If you’ve ever learned a foreign language, then you may understand what it’s like when you first start navigating the waters of investment and finance. It seems like everything is shortened into an acronym, and every time you get a handle on something, there seems to be something else that you need to learn to stay “up to speed” in this industry.

To make it a bit easier, we’ve created a list of the top 28 financial terms you should know. Refer to this list anytime you hear a new term and want to understand what it means. We’ve even divided it into categories to help you narrow things down even more. Before long, you’ll be confidently speaking the language of “investment” with others who speak this language as well.

Happy investing!

Banking and Credit Terms 

Compound Interest – This is the interest you receive on the money you deposit plus the interest you’ve amassed as you’ve invested and saved in various accounts. It’s similar when you borrow: Compound interest is the interest you incur on the original loan plus the interest you’re charged gradually over the life of your loan.

FICO Score – This is a number that financial companies use to determine the risk associated with lending money to a particular borrower. The acronym stands for Fair Isaac Corporation, the company that invented this method for measuring the financial liability of borrowers. The lower your score, the riskier it is to lend to you; the higher your score, the more likely you will be approved to borrow.

Net Worth – The easiest way to determine a person’s net worth (or financial health) is to subtract their liabilities from their assets.

Insurance Terms 

ACV – This stands for Actual Cash Value and represents the value of a property at the time it is lost or damaged.

Beneficiary – The person(s) named in a life insurance policy who receives the payout when you pass away.

Term Life Insurance – This type of insurance has cheaper premiums but only lasts for a specified amount of time (10, 20, or 30 years). If you die while owning this policy, your beneficiaries receive a payout from the insurance company.

Whole Life Insurance/Permanent Life Insurance – As the name implies, this insurance lasts your whole life, but the premiums cost more. It also often offers a tax-deferred investment option (like dividends) in addition to paying beneficiaries when you die.

Taxes Terms 

AGI – This means Adjusted Gross Income. It’s determined by calculating your gross income and subtracting specific IRS-allowed deductions. Your AGI helps determine your actual taxable income.

Dependent – Dependents can be children or adult relatives that you financially support. When filing your taxes, you can reduce your taxable income by receiving tax credit or exemptions for dependents.

Tax Deduction – This is an allowable expense that is deducted from a taxpayer’s gross income thereby lowering how much he or she pays in taxes.

Real Estate Terms 

ARM – This stands for Adjustable-Rate Mortgage. With this type of mortgage, the interest you pay on the balance of your loan fluctuates based on certain criteria, such as market activity. This also causes your mortgage payment to vary from month to month.

Earnest Money – This is a “good faith” deposit given to a seller by a buyer to show that the buyer is serious about the agreement between them.

Escrow – As you pay your mortgage each month, a portion of your payment is designated for the escrow account which holds your homeowner’s insurance and property taxes until they are due and need to be paid.

Fixed-rate mortgage – This type of mortgage’s interest rate never changes; it’s permanent. Your mortgage payment each month won’t fluctuate like an ARM will. (There are pros and cons to this: If rates are higher than your fixed rate, then you’re set. But if your fixed rate is higher than the variable rate, then you will pay more interest.)

Retirement Terms 

401(k) – This is a retirement plan that is established by an employer to assist employees in saving for retirement. Employees can choose to have a portion of their paychecks deposited directly into their accounts. Sometimes employers match the amounts employees put into their 401(k) plans. (This is usually pre-taxed funds.)

IRA – IRA stands for Individual Retirement Account. People can deposit pre-tax, tax-deferred income toward investments to prepare for retirement; taxes aren’t paid until money is withdrawn from the account.

Pension Plan – A Pension Plan is a benefit some employees receive when their employer deposits money into a pool of funds that is then invested to produce income that is set aside for their retirement.

RMD – This is the Required Minimum Distribution amount that you must begin withdrawing from your traditional IRA account no later than April 1 once you’re 70.5 years old. You can withdraw more than the RMD if you’d like, but the RMD is the minimum. Click here to view the Internal Revenue Service’s calculation worksheets to determine the RMD for your particular situation.

Investing Terms 

Asset – This is something like a stock, bond, real estate, or other investment that can make money for you.

