The Financial Planner

Revocable Trusts: Common Questions and Answers

Who Needs a Revocable ("Rev" or Living) Trust?

Anyone who wants privacy, continuity of financial affairs and to avoid probate should consider establishing a revocable trust. Probate is expensive and takes a long time — it may tie up assets for months or even years after the person passes. It is a public proceeding where the decedent’s assets and heirs will become part of the public record. Today that includes the Internet.

People with property in more than one state will have to go through probate court in every state where property is located. A revocable trust, also called a living trust, is a very simple way to bypass this and ensure continuity in the management of financial affairs at one’s death. 

What Is a Revocable Trust?

It is a legal entity—a trust— that represents your wishes. One way to think of it is as a service provider that holds the assets you give it and follows your instructions during life, and then distributes the remaining assets to your heirs according to your wishes at death with no intervention from anyone including probate court. A revocable trust can be changed or revoked at any time during your life. At your death the trust becomes irrevocable, and it serves as the “will” for all assets that are titled into the trust.  

In trust terminology, the person creating the revocable trust is the grantor, the person making the decisions for the trust is the trustee, and the person who benefits from trust assets is the beneficiary. With a revocable trust, the grantor holds all three roles during life. At death, a successor trustee takes over, normally a spouse or relative, and the beneficiaries you named receive the distributions in the manner you stipulated. 

During life, all income from revocable trust assets is taxed to you, the grantor. That makes revocable trusts tax neutral – no tax benefits or disadvantages as compared with individual ownership of an asset.  You don’t need a separate tax ID as you file your return under your name and social security number as usual.

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The Financial Planner

I Bonds: New Interest Rate of 9.62% as of May 1st!

When I wrote about I Bonds in my last blog, the interest rate was 7.12%. With the current CPI numbers, the six-month rate has gone up to an astonishing 9.62%. If you have extra cash you are not going to need to use for at least one year or more, you may want to consider buying I Bonds. 

The Treasury Direct website (, has a lot of helpful information, and it is a good idea to do your research to make sure you understand how everything works before you purchase them.

Key Points:

    • There is an annual purchase limit of $10,000 per person. Each person must have their own account (note that a financial advisor cannot purchase these for you — you must be the purchaser).
    • Trusts can also be purchasers.
    • Interest rates are for 6-month intervals, with new rates on May 1 and November 1.
    • You have to hold them for 12 months at a minimum.
    • If you cash out after one year but before five years, you will lose the last three months of interest as a penalty.
    • If you buy the bonds near the end of a month, you receive interest as though you owned them for the whole month.
    • They are based by the full faith and credit of the U.S. government.
    • Interest is compounded twice per year at six-month intervals based on the issue date and is paid when the bond is redeemed.
    • I Bonds are exempt from state income tax, and interest is tax-deferred until they are redeemed.
    • You buy them on the Treasury Direct website (, and you must keep track of your sign-in credentials and account number information. 

Additional Information About I Bonds

One thing that is unique about I Bonds is their interest structure, which consists of a “Fixed Rate” and “Inflation Rate” that, together, make a “Composite Rate” — the actual rate of interest that an I Bond will earn over a six-month period. The current Fixed Rate for I Bonds is 0%, but the inflation rate, which is tied to the consumer price index, is now an annualized 9.62%, making the Composite Rate 9.62%. The Fixed Rate can never drop below 0%, so the money invested will not lose nominal value.  

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The Financial Planner

I Bonds: Surprisingly High Interest Rates

Most of us rarely think of buying I Series Bonds from the U.S. Treasury. However, the current interest rate for these bonds has been getting some attention in the news at a whopping 7.12%! 

Read an article written by Jeff Levine linked below explaining what you need to know if you are looking for a better return on cash that you will not need for the next year or more.[1] If inflation expectations hold true into May when the rate is reset, these bonds should still provide a better overall return than most bank savings accounts.

From the Levine Article

I Bonds are offered via the Treasury Department and are backed by the U.S. government. You can purchase them through the TreasuryDirect website, with limits of $10,000 annually per person. What makes I Bonds unique is their interest structure, which consists of a combined “Fixed Rate” and “Inflation Rate” that, together, make a “Composite Rate”—the actual rate of interest that an I Bond will earn over a six-month period.

While the current Fixed Rate for newly purchased I Bonds is 0%, the Inflation Rate for I bonds purchased before May 1, 2022, is an annualized 7.12%. This means that the Composite Rate is also an annualized 7.12% for the first six months that the I Bond is held—the highest rate of I Bonds since May 2000. After this time, a new Composite Rate will be determined by any changes to the Fixed and Inflation rates. While I Bonds have a 30-year maturity, they can be redeemed after being held for at least 12 months. Investors who redeem I Bonds between 12 months and five years after issue will forfeit the last three months of interest, but I Bonds held for more than five years can be redeemed at their current value.

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The Financial Planner

Should I Take Social Security Now Before It Runs Out of Money?

The perception that Social Security is “going broke” has been promulgated in the news media. It is, of course, not accurate. The hype scares people and causes some to draw benefits sooner than they otherwise would. Drawing benefits too early may end up costing them thousands of dollars over the long run.

What is Really Happening with Social Security

Social Security will never run out of money entirely because ongoing payroll taxes fund it. As long as people pay taxes on salaries and wages, they are paying into Social Security and Medicare. However, according to the Social Security Board of Trustees, the trust fund reserves (our emphasis) will be depleted by 2033, one year earlier than previously projected due to the COVID 19 pandemic and the 2020 recession. After that, income from ongoing payroll taxes will be sufficient to pay 76% of scheduled benefits.1 

Again, Social Security will have enough money coming in to pay about 76% of projected benefits after 2033 when the reserve fund that has been making up the difference runs out. That still sounds scary. You may not know that the projection of a shortfall by 2034 was made back in 1983 when Congress made the last major change to shore up Social Security’s solvency. According to one expert, “That’s almost precisely what the actuaries were projecting more than 30 years ago. There’s no more of a Social Security funding crisis now than what was envisioned then after the 1983 changes were enacted."2

We will have to rely on Congress to implement a long-term fix, which they can do in several ways. On the revenue side, they can increase payroll taxes, increase the income threshold subject to payroll taxes, or increase the Medicare surtax. On the benefits side, they can increase the full retirement age, reduce benefits for the wealthy, or reduce COLA increases (cost of living adjustments). Other ideas include privatizing Social Security by having workers put their payroll taxes into IRA-like accounts and increasing taxes on benefits to high-income households. Congress could combine any of these ideas or even find a new funding source―it will take the will of Congress to get this done.

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The Financial Planner

The Family Bank

How can you help your children or other family members with large purchases? One solution could be the intra-family loan. Intra-family loans are a way to help children or other family members finance major purchases at an advantageous interest rate, and transfer or preserve wealth with a minimum of tax consequences for you or your heirs. While these loans can be quite helpful, it is important to remember is that this is an actual loan—not a gift. The borrower must pay the loan back.

Lower Interest Rate

Intra-family loans usually have a lower interest rate than standard loans, providing a potential to save thousands of dollars. Loans between related parties can use the “applicable federal rate” or AFR in accordance with Section 1274(d) of the Internal Revenue Code. The AFR is different for different maturities: short-term (three years or less), mid-term (more than three and up to nine years) and long-term (more than nine years).1 The actual rates are updated monthly and can be found on the IRS website here:

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