Sustainable Civilization: From the Grass Roots Up

Contemplating Estate and Financial Planning Concepts Appendix

SUSTAINABLE CIVILIZATION: From the Grass Roots Up Page 1 of 3
Estate and Financial Planning: Introduction to Concepts Appendix Last printed 10/29/2010 11:48 AM

Many of the financial paradigms we live under amount to smoke and mirrors. The predominant political, corporate, and personal perceptions are a short-lived child of extreme abuse of finite resources. You can indeed make millions on Wall Street, or any other speculative market. But compare the long-term general rise in securities with the long term general real cost of living increases. (NOT necessarily the figures in the official federal COLA basket.)

INTRODUCTION

In physical terms the key to relegating a major disaster to the status of a (hopefully) mild inconvenience is preparation. Assume and estimate the worst, plan and act ahead of the disaster. Preparations for a short-term situation generally focus on gathering a stockpile of essential items while the weather is good, so you’re not stuck racing to the store for bottles of water, food, and batteries at the same moment every one else is making the same panic run. Long term mitigation efforts eliminate some effect of a disaster, such as raising you home above expected flood water levels.

Whether preparation or mitigation steps, you must first be aware early of what is coming, and pay attention to key indicators. The conditions for a hurricane build over a long period of time, and with modern information systems we can easily see the warning signs. There are those who heed the warnings and secure their home, or if it is going to become life threatening then “get out of Dodge.” There are always those who ignore every sign, and want someone else to “bail them out” after the fact. Consider though that the larger the disaster, the less likely there will be help.

In the coming decades the mix of physical and financial crisis may be a socio-economic hurricane. Our fossil fuel dependent infrastructure and the population dependent on it has taken a long time to build up, but once it crosses some critical point and becomes a storm it is likely to rise to violent destruction quickly. Most nations have public debt, on and off the books, that significantly exceeds the ability of the economy to pay in any real terms, and the finances of most citizens tends to not be better.

The peak oil, essentially the overpopulation hurricane, is going to include not only physical problems, but financial, and it will be a transitional not temporary situation.

Why do costs rise? Some claim cost increases are part of a normal, healthy and growing economy; as the demand for materials, employees, and goods & services rises. Large deficits (public and private) breed inflation. Public bailout of bad private debt, such as the 2007 proposed sub-prime mortgage bailout, drag down anyone making personal effort, and make the bigger picture worse.

Consider essentially two aspects to increasing prices. Government debasing the currency is a stealth tax and a source of overall price increases. Increased demand (per person, or in the number of people expressing demand) or a falling supply (fruit shortages) may cause isolated or overall price increases. At this writing (2007) oil is the largest single component of supply side inflation trends, with the enhancing challenges of continuing global population increase and expanding industrialization on the demand side.

PROBLEMS VISIBILE AND NOT

David M. Walker, appointed by President Clinton as the Comptroller General of the United States, has repeatedly documented evidence that we face a dangerous financial future. Reports at the Comptroller website estimate the “off the books” debt to be around $40 trillion. In SEP 07 Congress acted jointly to raise the "debt limit" (RECOGNIZED DEBT) by around $850 billion (9.5% - from $8.965 to $9.815 trillion), apparently in recognition that they would make no effort to stop increasing the debt, interest on which consumes perhaps 1/3 of every tax dollar.

In the same month a headline indicated 2007 Medicare spending is expected to reach $330 billion. The U.S. official population is around 300 million. Therefore BEFORE the baby boomer generation becomes Medicare eligible, the cost BEFORE the baby-boomer generation retires therefore represents a cost per-person of $1,100 per year.

The "real" situation is of course worse. In 2008 the leading edge of the post WWII "baby boom" generation is eligible for retirement under Social Security, potentially removing some of the highest paid (and highest tax paying) workers from the market, at the same time as SS expenditures rise sharply. This same wavefront becomes eligible for Medicare in 2011. Debt such as Social Security, government pensions, etc. are NOT included in the on the books debt.

As taxpayers leave the rolls, the per taxpayer portion rises. One would therefore think that the LAST THING anyone in Congress or the President would be planning would be another new federal expense, or expanding any current expense. We need to be cutting federal spending like crazy, unless of course, there is no intent to ever actually pay the debt.

In an interview with the Financial Times, Mr. Walker said he that “…THE FEDERAL GOVERNMENT’S FINANCIAL CONDITION AND FISCAL OUTLOOK ARE WORSE THAN MANY MAY UNDERSTAND.”

If you are a taxpayer, expect Uncle Sam to reach deeper into your pocket.

If Uncle can't get enough money, expect NEW and creative taxes, potentially developing into forfeitures (direct theft of property).

If you are dependent on the government, for your own health and safety find some other means of support.

In another interview, drawing parallels with the end of the Roman Empire, Mr. Walker warned there were “striking similarities” between America’s current situation and “the factors that brought down Rome,” including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands, and fiscal irresponsibility by the central government.”

Perhaps the best we can hope for is the printing press, where all of the debt is "paid", but the currency is worthless. IN THAT SCENARIO, communities that have in place, or rapidly develop a localized "life support" infrastructure and economy, may avoid the worst of the collapse…

A pro-active, or quickly self-rescuing community is likely to face though increased attention from the government, demanding expansion of "share the wealth" programs.

