How to Assist a Newly Widowed Spouse with their Finances by Karla Hopkins

The loss of a loved one, especially a spouse, triggers many emotions. Reactions can be a serious hindrance to the survivor's ability to make intelligent, thoughtful financial decisions. The following are ways family members or financial advisors can help.

A key first step is to collect important documents including a will. It is strongly suggested that a copy of a will be kept outside of a safety deposit box because once an owner dies, the bank locks the safety deposit box. If there are no other authorized users, the bank will not open the box without a court order.

In addition to a will there might be other trust documents if the decedent was trustee or a beneficiary of a trust. Proper planning requires that these documents be available as soon as practical.

Also collect day-to-day financial documents such as savings and checking account statements, credit card bills, utility bills and loan payment books for mortgages and car loans.

In many cases the surviving spouse lacks knowledge of the family’s finances. A good place to start learning the household finances is to analyze the sources and amounts of recurring income, as well as any one-time income from the estate. You should also look for income that will cease upon the death of the spouse. The tax return is usually the best place to start this search.

If there is pension income, a death often affects the pension payments. Therefore, investigate the policies and plans and review what options may be available for the surviving spouse.

If the deceased was a partner or owner in a business, contact the entity to see what payments are due upon death.

The Social Security Administration should be contacted if the spouse is over 50. The survivor might be eligible for benefits.

Once you have determined the sources and timing of income, it’s time to look at expenditures. The checkbook and bank statements are the best place to start. Some expenses may get reduced, like a second car, but often it is disappointing how little monthly expenses actually decrease for the surviving spouse.

From a financial planning perspective, the difficult work begins when there is a monthly cash deficit. You may be able to affect a small life change to take care of this or life insurance could be used to retire some outstanding debt, or you may choose to make income-producing investments to bridge the small gap.

In more serious cases, a decision has to be made about the affordability of the home. A useful analysis for addressing cash flow is to divide the expenses into two categories; those that are needed to maintain a lifestyle, and those that are discretionary, such as rent, utilities and food.

When retaining the home is a major factor in finances you can consider taking out a new, longer term mortgage, selling the house and downsizing, a reverse mortgage, and moving in with relatives.

This is also an important time to review a plan for elder long-term care. Is there a plan? Long-term care insurance? Often the retirement and investment assets are only enough to afford a current lifestyle and do not even come close to the cost of elder care. Consider hiring a Medicare attorney to review medical needs.

The last step is to make sure the survivor updates their own financial documents. In many cases, most of their documents were either joint with their deceased spouse or listed the deceased spouse as a beneficiary. Documents to update include:

A will
A health care power of attorney
A general power of attorney
Bank and brokerage accounts
Insurance policies
Credit card accounts
Deeds
Retirement plan accounts

Good records help survivors get through the tough times immediately following the death of a spouse. The best time to understand the documents is before a death occurs.

Social Media: All the Cool Kids are Doing It by Carolyn Flaherty

Although Linked In is widely accepted among professionals as a means to expand networks, search for employment or employees and seek professional guidance; some professionals have been more leery of jumping on to other popular sites. I believe that most of the hesitation stems from a perception that their presence on Facebook, Twitter or certain other platforms could somehow compromise their professional persona. However, Facebook has become the new golf course.

Indeed, Facebook is said by some to BE the new internet. It is where people get to know you and it provides a platform to build relationships. However, it is important to remember some key points in order to successfully utilize any social media venue:

• God gave you two ears and one mouth. He had purpose in that design. Listen twice as much as you speak. Strive not just to be interesting but moreover to be INTERESTED.
• Provide value to others. Value is not determined by you, it is determined by your audience. Evaluate your audience. Determine what they respond to and comment on. Their activity illustrates their interests. They may be primarily seeking entertainment rather than hard facts. You need to play to your audience or you will lose them.
• Keep your posts PG.
• Facebook was made for people not for businesses, so put PERSONality into your posts.
• Create a brand. People want to do business with other people that they like. They cannot like you if you do not allow them to know you. Use your real name, be honest, be authentic and be transparent.
• Serve others. By reviewing comments and posts within your network you can discern their needs. This gives you an opportunity to serve them; to connect and share your knowledge.
• Posts with pictures and video attract attention more than simple posts. Whenever possible include a picture, video or link with your post.
• Post regularly. Fresh and consistent content is crucial. Most sources suggest posting three to five times daily.
• Selling should be done modestly. Your intent should primarily be to collaborate and share as opposed to selling.
• Posts are rated and prioritized by the powers that be on Facebook and these ratings determine where your post falls in the newsfeed. If your posts do not generate comments and “likes” they may be deemed unimportant and may not even appear in your friend’s newsfeeds. Therefore, the goal is interaction. Be sure to “like” comments left by others on your post and respond in the comment thread because the Facebook rating system gives you credit for ALL interaction.
• Sometimes being different can be better than being better.
• Embrace the negative comments. Feedback, BOTH positive and negative, helps you to improve. Negative comments give you an opportunity to respond publicly, (which may actually help you build your reputation if handled properly).
• Developing your network and your social presence is not a race. Take time to develop quality relationships because it is not the quantity of your relationships but the quality that determines value.

