MAKING CENTS: There’s more to risk than losing money

When most people think about financial risk, losing money is what they think about. Memories of the real estate investment or stock investment that didn’t work out as hoped may still be stuck in your mind.

But risk is much broader than just losing money, and the more money you have, the more likely it is that these risks are a part of your life.

Let’s start with your home. Is your home a magnet for the kid’s friends? Do you have a pool, motorcycles, bicycles, trampolines, dogs. … You get it. The toys that people with money have are known as an attractive nuisance. They are certainly attractive, but their inherent danger makes them a nuisance, and a potential liability.

Dogs, of course, have nothing to do with money unless your dog goes and bites someone. And if you are not properly covered for this peril, it can cost you a pretty penny to defend yourself against even a frivolous lawsuit. Make sure your umbrella liability insurance is adequate and that it will provide you protection for all of the risks that you can identify in your life.

What about a second home? Many with wealth own a second home in the mountains, near the water or in the desert. They all pose additional risks that you may not be prepared for. If the home is ever rented, even casually to friends and family, be sure that your insurance agent is aware of the rentals. If you add a boat, Jet Ski or other water or recreational toys, the risk multiplies as you may be responsible for any problems that arise from use of the toys.

Another reality of real estate is it needs to be maintained, and that means there will be painters, landscapers and all sorts of contractors floating around the property from time to time. Some of these contractors are well insured, and some are not. If you lean towards looking for the best pricing on your home repairs or maintenance, make sure that you are working with someone who can show you their certificate of insurance. I’d also check to see that all subcontractors that they involve have proper coverage including workman’s compensation for their helpers.

And the last issue that can raise your risk profile seems really unfair because it may arise from your benevolent involvement with charitable or community organizations. Unfortunately, even when you are donating valuable time toward a not-for-profit organization, you are exposed to liability.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: Unexpected financial treasures

We all eventually clean out a closet or basement, and find things that we forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. The living proof of this is your state’s unclaimed property list. In Massachusetts, it is estimated that one in 10 residents have unclaimed property.

There are two sides of cleaning out your financial closet. The first side is to find out if you have any unclaimed property. Do this by going to your state treasurer’s website and seeing if you’ve got property that you may have forgotten or never knew you had. An example of something you never knew you had could be from an old life policy, annuity, estate or retirement account from a deceased loved one who named you as a beneficiary.

The second side of cleaning out your financial closet goes beyond discovering the stuff that you may have forgotten or neglected. It is the prevention of things ending up on the unclaimed property list in the future.

The candidates for your ignored assets may include old bank accounts, old 401(k) accounts, old life policies or annuities.

Your annual tax filing should be your first reminder for any old bank accounts. Compare the interest from bank accounts from your last year’s tax return, account by account, to the 1099s received for the current year.

Beyond losing track of small accounts, remember to look closely at what type of bank account you hold. Is it possible that an older, higher-yielding certificate of deposit has matured, and rolled into a lower-yielding instrument? Update your inventory of accounts regularly, especially if you or your elder loved one is a “CD stacker” with many accounts spread around several institutions.

When people change jobs, there is a tendency to leave the old 401(k) assets in the old 401(k) plan. While this is far from a fatal error, not managing that old 401(k) plan may cause problems.

Older cash value life insurance policies and annuities are also candidates for being ignored or forgotten. These financial instruments are tax deferred, and will not generate a 1099 each year as a reminder. Check to see if these assets may be redeployed in better performing assets or to another type of insurance that may now be more desirable, such as long-term care coverage.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

Making Cents: Right answers usually aren’t easy ones

The most common answer delivered by financial professionals to their clients is “it depends". For some, it may be a quick way to skirt a direct answer. But in many financial situations, there is no black-and-white answer.

Let’s start with estate planning, an area where many feel that a set-it-and-forget-it approach is best. Nothing could be further from the truth. With the potential end to the Bush-era tax cuts looming, many wonder whether now is the time to engage in the $5 million substantial-gifting opportunity available under the current tax code.

Of course, much depends on what Congress does. But beyond the tax law, you may have concerns about your future ability to sustain your current lifestyle if you make such a large gift. You would also need to ask what can go wrong to make this gift look like a bad idea at some point in the future. These issues could include a long-term health issue that depletes funds faster than expected or, conversely, a much longer life than originally projected.

The “it depends” answer may also arise when planning for the funding of higher-educational expenses. The first side of this quandary deals with how you prioritize saving for your financial independence and other financial goals versus paying for four years of a private university. Then there are the realities of your future income, health and the earnings rate on your savings. Look at all contingencies and conceivable ways to fail before you charge ahead with your own ideas. Should you choose college funding as your first priority, it would be negligent to be underinsured to protect against the loss of life or income. Either possibility could cause failure of the funding plan. Diverting a small portion of your savings to possible contingencies for premature death or disability may be a prudent course of action.

If you choose to make financial decisions in a vacuum, then at least be aware of the possibilities of how your plan may become derailed. For example, holding on to an investment because you inherited it from your dad or because you’ve always owned it doesn’t mean that you should always own it. You’ll need to ponder the future of your current holding and weigh it against the alternatives you’re considering. Further conflict may arise if you ask whether capital gains taxes will be higher or lower next year.

There is a yin for every financial yang. Evaluating all of the possibilities with the help of a financial professional is the best you can do.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.