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
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.
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
Kawika Kaleokaika Cooper is a Certified Financial Planner.
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Copyright © 1996 Hale Pai Pacific American-News Journal
Last modified: February 28, 1998
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