Bond – Also known as fixed-income securities, bonds allow you to lend money to a company or government at a fixed rate. You are repaid the amount of your investment, along with interest, at specified time intervals until it’s fully repaid.

Broker – This is a person or company that acts on your behalf, for a fee, to buy and sell investments.

Capital Gains – This is the amount that an asset or investment increases in value over its original price and on which you will be expected to pay taxes after it’s sold.

Diversification – Diversification is a method by which investors manage the risk in their portfolios. The idea is that rather than putting “all your eggs in one basket,” so to speak, it’s more profitable and safer to utilize multiple kinds of assets.

ETF – This stands for Exchange-traded Fund. ETFs are traded like stocks and vary in price throughout the trading day on the stock exchange. Lower costs and buyer-driven values are associated with ETFs compared to Mutual Funds.

Liability – A liability is a person’s or company’s debts, such as loans, mortgages, and accounts payable, just to name a few.

Mutual Fund – A Mutual Fund is a way to invest by collecting money from many different investors who pool their money together and put it into securities like stocks, bonds, money market products, and other assets. Mutual Funds are maintained by managers and companies, and owners experience losses and gains and pay taxes on the latter.

Stocks – When you buy a stock, you essentially become a shareholder or partial owner of that company, depending on how many shares you buy. As such, you’re entitled to assets and other earnings of the company. There are common stocks and preferred stocks. If the company is successful, you can sell your stocks at a higher price than you purchased them and make a good profit.

Stock Options – This is a benefit that some employees are offered that allows them to purchase company stock for less than nonemployees. Companies often use this as a bonus or incentive to reward employees.

Finally, if this all seems like Greek to you, then do yourself a favor and contact a trusted and knowledgeable financial advisor to help walk you through the process. If you’re looking for someone you can count on, contact www.russellandcompany.com today. You don’t have to go this alone; just reach out and get the help you need to plan for a secure future for yourself and your family.

Sources:

https://www.learnvest.com/knowledge-center/your-money-bible-25-financial-terms-to-know

https://investorjunkie.com/37463/common-investing-terms-definitions/

https://www.investopedia.com

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But that’s exactly what thousands of real estate professionals are doing every year when they write large checks to Uncle Sam to pay their taxes.

Don’t let it be you.

As the 2018 tax season approaches, here are some ways you can decrease your taxes:

B Minus E Equals T

No, this isn’t something you forgot from Algebra class.

B – E = T means Business – Expense = Taxes.

The bottom line is you’ll pay less in taxes when you have higher expenses.

You can decrease the amount you pay the IRS by the total amount of expenses your business accumulates. This can include expenses like your mileage to and from client showings, your monthly cell phone charges for business use, lunch meetings with potential clients, and more.

But how can I pay less in taxes for 2017 now that the year is over?

There are two business expenses you can still count toward 2017, even though we’re midway through January:

Open a SEP-IRA or make an IRA contribution.

You can fund your retirement and get a tax deduction at the same time by opening a SEP-IRA or by making an IRA contribution.

How does a SEP work?

If you are self-employed, you can decide to establish a SEP-IRA for yourself.

A SEP allows you to make larger contributions in good years and reduced contributions in down times.

Most financial institutions will offer you several investment options to choose from for your SEP.

Pros:

• Easy to set up and operate
• Low administrative costs
• Flexible annual contributions

Con:

• Must contribute equally to all eligible employees if you have a team.

Contribution Limits:

1. 25% of the employee’s compensation, or
2. $55,000 for 2018 ($54,000 for 2017)

Is the SEP-IRA the right plan for you?

The post Save Taxes in 2018 [SEP IRA] appeared first on Russell and Company.

WHAT IS A TIMESHARE?

A timeshare is a property, typically a vacation property, where multiple owners share a right to use the property. Usually, most timeshare owners buy a right to use the property during an allocated week of the year. It is important to remember that a timeshare is not an intangible personal property interest. A timeshare is a real property interest, much like your home or any other land you may own. This means that a timeshare must be planned for or probated like a real property interest.

TIMESHARE ESTATE PLANNING AND TIMESHARE PROPERTIES

Planning for what happens to your timeshare after death can be a very tricky process. Most timeshare owners want to pass their enjoyable experiences at their timeshare onto their children or friends. Since timeshares are usually a real property interest, the timeshare must be deeded through the probate process, if the timeshare is not otherwise deeded during life. The probate process is difficult with timeshares because the timeshare is rarely located in the state of the decedent’s residency. This means that an ancillary probate must be done in the state where the timeshare is located and will often cost several thousand dollars in additional attorney fees and court costs.