Look at your estate, what you earn, what you do with what you earn, what you teach your children, what legacy you are going to leave to your children. Just as the right physical steps can avoid physical disaster, the right estate and financial planning efforts can avoid disaster in this realm.

Getting Started on Your Estate and Financial Plan

Once you are aware of essential micro and macro economic factors, and decide to take definitive steps, note it's never too soon, and (almost) never too late to develop your personal estate and financial plan.

Professional Assistance - There are times when you just need professional assistance. But be aware of who you hire. Depending upon their primary business, and personal paradigms, your advisor or assistant may have concepts that differ greatly from yours. Ensure you are understood, and that the assistance you receive is in line with YOUR paradigms.

Estate Planning - If you expect to have more than some token estate, you do not want to allow your estate to pass by intestacy. In the United States, if you do not write a will, each state will have a law which determines who gets what.

Once you are in a coma, mentally incompetent, or physically incapable of handling your affairs or communicating your intentions, it's too late to act. If all of your affairs are truly simple, you may get by with completing a set of standardized forms. But if you make an error, once the document is needed, it's too late to fix it.

Please be aware, even in the area of estate planning when dealing with licensed legal counsel, in general you get what you pay for. There are for example frequently free seminars on estate planning, that in the final analysis can be seen as "commercials" for living trusts. Trusts are discussed elsewhere in this legal assistance information series. While these can be valuable tools for your estate, not everyone needs such. If you attend a "free" seminar, be aware and expect a sales pitch.

Financial Planning - If your finances are such that you are ready to move beyond the basics, you may want to contact a professional financial planner.

Ideally, your financial planner is someone who is familiar with a wide range of financial products, and will be able to translate your goals into a recommended plan of action. In selecting someone to help guide your investments, it's important for you to understand the "business" that the person is actually in. If your "planner" is an insurance agent, or mutual fund salesperson, you should not be surprised if the proposed plan has a focus in the area of the product they sell on commission.

While the government does regulate individuals in certain professions, such as attorneys, insurance agents, and those engaged in the recommendation or sale of securities, I do not find that Arizona licenses or regulates financial planners, so check the qualifications of your planner.

There appear to be three nationwide certifications for planners.


Certified Financial Planner - see


http://www.cfp.net/learn/

Chartered Financial Consultant (ChFC) - see

http://www.theamericancollege.edu/

Certified Public Accountant - Personal Financial Specialist - see

http://pfp.aicpa.org/

Outside of certification from one of these organizations, the title financial planner is used by many in the finance industry. Whether or not certified, you may find planners working in a variety of manners.

Fee Based Plan - In general, for a fee this type of planner will review with you your present status, what you goals are, and provide advice as to a timeline and types of investments to achieve your goals. They usually do not work for or have a commission arrangement with the insurance or investment firms they may recommend. In many cases, you may find such a planner will make broad suggestions, and decline to make specific recommendations for purchases. (see Investment Advisors)

Commission Based - There are frequently advertisements for free estate or financial planning sessions, and you may obtain valuable information from these sessions. Please keep in mind though, that if the free training and planning session is being presented by an insurance agent, or agent for an investment sales firm, they have an obvious incentive to sell the product of their firm.

Investment Advisors - Investment advisors can also generally be divided into fee only, and commission based. Investment advisors appear to be required to either be state or federally registered. Registration does not mean they are recommended, it simply means they are regulated.

Fee for Advice Services - There are investment advisory books, newsletter, email, live phone notice, etc., that approach investment from probably any aspect you might consider, such as if you're into ecology, there are "green" specialists. Some may be able to show you they have a good track record, some may not. But of course, the fact that they did well in the past does not guarantee they will make the right decisions for the future. Many of these services will allow you the opportunity to "test drive" their program, with some time period during which you can cancel and receive a refund of the cost.

Commission Based - This includes the stockbroker who calls with the hot tip, the agent for a mutual fund based investment entity, insurance agents, etc. While no such business should automatically be suspect, you must nevertheless keep in mind the conflict of interest the employee has in their natural bias toward the products of their own firm. Virtually every security that may be on the market via any particular specialty firm, is also available on the market for purchase by use of an account with a discount broker.

Getting Started - But before you schedule a session with your selected planning professional, you need to take stock of your situation, so that you can properly inform your respective advisors.

The U. S. Department of Labor has a guidebook available free online at:

http://www.dol.gov/ebsa/pdf/nearretirement.pdf

There is always the possibility that once the mystery is removed from estate and financial planning terms and concepts that you will feel empowered to draft your own personal plan.

Where Are You Now - Organize information on where you stand at the moment. Gather information relevant to your benefits, such as from Social Security, and your employment benefits while working and in retirement.

Where Do You Go From Here - Where is it you want your plan to take you? If you are planning to leave a legacy for your children, you will probably find you plan will differ significantly from one where you plan to retire and spend your remaining healthy years driving the country in a motor home.

Timeline - Regularly advertised are home mortgages for 360 months, and finance for a new car for 72 months. How many months do you have to invest for college for your child, or to prepare for your retirement? Not to be morbid, but what do you believe is your prospective lifespan? If you have term life insurance, when does the coverage cost increase, or when does coverage end? How do the time periods relate to each other?

If you start college savings when your child is born, you have 216 months to prepare for a large expense that is typically going to be paid out over a 48 months period. Do you have enough being set aside each month to meet your goal of providing this assistance?