Finally, consider implementing a social media policy in your firm. The policy does not have to be overly specific but should include general guidelines such as: no talking about clients and no bad mouthing the firm.

Factors Influencing Key Employees Decisions-making by Andrea Hottleman

Business owners either rely on themselves or key employees for important decisions within their companies. Behavioral finance looks at the way emotions and psychology influence attitudes and beliefs in decision-making.

Examples of emotional and psychological influences are when decisions are made based on a trend that a person believes to exist but does not; or a feeling that a person has control over events when they do not.

Psychologists have broken the factors that influence the interpretation of data into the following areas: anchor effect, overreaction to random occurrences, overconfidence, optimism, follow the herd, loss aversion and the endowment effect.

Anchor effect occurs when more weight is given to the initial information received on a subject. This happens more often when the information is shared with others and it agrees with the key employee or owner’s point of view.

Overreaction to random occurrence happens when we create a relationship that does not exist based on data results. People tend to look for systematic patterns but sometimes these patterns are actually random.

Overconfidence results in mistakes of significant size. People tend to overestimate their abilities and knowledge.

Optimism is when a person underestimates a poor outcome. A few optimistic decisions put together could result in an overly positive financial forecast.

Follow the Herd provides a false sense of not being alone. A decision made based on the way the company has always done it or the way others in the company would agree with. The employee may not feel comfortable stepping outside the box for fear of failure.

Loss Aversion can hinder the growth of a company. Sometimes it may take a small loss first to take a giant step forward.

Endowment Effect is human nature to value an item they own higher than it is actually worth. For example, ask someone how much their house is worth?

Understanding the psychology behind decision making will help you to understand the management styles and decisions at work in your organization. Avoiding these psychological pit falls can be achieved by implementing a strong network of checks and balances within the company’s internal control structure. An organization’s internal controls should be evaluated annually.

Passive Activity Loss Rules by Karla Hopkins

The "passive activity loss rules" have developed into a complicated set of guidelines since their inception in the mid-1980s. However, if you keep in mind the general principles that drive loss limitations in this area, you will have a good foundation for selecting investment strategies that take full advantage of, rather than solely reacting to, the current tax rules.

A passive activity is one that involves the conduct of any trade or business in which the taxpayer does not materially participate. Any rental activity is a passive activity whether or not the taxpayer materially participates. However, there are special rules for real estate rental activities and real estate professionals.

Losses and credits that are attributable to limited partnership interests are generally treated as arising from a passive activity. However, losses from working interests in oil and gas property are not subject to the limitation.

Material Participation:
Generally, to be considered as materially participating in an activity during a tax year an individual must satisfy any one of the following tests:

(1) he participates more than 500 hours;
(2) his participation constitutes substantially all of the participation in the activity;
(3) he participates for more than 100 hours and this participation is not less than the participation of any other individual;
(4) the activity is a "significant participation activity" and his participation in all such activities exceeds 500 hours.  A significant participation activity is one in which the taxpayer participates more than 100 hours during the tax year but does not materially participate under any of the other six tests.
 (5) he materially participated in the activity for any five years of the 10 years that preceded the year in question;
(6) the activity is a "personal service activity" and he materially participated in the activity for any three years preceding the tax year in question;

or

(7) he satisfies a facts and circumstances test that requires him to show that he participated on a regular, continuous, and substantial basis.

How losses are deducted:
In most cases, losses from passive activities may not be deducted from other types of income (for example, wages, interest, or dividends). Therefore, to the extent that the total deductions from passive activities exceed the total income from these activities for the tax year, the excess (the passive activity loss) is not allowed as a deduction for that year.

Losses that are not deductible for a particular tax year because there is insufficient passive activity income to offset them (suspended losses) are carried forward indefinitely and are allowed as deductions against passive income in subsequent years. Unused suspended losses are allowed in full upon a fully taxable disposition of the taxpayer's entire interest in the activity.