Timeshares, when probated, are often a luxury burden on the beneficiaries of the decedent’s estate. Even though the owner of the timeshare has died, the owner’s estate is still responsible for the timeshare fees and property tax expenses that are incurred each year. While the decedent may have thought the beneficiary wanted or would enjoy the timeshare, the beneficiary may not want to take on the added expense associated with the timeshare.

WHAT ARE MY OPTIONS FOR ESTATE PLANNING AND MY TIMESHARE?

There are a couple different options available to timeshare owners when completing their estate planning. Each option has its own drawbacks, but the options have some benefits as well.

• Rights of Survivorship: This option is if the timeshare is owned by a married couple or by a couple of people. A property owned with rights of survivorship (most commonly known as Joint Tenancy with Rights of Survivorship), means that if one owner dies the property passes automatically to the surviving owners. This option only works if there is still a surviving owner. Once there is only one surviving owner left, the owner must then plan using the following options or add another person as a joint tenant while they are still living.

• Sell the Timeshare: Selling the timeshare is always an option to avoid the probate process. Timeshares are notoriously hard to sell and they often sell for a fraction of the purchase price. Though the property may be sold at a loss, the loss is probably less than the expense that would be incurred during the probate process.

• Abandon the Property: If the beneficiaries cannot afford to keep the timeshare, the beneficiaries can elect to not inherit the property. The Timeshare management will then likely re-absorb the property and re-sell it to recoup any of the expense. There may be fees and tax consequences associated with abandoning a timeshare property.

• Deed the Timeshare into Trust: One of the most favorable options for transferring a timeshare is transferring the timeshare into a revocable trust. The owner then will keep control over the timeshare during their lifetime as a trustee of the revocable trust. The timeshare will then stay in trust for use by the trust’s beneficiaries. However, the trust will still have to pay the applicable fees and taxes for the timeshare.

• Transfer on Death Affidavit: A transfer on death affidavit is an easy way to avoid probate with your timeshare property. A transfer on death affidavit is a type of deeding process that automatically transfers your timeshare property to a beneficiary listed on the affidavit at the time of the owner’s death. Not all jurisdictions recognize transfer on death affidavits and the beneficiary is still responsible for the timeshare expenses if they do recognize a transfer on death affidavit.

If you own a timeshare property, please contact an attorney to help you decide which planning option best suits your needs. Timeshares can be tricky to pass at death and it is in your best interest to minimize the cost to your loved ones.

Authored By MacLaren Law

MacLaren Law LLC provides counsel for the estate and business planning needs of Columbus, Ohio and its surrounding communities.

Disclaimer

MacLaren Law LLC is not affiliated or associated in any way with Kestra IS or Kestra AS. This is for informational purposes only and not considered advice for any individual. Please seek legal counsel in regards to your individual situation prior to engaging in any activity that has been discussed here.

The post Estate Planning for your Time Share appeared first on Russell and Company.

WHAT CAN AN AGENT DO?

As an agent, there are several powers a Power of Attorney grants to the agent under the Ohio Uniform Power of Attorney Act. This statute gives the agent power to act on behalf of the principal in the following areas:
• Real Property
• Tangible Personal Property
• Stocks and Bonds
• Commodities and Options
• Banks and Other Financial Institutions
• Operation of Entity or Business
• Insurance and Annuities
• Estates, Trusts, and Other Beneficial Interests
• Claims and Litigation
• Personal and Family Maintenance
• Retirement Plans
• Taxes

WHAT MUST AN AGENT DO?

An agent must always:
• Act in good faith
• Act within the scope of the authority granted in the Power of Attorney
• Attempt to preserve the principal’s estate plan
• Maintain the best interests of the principal
• Disclose your identity as an agent whenever you act on behalf of an agent

If an agent fails to act in good faith or if an agent violates the Uniform Power of Attorney Act, then the agent may be liable for any damages that may arise from the agent’s violations.

