THE SLOW DEATH OF AN ESTATE PLAN

THE SLOW DEATH OF AN ESTATE PLAN

Estate plans in a Revocable Trust or Will are failing to meet their objectives, if written before the global economic crisis and the farcical TARP plan. That is the national plan that restored wealth to the investment bankers and hedge funds managers, but is squeezing the life out of America’s middle-class businessmen or women.

If you have been on the same job for the last four or five years, and your residential mortgage does not exceed 30% of your income, and as of January 1, 2010 in California you have met the raised bar having at least a 45% loan to value of your newly appraised home, then congratulations! You will be able to refinance your adjustable loan, defined as any loan that is due in the short term. With the lowest interest rates in modern history, you can lower your payment by perhaps thousands of dollars a month allowing you to keep ownership of your home.

However, take the middle-American. That can be a doctor or a lawyer, or any small business owner, or person that works on commission like an insurance broker, realtor, pharmaceutical rep, or any other occupations hit hard by the recession and the employees were paid according to how much they sold. What they all have in common is that sometimes they have great years and sometimes they don’t. In this type of recession most of them don’t.

Let’s add to the above facts that the American just turned 60 years old. He does not have a pension to fall back on because he never worked for a paycheck from a large company or government agency for twenty or thirty years. That would have assured him security in his elder years by providing pension benefits during his working years by his employer having to add as much money to his 401K plan as he did. Or worked at a government job where it is next to impossible to get fired and he simply put in his time.

Since the odds are stacked against the middle –class businessman today, with the on again, off again backing of the Small Business Administration that does not seem to know what to do, I can assure you that regardless of that 60 year old’s perfect credit record, all of the hard work he has put into the system over the last 35 years, the number of jobs he has provided, the assets he has accumulated and even if he had a million dollars in the bank; if he has had two bad years of tax returns that do not fit into the round hole of banking rules, then this square peg does not fit the profile and his residential loan will not be refinanced. He will have to sell.

In other words the American Dream, as we more mature adults knew it has been undermined by the greed of the 2% at the top, allowed to take enormous risk with tax payer money and not worry about paying it back, while those that take reasonable risk to build a business of their own have no options left to help them out. They are neither young enough, or not poor enough, or not stupid enough to get themselves in such an upside down financial crunch that the government has deemed them worthy of saving.

The best that sixty year old can do is go to his lender and explain how the $70,000 he made from income properties last year caused his gross financial portfolio to expand, not contract, and because he used all legal write-offs on his taxes to bring that $70,000 down to net zero, it does not mean he did not earn $70,000 on top of the other $70,000 he earned. You would think that if you had a banker that would listen, look at your FICA score, your assets and considered the $200,000 you just deposited in their bank, they may give you a crack at a decent refinance, or any refinance at all.

But unfortunately none of the above is taken into consideration. Every bank is restrained by the federal and state banking rules. If this recession has taught Americans anything, it is that humanity and common sense does not exist in the world of money lending. If there are too few rules then greed by the loan broker takes over. With too many rules, we are all numbers and no amount of integrity and hard work can make those numbers change.

After that, all you get are promises from people so caveat emptor. Something has to change, so be patient if you can. If you are sixty and it doesn’t change, then sell it all and enjoy the rest of your life. Capital gains don’t exist for the rest of the year.