A 529 plan is a tax-free account established for the express purpose of paying the expenses of higher education for a child, a grandchild, or another family member.

Money invested in a 529 plan grows tax-free, and the account can be used to pay for “qualified” higher education expenses, including books, tuition, fees, and supplies.  What counts as “higher education”? College, graduate school, or an approved vocational school all qualify.

You can contribute up to $13,000 per year to each beneficiary’s 529 plan without paying gift tax or triggering gift tax reporting requirements. If you’re married, you and your spouse can contribute up to $26,000 per year per beneficiary.

There are some significant drawbacks that accompany 529 plans, including:

• Plans can impose high management fees.
• A different plan is offered by each state, and the rules and requirements can vary a great deal from state to state. You’re not limited to using your state’s plan, so you’ll want to carefully research your options.
• Each state’s plan has its own rules as to which investment options are available, and these investment options can be limited.
• Money withdrawn from a 529 plan for any purpose other than paying for a beneficiary’s higher education expenses will result in taxes and penalties.

Before investing in a 529 plan, you’ll likely want to get the advice of an experienced advisor. It’s important to be aware of the advantages and disadvantages of the various plans, and it’s also important to be aware of other options for investing toward a loved one’s education.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

Do you know the old saying, “don’t put all your eggs in one basket”? If so, then you’ve had your first lesson in asset allocation and diversification.

Asset Allocation and Diversification

When it comes to investing, you have important decisions to make about dividing your investment dollars.

Diversification is deciding to hold more than one type of investment, such as buying stock in several different companies, so you minimize your risk of losing all your money if one of your investments goes bad.

Asset allocation is a diversification strategy that goes one step further. With asset allocation, you don’t just buy a variety of one type of investment, you purchase investments that span several categories. This minimizes your risk of losing it all when one investment fails, plus it helps you meet your financial goals because not only are you balancing risks, you’re also balancing potential rates of return.

Three Categories of Investments

There are three main categories of investments:

1. Cash: This category includes CD’s, savings accounts, money market accounts, money market funds and treasury bills. Cash and cash-equivalent investments are by far your safest option (many are even federally-guaranteed), but they also bring the lowest rate of return.
2. Bonds: Bonds tend to occupy the middle ground between cash and stocks. They are generally more stable and less risky than stocks. By the same token, they tend to offer a lower rate of return than stocks.
3. Stocks: The stock market offers the highest level of risk as well as the highest potential rates of return for any of the three categories of investments. Especially in the short-term, stocks tend to be volatile investment vehicles, and watching your stocks day-to-day can be a bit of a roller coaster ride. As a long-term investment, though, stocks on the whole have historically done well.

Allocating Assets Depends on Your Goals

Selecting a mix of investments depends on your financial goals, the length of time you want to invest before achieving your goals, and your tolerance for risk.

So, if your financial goal is saving for retirement, which is several decades away, you may choose to initially shift the balance of your investment portfolio toward higher-risk stocks, on the theory that you can ride out any volatility in the market in favor of long-term gains. Then, as you get closer to retirement age, you’ll likely want to re-allocate your assets in favor of a heavier mix of bonds, to provide more stability and predictability in your portfolio as you near your goal.

Carefully allocating your assets can help you give you peace of mind as you work toward your financial goals.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

We all know how regular mortgages work: you borrow money from a bank to purchase or refinance your home, and you pay the bank back, with interest, in installments over a certain period of time.

What about reverse mortgages, though? They’re not the best choice for everyone (you have to be above a certain age to even qualify), but for some seniors, they’re the difference between poverty and survival. Here are the basics:

• With a reverse mortgage, the bank loans you money on the equity in your home, but you don’t have to pay it back during the term of the loan. Essentially, instead of you paying the bank, the bank pays you. This is true until you (or your spouse, if he or she is also a borrower) no longer use the home as your primary residence.
• There are no financial qualification requirements, although you do have to be at least 62 years old to have a reverse mortgage. Also, depending on the type of reverse mortgage you choose, you might have to attend a loan counseling session.
• You can choose how to receive the proceeds of your reverse mortgage. You can be paid in one lump sum or every month, or you can have your loan proceeds in the form of a line of credit.
• When you take out a reverse mortgage, any other loans secured by your home are paid out of the reverse mortgage proceeds.

