"You can't disinherit a wife from 401(k) funds w/out spousal waiver."

Your will: The hidden traps

By Janice Revell, contributor @FortuneMagazine August 22, 2011: 1:30 PM ET

FORTUNE -- Drawing up a will may not be the most pleasant task, but it seems straightforward: You leave behind a legal document that specifies how you want your property doled out when your time on this earth is up. What you may not realize, though, is that much of your net worth can be passed along outside of that will. Without some planning, you could unwittingly disinherit intended beneficiaries, including your children, from significant portions of your estate.
Start with your 401(k) plan. If you're married, your spouse is automatically entitled to every dime in the account when you die, regardless of what your will or the beneficiary form says. And that applies even to accounts you established with former employers years before you met your better half. If you want to leave a 401(k) to someone else, your spouse must first file a written statement waiving rights to it. In rare situations your 401(k) plan may not require this spousal consent if your marriage is less than a year old. But that's not the norm, notes Ary Rosenbaum, a retirement-plan lawyer in Garden City, N.Y. In most cases, your spouse will become the sole heir to all your 401(k) accounts the minute you say "I do."

Don't count on a prenuptial agreement to solve this kind of quagmire either. A person can't give up spousal rights to inherit a 401(k) until actually married. "A prenup by itself is not a valid waiver according to the rules governing 401(k) plans," says Rosenbaum.

Then there's the money sitting in your IRA accounts. In most states your will has no bearing on who inherits any of your IRAs at the time of your death. The person who gets the cash will be the one you named on the beneficiary form. And it doesn't matter how long ago you named the recipient. A spouse you divorced 30 years ago, for instance, will usually collect if his or her name is still on the form.

Here, at least, you've got a bit more flexibility. In most states an IRA, unlike a 401(k), doesn't revert automatically to your current spouse when you die; you can name anyone you want as beneficiary. Beware, though: Once you're married you can't transfer the assets of a 401(k) account into an IRA and then name a new beneficiary -- effectively disinheriting your spouse from the 401(k) -- without obtaining your spouse's written consent first, notes Ed Slott, a CPA and IRA specialist in Rockville Centre, N.Y. But if you're about to get married, it's perfectly legal to roll a 401(k) account into an IRA before you walk down the aisle.

Finally, remember that another financial asset not governed by your will is life insurance. Once again, those who get the money are the people you named on the beneficiary forms. The bottom line: It's crucial that you get the full picture of who really stands to cash in on your estate. Review the beneficiary designations on your retirement and insurance accounts on a regular basis, and make sure they're in sync with the intentions outlined in your will. After all, it's your loved ones you ultimately want to enrich at the end of the day, not their attorneys.

--A former compensation consultant, Janice Revell has been writing about personal finance since 2000.

This article is from the August 15, 2011 issue of Fortune. 

Weekly Market Commentary: Schwartz Financial Weekly Commentary 8/29/2011

Weekly Market Commentary: Schwartz Financial Weekly Commentary 8/29/2011: Schwartz Financial Weekly Commentary August 29, 2011 The Markets Like wanderers in the desert, investors breathed a sigh of relief when a...

Schwartz Financial Weekly Commentary 8/29/2011

Schwartz Financial Weekly Commentary

August 29, 2011

The Markets

Like wanderers in the desert, investors breathed a sigh of relief when an oasis appeared last week. After Federal Reserve Chairman Ben Bernanke’s speech, the Dow Jones Industrial Index posted its first weekly gain in more than a month, finishing at 11,284, an increase of more than 4 percent for the week. The Standard & Poor’s Index and Dow Jones Global ex US Indices also were up for the week. In addition, the Chicago Board of Exchange Volatility Index (VIX), which is known as the ‘fear index’ because it reflects the amount of volatility investors anticipate in the next 30 days, fell by more than 10 percent. According to The Wall Street Journal, the head of U.S. equities index trading at Barclays Capital said that after Mr. Bernanke's speech, some investors set up options positions that are designed to profit from improving stock market stability in the future.

While stock markets reflected optimism, economic indicators provided a mixed picture. According to Barron’s:

• The Commerce Department revised second quarter’s Gross Domestic Product growth number down slightly to 1.0 percent annualized from 1.3 percent.
• Inflation estimates remained relatively stable.
• The manufacturing sector showed strength as new orders for durable goods increased 4 percent during July.
• Sales of new and existing homes fell, and the Federal Housing Finance Agency’s purchase-only house price index showed that housing prices fell quarter-to-quarter.
• Despite debt-ceiling woes, a downgrade of U.S. credit, concerns about European debt, and a wildly volatile stock market, the Reuters/University of Michigan survey consumer showed that consumer sentiment improved slightly.
• Despite improved sentiment, the survey also found that consumers don’t expect things to get better any time soon.

While a week with positive market performance was welcome, the question remains: Has stability returned or is this just a shimmering illusion? Only time will tell.

