Note: Hale Pai is no longer being published. These archives of passed issues will remain available as long as there is interest. - Courtesy of San Jose Web


Hale Pai
Pacific American-News Journal

`Okakopa - October 1996 Volume 2 Issue 10

 Financial Q & A's

Q: The new minimum-wage bill just passed by Congress is somewhat confusing. Can you tell me what the key features are that affect us?

A: Congress seldom creates laws that can be understood by most of us. First, clearly one set of winners is homemakers. Beginning in 1997 the new law will allow nonworking spouses to set aside $2,000.00 a year in an IRA which you cannot do now. So, both you and your spouse are on equal ground, so to speak, and each gets to put in $2,000.00 per year. A second set of winners are employees in small businesses with 100 or fewer workers. The new law creates a mini-savings plan called Savings Incentive Match Plan for Employees (SMPLE) which permit employees to deposit up to $6,000.00 annually in tax-deferred accounts which employers will be required to match up to 3 percent of wages for each employee's contribution.

Q: My wife and I are ready to claim our Social Security benefits. Can we use our bank account for deposit of our checks?

A: Absolutely! Effective now, first time applicants for Social Security will be paid electronically, provided they have a bank account. And since you do, you are ready.

Q: We are proud parents of our first child, and we don't understand children's trusts. Can you help?

A: Congratulations on the birth of your child and for being parents who obviously are looking to the future. Parents saving for their children should consider the tax implications and how much control they wish to retain. There are four types of trusts, but let me address quickly the custodial account. In some states it is known as the Uniform Gift to Minors Act and in others as the Uniform Transfers to Minors Act (which is more flexible). Basically the trust income is accumulated or used for the beneficiary, is taxed to the beneficiary, and is controlled by the beneficiary beginning at age 18 or 21. Even if you expect your savings to be modest, it is good you are both giving this subject some thought.

Q: Is estate planning only for those with lots of money and assets? Can you give us some tips?

A: I'm glad you asked that question. Whether your estate is modest or large, you have the right to decide what will happen to it. But to ensure your wishes are followed you need an estate plan which is simply a way to make sure that your property will go to those you choose, as quickly and economically as possible. Tip 1: At a minimum, your estate plan should consist of four documents - a valid and up-to-date will; a durable power of attorney; a living will; and a letter of instructions. Tip #2: Choose a qualified tax, legal or estate planning professional; and Tip #3: Most people spend an entire lifetime accumulating their hard-earned assests, but most spend less than an hour planning for how to pass them on. Asking this question tells me you are on the right track.

Q: In your last column, there were questions on life insurance. I heard a friend mention a life insurance trust. What's that?

A: Most of us who buy insurance to protect our families' financial security don't think of it as an estate planning tool. If you own the policy, the proceeds must be included in your estate. Though your heirs do not pay income tax on the insurance proceeds they receive, if the death benefit pushes your estate over $6,000,000.00, then estate taxes will be owed. This is where a life insurance trust can help. The policy is owned the trust so that the death benefit goes to the trust to be used as you planned. Life insurance trusts have strict legal requirements: note, it must be irrevocable; you cannot be the trustee, and in most cases your must establish the trust at least three years before your death. Check with your estate planner for more details.

Kawika Kaleokaika Cooper is a Certified Financial Planner. Send your questions to Hale Pai.


Send mail to with questions or comments about this web site.
Copyright 1996 Hale Pai Pacific American-News Journal
Last modified: February 28, 1998

Hale Pai `Okakopa Page

Hale Pai Home Page