TERMINATING AN AGENT

An agent’s duties are terminated if any of the following events happen:
• The death of the principal
• The principal’s revocation of the power of attorney or the agent’s authority
• The occurrence of a termination event stated in the power of attorney
• The purpose of the power of attorney is fully accomplished

If you have been made an agent under a Power of Attorney and have any questions, please seek legal counsel.

Authored By MacLaren Law

MacLaren Law LLC provides counsel for the estate and business planning needs of Columbus, Ohio and its surrounding communities.

Disclaimer

MacLaren Law LLC is not affiliated or associated in any way with Kestra IS or Kestra AS. This is for informational purposes only and not considered advice for any individual. Please seek legal counsel in regards to your individual situation prior to engaging in any activity that has been discussed here.

The post What is a Power of Attorney appeared first on Russell and Company.

Due to the high costs of some levels of care, many families feel that it is their filial duty to care for their elderly relatives. This family-provided care is often at the cost of abandoning careers, steady paychecks, and full-time employment, as many elders require near constant assistance with mobility, basic hygiene functions, and medical care. While family members sacrifice their lives to care for another, this sacrifice is often uncompensated. Complicating matters more is that these care arrangements are often on an informal basis, which means after the relative has passed there may not be a formal process available for the caregiver to receive compensation. Federal law is also lacking options to compensate the family caregiver; Medicare and Medicaid do not provide compensation for a family caregiver unless the family caregiver is actually licensed in home health care.

The following article discusses the various ways a family caregiver can receive payment or compensation for providing care to their family members.

CAREGIVER COMPENSATION AGREEMENT

This is arguably one of the best options to follow when a family member is caring for an elderly relative. A Caregiver Compensation Agreement is a contract between the parties that enumerates what the responsibilities of the caregiver are and what compensation is to be given for the services rendered. Additionally, this agreement allows the caregiver to be compensated during the elderly relative’s lifetime or after the relative has passed.

This kind of agreement has several implications that other forms of compensation may not have. First, if the family caregiver is receiving income from the elderly relative during their lifetime, the obligation of the caregiver is to pay income taxes on the compensation. This includes both state and federal income taxes, plus Medicare and Social Security taxes. If the caregiver is to receive compensation after the death of the relative, then the compensation portion of the transfer will be taxable as income. For example, if the elderly relative is going to make an inter vivos gift of their home worth $100,000 to the family caregiver, who only rendered services worth $50,000, then the $50,000 of compensation will be taxed as income and the other $50,000 will be subject to any applicable gift or estate taxes.

Another issue that caregiver compensation agreements face is the pushback from other relatives. Some families may feel that compensating a family caregiver is greedy and repulsive, as they view caring for a relative a filial, moral, and/or religious duty. However, these families must realize that if the family caregiver were to provide care to another unrelated elder, they would be compensated for their services.
Caregiver Compensation Agreements will undoubtedly receive pushback from cultural conflicts within the family. Coupling these views with the possible tax implications, many caregivers avoid formal agreements that secure their right to compensation.

COMPENSATION THROUGH A TESTAMENTARY GIFT

Testamentary gifts have some of the same tax implications as Caregiver Compensation Agreements. If the language in the Will provides that a transfer is to be made as compensation for a family caregiver’s services then the transfer may be subject to income taxes. This is why many transfers of property made in Wills lack language that indicates that the transfer is really for compensation and not as a gift (most testamentary gifts are not taxed due to changes in state and federal law).

Testamentary gifts have some risk attached to them. The elderly relative is able to change their Will before their death and write the family caregiver out of the Will or substantially lower the gift. Additionally, if the elderly relative was transferring some form of property to the caregiver, the property could lower in value and the caregiver could not receive an adequate amount of compensation.

COMPENSATION THROUGH POWER OF ATTORNEY

Many family caregivers are often designated agents through the elderly relative’s formal power of attorney. This role can create some tension, as many caregivers feel that they cannot compensate themselves under the auspices of the power of attorney. While this is true for “gratuitous agents,” who acts as an agent for the elderly relative without the right to compensation, most formal agents can be compensated and have the power to compensate those who render services to the elderly relative. As long as the agent acts with care, competence, and diligence, and does not violate the terms of the Power of Attorney, then the agent can compensate themselves as a family caregiver.