If you’re considering a reverse mortgage, you’d be wise to learn as much as you can before settling on a loan. Just like shopping for a traditional mortgage, you’ll want to know all the details of your loan and you’ll want to shop for the best terms. A financial advisor with reverse mortgage experience can help you decide whether a reverse mortgage is right for you.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

What would happen to your real estate or your bank accounts if someone sued you and won the lawsuit? If you did not have an asset protection plan already in place, it’s likely that the person who won the lawsuit against you could take your real estate or your bank balance in payment of the judgment.

In today’s economic climate, many people don’t find out that they needed asset protection planning until it’s too late.

Asset protection planning is the process of keeping your property safe in the event of a lawsuit. When someone sues you and wins, that person becomes your “judgment creditor”. And people can be sued for lots of reasons. If you’re in a car accident, for example, you could be sued for negligence. It’s also common for people to be sued over credit card or other types of debt.

Once someone becomes your judgment creditor, they can come after your property to satisfy the amount of the judgment they’ve been awarded. Asset protection planning takes property that once was subject to the claims of creditors and turns it into property that creditors can’t access.

Part of the trick of asset protection planning is that you can’t wait until a lawsuit is looming to start the process. By then it’s too late. Transferring an asset out of your name in an attempt to delay or hinder a creditor is prohibited by state law, and this type of transaction can be undone by the court.

Your best bet is to start early, and consult with an estate planning attorney to find out if asset protection planning is right for you.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

Many young families, especially those where only one spouse is the breadwinner, keep only a minimal amount of life insurance. After all, it’s expensive, and there are so many other bills to pay and more immediate needs to take care of.

Particularly in homes where there’s a stay-at-home mom or dad, it’s easy to have no life insurance or to keep just enough to cover daycare expenses or to hire a nanny in case the unthinkable happens.

Even families who take into account the dollar value of the day-to-day childrearing tasks that each parent handles, and plan this amount into their life insurance calculations, fail to consider something that may be far more important.

Think about this: what would really happen in your home if you or your spouse were no longer there? If your kids are still young, would they actually be okay with hired professionals taking care of their basic needs while their remaining parent went to work as usual?

For many families, the answer to this question is an emphatic, “No!” The emotional impact of the loss of a parent can take years to recover from. This is why many parents buy enough life insurance so that, in the event one of them dies unexpectedly, the surviving parent will be free to choose whether to continue working or to be home with the children. So, if the kids need undivided attention, the surviving spouse is not under any financial pressure to be away at work.

When you’re deciding how much life insurance you need, it pays to think about how much it will cost to meet your children’s emotional needs as well as their physical needs.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

You hear about annuities all the time, especially in association with retirement planning, but do you really know what one is? At core, annuities are pretty simple. When you buy an annuity, you’re called the annuitant and you’re giving money to a company in return for payments in a fixed amount over a period of time, either for life or for a term of years.

You can make a series of payments for the annuity or you can pay for it all at once. You can opt to receive your annuity payments back in any number of ways; monthly, quarterly, semi-annually, or yearly.

Depending on the type of annuity you purchase, the payments may roll over to your spouse when you pass away; however, the more common scenario is that the annuity payments terminate upon your death.

It’s important to shop around before you decide on which annuity you’ll invest in, because some annuities are safer investments than others. Generally, fixed annuities are less risky than variable annuities. A fixed annuity gives you a guaranteed payment regardless of how much the market fluctuates. The payout on a variable annuity, on the other hand, is tied to the performance of the underlying investment on which your annuity is based. In a strong market, a variable annuity has the potential to work in your benefit. In a weak market, however, a variable annuity will work against you.

The right annuity can mean stable and predictable supplemental retirement income. However, because they can be costly, annuities are not for everyone. Before you decide to buy, it’s a good idea to do your homework and check with an experienced and trustworthy financial advisor.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.