international ETF (tracks stocks from all foreign counties), and an intermediate-term U.S. government or municipal bond ETF. 

More sophisticated investors can add on additional layers such as large-cap, mid-cap, and small-cap ETFs, ETFS from different industry sectors, and ETFs from specific regions such as Europe or emerging markets. 

For additional information about ETFs, review the bulletin Exchange-Traded Funds (ETFs) from the U.S. Securities and Exchange Commission.


Thursday, January 4, 2024

Make the Most of Free Money


 Here is a financial New Year’s resolution: make the most of free money! “Free money” is exactly what these two words indicate: money (or goods and services in lieu of cash) that comes with no (or sometimes a few) strings attached. Free money does not have any work requirement, however, and is often income tax-free. Common sources are businesses, individuals, and the government.


Listed below are ten sources of free money:



Credit Card Rewards- Credit cards provide different types of free money including cash-back rewards and free airline trips. Someone charging $50,000 in a year on a 2% cash-back card would earn $1,000! Cash-back rewards are considered a rebate by the IRS and are not taxable.


Employer Match- This is money contributed to employees’ retirement savings accounts to match what they save. Matched savings provides a guaranteed investment return (e.g., 50% for a fifty cent per employee dollar saved match) and is taxed as ordinary income in retirement.


Inheritance- This is cash or property given to the beneficiary of a deceased person’s estate, typically via a will or trust. Inheritances are not considered taxable income by the federal government but earnings on inherited assets (e.g., stock or mutual fund shares) are taxable.


Life Insurance- This is money transferred to a beneficiary via a deceased person’s life insurance policy. Like inheritances, life insurance is generally not subject to income tax.


Product Rebates- Rebates are cash or product rewards provided to customers who make a purchase. They are considered a “price reduction” and are not taxable income.


Public Benefits- This is cash or services provided by government or non-profit agencies. Think SNAP (formerly food stamps), rental assistance, food pantries, and home energy assistance.


Retail Rewards- Loyalty programs are common among retailers and restaurants and shoppers can earn points that convert to cash-off or free meals. There are also multi-vendor rewards programs like Rakuten and Ibotta. The IRS views these rewards as discounts and not income.


Tax Refund Adjustments- Sometimes people miss a tax credit, deduction, or adjustment and need to file an amended tax return. The refund, while technically a return of their own money, is tax-free and is “found money.” If they didn’t discover their tax error, they would not have it.


Unclaimed Money- This is money held by state governments from a variety of sources including bank accounts, utility deposits, pension benefits, and insurance policies. It may or may not be taxable when reclaimed. To find unclaimed funds, visit


There is likely some free money out there for you. Claim it!

Best wishes for a healthy, wealthy, and happy 2024.

Loud Budgeting: A Financial Discipline Strategy

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