Of course, it should be mentioned that the agent should also keep careful records detailing any expenses that arise from the care of the elderly relative and the compensation that they give themselves as the caregiver. The agent should be careful not to overcompensate themselves, as they could be found to violate the duty of good faith to the relative. Typically, the market value of similar services is a good measure of how much compensation a family caregiver should receive.

If you are currently a family caregiver or are going to become a family caregiver, it is important that you consult with an attorney to fully understand your right to compensation and how you should be compensated. This is especially important if you are a caregiver and an agent under a Power of Attorney.

Authored By MacLaren Law

MacLaren Law LLC provides counsel for the estate and business planning needs of Columbus, Ohio and its surrounding communities.

Disclaimer

MacLaren Law LLC is not affiliated or associated in any way with Kestra IS or Kestra AS. This is for informational purposes only and not considered advice for any individual. Please seek legal counsel in regards to your individual situation prior to engaging in any activity that has been discussed here.

The post Caregiver Compensation appeared first on Russell and Company.

1. What is a Revocable Living Trust?

A Revocable Living Trust is a popular alternative to wills and other estate planning tools. A Revocable Living Trust helps you maintain control of your assets while you are living and will determine who gets your property upon your death. A Revocable Living Trust is favorable to a will in that it doesn’t require probate and you can revoke or amend your trust anytime while you are still living.

2. Are there other names for a Revocable Living Trust?

A Revocable Living Trust is also known as a revocable trust, an inter-vivos trust, a living trust, a grantor’s trust, and a loving trust. Though there are many names a Revocable Living Trust goes by, the function of all of these trusts is essentially the same.

3. How are a Will and a Trust different?

A Will mandates probate, which means that your Will must be admitted into court and approved by a judge before your assets can be transferred. A Will is not kept private after your death, unlike a revocable trust. Both a will and a trust can be revised during your life if your priorities have changed. However, a trust will allow you to skip probate and will also allow you to name young children as beneficiaries of the property. To learn more about the probate process, read on here.

4. What is an Irrevocable trust?

An irrevocable trust is a type of trust that you cannot amend or revoke during your lifetime. This means that an irrevocable trust is permanent and cannot be changed.

5. Why does a revocable living trust help me to avoid probate?

During the process of creating a living trust, you will most likely transfer a significant portion of your assets into the trust and your trust will become the owner of those assets. When you die, your trust will distribute your assets to the beneficiaries you have listed in your trust.

6. Is a living trust a good option for a single person?

Yes! A living trust is always a good estate planning option if you are seeking to avoid probate and provide a quick transfer of your assets to your beneficiaries upon your death.

7. Does anyone need to read my living trust?

No, your living trust is a private document and you are not obligated to share it with anyone, even after your death. However, you may want to show your living trust to your beneficiaries and consult with them on the terms of the trust. By consulting with and explaining to your beneficiaries the terms of your trust, you are minimizing disputes and misunderstandings from happening after your death.

8. Where should I store my living trust?

Your living trust is a very important document and you should keep it in a safe place that will be easily accessible after your death. A fire box or safety deposit box would be good places to store your document; however, access to a safety deposit box can be limited after your death, so please plan for this if you store your living trust in a safety deposit box. Your attorney will keep a copy of your trust and may store your original copy for you upon request. Lastly, it is important to let your successor trustee know where your trust can be found!

9. What parties are in the living trust?

There are three different parties in a living trust. The settlor(s) are the creator(s) of trust. The trustee(s) are the people who will manage the trust after your death. The beneficiaries are the parties who benefit from the trust’s income and assets.

10. Can changes be made to my living trust after death?

Once the settlor(s) of the trust has passed away, the trust becomes irrevocable. This means that any successor trustees of the living trust may not make changes to the trust.

11. Does a bank or trust company have to be involved in my living trust?

A bank or trust company will only have to be involved if you choose them to be. Many people will choose to designate individual trustees; however, you can name a bank or trust company to be a trustee and manage your financial affairs.

12. What is a trustee?

A trustee is a person who will manage the Trust assets. The first trustee may be the creator of the living trust. Any following trustees will be named in the living trust and will be able to handle your affairs if you become disabled or die.

