Don’t Have An Estate Plan? You’ll Use The State’s Plan
Ever wonder what happens when you pass away in California without an estate plan? The state has a plan for you. It’s called “intestacy” and your estate is divided according to the rules laid out.
- If you have a surviving spouse or domestic partner, all community property and quasi-community property is given to that spouse/partner.
- If you pass away with separate property then your spouse/partner receive 100% of separate property if you leave no children or children of your children, parent, brother, sister or children of deceased brothers and sisters.
- This number drops to 50% if you only had one child (or children of one deceased child), or at least one parent, brother, sister or children of any of them
- This number drops further to 33% if you had more than one child, or one child and children of a deceased child, or children of two or more deceased children
That is just what your surviving spouse or domestic partner receives if you die without a will. The rules that determine what your other heirs get, if anything, are even more complicated. And if you have no heirs at all? Your assets “escheat” to the state which means they get your assets.
The point is, if you have an estate of any decent size you will want to, at a minimum, do some basic planning that directs who gets your assets upon death.
Is Your Company’s Stock Too Concentrated In Your 401(k)?
I recently came across a Wall Street Journal Article discussing how employees were “guzzling” employer’s stock in their retirement plans. The article goes on to say that employees were pulling money out of the stock market, contributing less to conservative investments such as bonds, while increasing their stake in company stock. This is a recipe for disaster who may have forgotten the lessons learned from earlier corporate collapses this decade, including Enron, Global Crossing, WorldCom and more.
I understand why you might want to invest in your employer’s stock. You work there. There is an emotional attachment to the well-being of the company you work for. Of course you think the stock price will excel. There is a good chance that your employer’s stock price has been beaten down with the stock market being down over 50% from its peak in 2007. You know the share price should be higher, and you are sure it will rise again.
Company pride is an admirable thing and may be encouraged in other areas, but not when it comes to your retirement account. You’ve heard of the term diverisification. You can diversify your portfolio across stocks, strategies (value vs. growth), or across asset classes (stock, bonds, international). You can diversifty across sectors and even different money managers. In this case you want to diversify against your employer. Yes your employer.
While the major stock market indices are down around 50% or more, some individual stocks haven’t fared so well. Employees at Lehman Brothers saw their company stock lose almost all of its value in a matter of weeks, days almost. Some companies have had their shares battered down 80% – 90%. Auto and financials were especially hit hard.
So it is not advisable to have a concentrated position in any one company, and the danger is exacerbated when that company also provides your paycheck. If something catastrophic happens, such as a bankruptcy or total implosion, you could potentially lose your job and your retirement plan in one fell swoop. It could devastate your personal finances.
I recommend taking no more than what the normal allocation to individual stocks are in your portfolio. But at the absolute maximum no more than 10%; 1-5% is more desirable. If your company offers a match if you purchase company stock, that should also be taken into consideration. If you have a high concentration now, check to see if you cannot diversify out of those shares without surrendering any matches that may not have vested yet.
Are Your Deposits Safe At The Bank?
Many have wondered whether their bank deposits were safe. The FDIC traditionally guaranteed up to $100,000 in total deposits at any one institution. In response to the banking meltdown last year they increased the guarantee up to $250,000 and then introduced the Temporary Liquidity Guarantee Program which temporarily increased protections guarantees further.
Still, when the Chairman of the FDIC says that they may run out of money this year, there is cause for concern. Indeed, if enough banks fail, the FDIC may run out of funds. Now, I wouldn’t rush out and pull deposits out. Save for a very serious meltdown still ahead, I think it unlikely we see an insolvent FDIC. But you can never rule out the possibility. But lets say your bank does fail, and the FDIC is almost out of money or close to it. You might get your money back, but it may take a while if there is a long queue in front of you. What if you need the money right away or had a big obligation due shortly?
For starters, I suggest at least keeping accounts at two different banks. If possible, keep a few months worth of expenses in each account. Also, inquire into the health of your bank. Finally, for larger amounts a brokerage account may make more sense. Short-term government funds are quite safe. Assets at a brokerage are not subject to being “lent against” by the brokerage, meaning your assets are segregated and are not used as capital for the brokerage to make loans. There is SIPC coverage and usually the broker will purchase additional insurance.
