business

Finance Friday – What I’m Reading

Along with posting three finance tips every month (you can read the tip for August here), I aim to share one finance book that I think will be helpful for you all. I’ll make sure that I introduce the book of the month at the beginning of the post, and give my favorite points from the previous month’s book in the middle to the end of the post.

This month’s book is Start Late, Finish Rich by David Bach. I’ve been a fan of Bach for years, and this book in particular has been on my “to complete” list for a while. So this month seemed like the perfect time to restart and finish this book. I love Bach’s approach, and I’m excited to share my favorite takeaways next month, when I announce the next book of the month.

What finance books are you reading this month? I’d love to hear about them in the comments below!

Avoiding Gift Tax – Make Sure The Checks Clear!

Recently, I discussed the issues surrounding the estate of Aretha Franklin. From the sources that I reviewed, it appears that she did not intentionally reduce the size of her estate through gifting to her heirs before her death. It isn’t required that people reduce their estates through giving, however. . . With an annual ceiling of $15,000, affluent individuals of advanced age may prefer to distribute a portion of some inheritances before their death, to avoid taxes to both themselves as well as the recipients.

For those that choose to give before death, whatever you do, make sure your heirs cash those checks as soon as they receive them! A recent tax case (Estate of de Muth v Commissioner) determined that if a check isn’t cleared before a person dies, the checks become part of the estate, and therefore subject to estate tax. Of course, gifters can’t force recipients to quickly cash checks given to them, but if the intent is to ensure that the size of the estate is reduced, then time is truly of the essence.

I was interested in Estate of de Muth because it was always my understanding that it was the date of gifting, and not the date of cashing, that determined when a gift was given. But with the tax courts determining that the act of gift giving occurs upon cashing the check, I now have a different perspective regarding gifts and what constitutes receipt. This is why I love staying aware of the changes with the tax law: you never know what you’ll learn!

Aretha Franklin’s Messy Estate – Key Takeaways

A couple of weeks ago, it was announced that Aretha Franklin’s estate has settled a nearly $8 million tax bill, and the way has been cleared for her four sons to start receiving payments from the revenue generated from the use of her image and music. This outcome was a long time coming: Franklin passed four years ago, and her heirs have been unable to settle the estate issues until recently. This development is excellent news, as this opens the way for her sons to start receiving the benefits to which they are entitled.

I won’t rehash all of the details of the case, however, I will highlight some key takeaways that I gleaned as I learned about the messy estate left behind by the Queen of Soul:

  • Destroy previously executed wills. For most people, their end-of-life planning only covers the execution of a will (if they’re proactive). Sadly, some people don’t even do that much planning: far too many people die intestate, leaving their estate planning in the hands of the state where they lived and died. But I digress . . . Leaving a will clarifies how you want your property to be distributed after your death. However, this distribution becomes unclear if you have multiple versions of your will floating around. So, consider destroying previously executed wills whenever you make a revision. The estate is currently comparing 3 different versions of Ms. Franklin’s will, and I’m sure the probate courts will have a field day trying to figure out which one is the one that will be honored.
  • Set up a trust. If you only have a will, you’re doing better than many people. But if you really want to simplify how your assets will be handled, a trust is what you need. Trusts can be established to distribute assets before and after death, they can help avoid certain types of taxes, and they can provide an extra level of clarity that may not be accomplished through the execution of a will alone. Consulting with a trust attorney is a great idea, even if it turns out that a trust isn’t advantageous for your specific circumstances. These attorneys can answer many of the questions you may have related to other estate or end-of-life financial issues.
  • Consider gifting some of your possessions while you’re still alive. The current ceiling for tax-free gifting is $15,000 per person that you choose to gift. Even if you aren’t giving everyone you know $15,000, you can certainly gift some of your possessions now, so that your heirs can avoid gift and estate taxes later.

Those are three of my takeaways from the tax agreement between IRS and Aretha Franklin. I’ll keep an eye on this case to see if any additional developments arise, and if so, I’ll be back with updates. Take care!

Start Selling Shovels

Has the current economy caused you to start panicking a bit? I know that we’ve all been hearing about recessions, experiencing inflation, and living in a world that is more confusing than ever. It’s easy to see why some of us may be uneasy, or even fearful, when discussing financial security. But preparation is always the best antidote to fear, and this post will (hopefully) give you ideas for how to create more security and stability in your finances.

It is never too late to start creating financial freedom. It’s always never too late to adjust current behaviors in order to be more resilient in times of financial difficulty. That being said, you can do one thing, today, to ensure that you have more financial flexibility in the future.

Start selling shovels.

I don’t mean that literally, of course. I mean that you should look at examples of exemplary people who thrived in the past, and use those examples as models for your business and success. The shovels metaphor refers specifically to the California gold rush of the late 1840s. If you recall from history, you realize many of the gold miners actually never got rich. But there was one group that made lots of money, and had no problem securing their financial futures . . .

It was the shovel salesmen. It actually goes beyond the shovel sales, though: anyone that offered secondary or tertiary goods and services to the gold rush hopefuls thrived during this period. Levi’s jeans can still be found in big box retail stores, despite Levi Strauss being deceased for over 100 years. The first shop opened by Strauss in California was in 1853, two years before the gold rush ended. His shop was under the umbrella of the shop his family owned in New York, but he moved to San Francisco in order to provide goods to the thousands of people that relocated in hopes of finding gold.

Strauss found gold without striking one shovel against dirt nor panning in rivers. The gold was in the shoppers, not in the mines. He provided tents, blue jeans (though this particular invention really didn’t hit its stride until the 1870s, 20 years after the end of the rush), bedding, as well as unlikely luxuries, like handkerchiefs and purses. An under-served but eager group of buyers were women, who, moving to California with husbands or male relatives, missed the comforts of their homes. There were also women who moved to California with the hopes of landing a wealthy husband that could provide the comfort and luxury they desired. So, while the miners may have been men, there were other customers that needed to be served.

Sometimes, you have to sell a purse along with a shovel.

What does all of this mean for you, dear reader? You aren’t living in the 1840s, or 1870s. You can get shovels, purses, and blue jeans from Amazon, or, if you’re feeling adventurous, a local in-person retailer. So, what can you do with this story?

Look for the gold rushes, then serve the hopefuls. Start by looking at the “hottest” ways to make money, and come up with businesses and solutions that serve the people that aspire to be the “Next Great” whatever. Give them the goods and services they need, and they’ll make you rich. I’d also advise to lean more toward services, since goods are often easier to find and harder to price competitively without taking a loss initially. But, if your heart is set on offering goods, then do what you must.

No matter whether you focus on goods, services, or a combination, find the shovels you need to offer, and start making money. You can do it!

That’s it for today. Please let me know if this helped, or if you have any questions or ideas that you’d like to flesh out with me. Take care, and I’ll talk to you all soon!