13. What is a Pour Over Will?

Sometimes assets are not transferred to your trust or it is simply not feasible to transfer all of your assets into your trust before your death. A Pour-Over Will is different from a normal Will because it directs the executor of the will to “pour over” any assets not included in your trust at the time of your death to your trust after death. However, any assets that are included in the Pour Over Will will have to be probated, so it is imperative that your major assets are transferred to your trust before your death. A Pour-Over Will is simply a safeguard for any of your assets that were not transferred into your trust before your death.

14. If I place my home into my living trust, will it affect my mortgage?

No, transferring your home into your trust will have no effect on your mortgage and the mortgage company cannot “call” your mortgage early due to the transfer.

15. If I place my home into my living trust, will I still be able to deduct my mortgage interest from my taxes?

Yes, you will still be able to deduct your mortgage interest from your taxes because your living trust will have no effect on your income tax.

16. How does a living trust affect my income taxes?

A living trust will not affect your income taxes while you are living. You will continue to file your income tax as you normally do. However, after your death, your trust will have to pay taxes if it generates income. It is best to consult an attorney to find out how this applies to you and your living trust.

17. Can I avoid probate by using Joint Tenancy with Rights of Survivorship?

Yes! Joint Tenancy with Rights of Survivorship can be used to avoid probate upon the death of a spouse. Joint Tenancy with Rights of Survivorship will automatically transfer the decedent’s property to the living spouse upon the decedent’s death. However, when the living spouse dies the property will have to go through probate unless the living spouse puts the property into a living trust or designates a Transfer on Death Beneficiary. Joint Tenancy with Rights of Survivorship should not be confused with Joint Tenancy in Common, as Joint Tenancy in Common does not transfer the remainder interest of the property to the living spouse and the property will have to go through probate.

18. Does my living trust need to be updated?

Your living trust should be reviewed every 2 to 3 years to see if any changes need to be made to the document. Life circumstances can change and it is important that your living will reflect the changes that have been made in your life.

19. Does a living trust protect me from a lawsuit?

Your living trust will not protect you from lawsuits.

20. Will my living trust protect me against creditors?

No, a living trust will not protect you from your creditors because it is fully revocable during your lifetime. If you are looking for creditor protection, consult with your attorney about a Legacy Trust or an Irrevocable Trust and which option is best for you.

21. Where do I file my living trust?

Living documents, unlike Wills, are private documents (even after death) and will never require registration or filing. If real property is sold in the name of the trust, the property’s deed will require a signature from the trustee and the deed will need to be recorded to show that the trustee had the power to sell the property.

22. Can I revoke or cancel my living trust?

Yes, a living trust is revocable at any time before your death. After your death, the living trust becomes irrevocable.

23. How does the distribution of a living trust differ from the distribution of a will?

In a living trust, your assets are distributed by the successor trustee according to the instructions in your living trust. This means your assets can be distributed immediately and/or distributed at a later date. The distribution of a will is reliant upon the probate process and the probate process will immediately distribute your assets as stated in your will.

24. Can the assets in my living trust pay for my medical expenses or nursing home care?

Yes, the assets in your living trust are available to pay for your nursing home care and other medical expenses. However, if you intend to apply for medical assistance, the assets in the living trust will not be protected. If you are planning on applying for Medicaid then it is best to explore other Medicaid Planning techniques with an attorney. Medical assistance rules are very complex and it is important to consult with your attorney to determine what estate planning tool is best for your circumstances.

25. Can the assets contained in my living trust be sold?

Yes, the assets of your living trust can be sold. While you are living, you still have control of your assets in the living trust if you are the trustee, including buying, selling, or transferring the assets.

Authored By MacLaren Law

MacLaren Law LLC provides counsel for the estate and business planning needs of Columbus, Ohio and its surrounding communities.

Disclaimer

MacLaren Law LLC is not affiliated or associated in any way with Kestra IS or Kestra AS. This is for informational purposes only and not considered advice for any individual. Please seek legal counsel in regards to your individual situation prior to engaging in any activity that has been discussed here. Trusts should be drafted by an attorney familiar with such matters in order to take into account income, gift and estate tax laws (including generation skipping transfer tax). Failure to do so could result in adverse tax treatment of trust proceeds.

The post 25 Frequently Asked Questions About Wills, Trusts, and Estate Planning appeared first on Russell and Company.