Data as of 8/19/11	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	4.7%	-6.4%	12.4%	-2.5%	-2.0%	0.0%
DJ Global ex US (Foreign Stocks)	0.7	-12.5	3.5	-3.4	-2.0	4.2
10-year Treasury Note (Yield Only)	2.2	N/A	2.5	3.8	4.8	4.9
Gold (per ounce)	-3.2	26.8	44.5	29.3	23.9	20.8
DJ-UBS Commodity Index	1.3	-0.8	23.8	-6.0	-1.1	4.7
DJ Equity All REIT TR Index	3.7	0.1	14.1	1.2	-0.5	9.2

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable or not available.

America has had four national banks since the American Revolution. There has been a lot of talk recently about the roles of central banks in countries around the world, including the Federal Reserve (the Fed) in the United States. While the Fed may be the most frequently well-known, it is actually the fourth national bank in the U.S. The first was the Bank of the United States, which was created in 1791 to help consolidate debt from the Revolutionary War. Once the bank had successfully paid down the debt, Congress did not see any further need for a national bank, and voted not to renew the bank’s charter in 1811.

In the early 1800s, state banks were issuing their own currencies. As debts from the War of 1812 mounted, many suspended payments on their currencies. By 1816, public sentiment favored a national bank that would make state banks pay, and the second Bank of the United States was set up. President Jackson objected to the bank because he believed that powerful private institutions were susceptible to corruption and hard to control. The bank’s charter was allowed to expire in 1836.

In 1863, the need to finance the Civil War led to the creation of a national banking system. Banks with national charters issued currency that was printed by the government and backed by federal bonds. By 1865, state currencies disappeared and the United States had its first uniform national currency. The banking system was plagued by panics, however, experiencing at least one per decade after the Civil War. This caused Congress to reconsider the structure of the system and the Federal Reserve Act, which created the Federal Reserve, became law in 1913. Today, the national banking system includes:

• A Board of Governors, which sets reserve requirements for member banks and discount rates for district banks. It also reviews the budgets of district banks.
• 12 Federal Reserve district banks, which are private institutions established to serve the public interest. Originally, they issued money that could be redeemed in gold.
• The Federal Open Market Committee was established in 1933, when the gold standard ended, to ensure responsible monetary policy.
• The Federal Advisory Council includes a bank executive from each district. It advises the Board about the state of the industry and money supply.
• The Consumer Advisory Council looks out for the interests of consumers, communities, and the finance services industry. Members are appointed by the Board.
• Several thousand member banks, which may include your bank.

Weekly Focus – Think About It

A rising nation, spread over a wide and fruitful land, traversing all the seas with the rich productions of their industry, engaged in commerce with nations who feel power and forget right, advancing rapidly to destinies beyond the reach of mortal eye; when I contemplate these transcendent objects, and see the honor, the happiness, and the hopes of this beloved country committed to the issue and the auspices of this day, I shrink from the contemplation and humble myself before the magnitude of the undertaking. --Thomas Jefferson, First Inaugural Address

Value vs. Growth Investing (8/26/11)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	4.97	-5.49	-12.07	-11.46	15.58	0.19	0.90
Large Cap	4.69	-4.76	-11.04	-10.01	14.96	-0.76	0.20
Large Core	4.48	-4.99	-9.89	-10.32	13.39	-0.96	1.57
Large Growth	5.84	-4.01	-11.62	-7.68	20.12	0.31	2.32
Large Value	3.71	-5.66	-11.85	-12.25	11.61	-1.60	-3.50
Mid Cap	5.57	-6.70	-14.42	-14.86	16.80	2.25	2.59
Mid Core	5.40	-6.46	-14.59	-14.49	17.96	2.57	3.00
Mid Growth	6.85	-4.39	-14.78	-14.13	22.17	1.66	4.27
Mid Value	4.44	-9.33	-13.83	-16.02	10.38	2.45	0.22
Small Cap	6.32	-9.80	-16.02	-16.36	17.60	2.84	2.63
Small Core	6.50	-9.79	-16.43	-16.58	18.06	1.91	1.86
Small Growth	7.43	-7.96	-16.20	-16.13	22.58	1.91	3.54
Small Value	5.04	-11.72	-15.38	-16.42	12.08	4.70	2.14
US Core	4.77	-5.56	-11.23	-11.56	14.72	0.14	2.02
US Growth	6.14	-4.24	-12.58	-9.64	20.93	0.78	2.87
US Value	3.95	-6.88	-12.53	-13.35	11.34	-0.35	-2.36

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes:

Divorce is a Taxable Event

Divorce, better known as the instant wealth reduction plan, hits about half of all first marriages and more than 60% of second marriages.  Few things will stir emotions more in the settling of a dissolution case than the issues surrounding child custody and support.

Over the years, courts and families alike have become more civilized and sensitized to these issues, as dissolution agreements have attempted to craft solutions that seem fair and equitable to all.  Unfortunately, fair and equitable sometimes doesn’t always work when money is involved.

A dissolution agreement that awards joint, physical custody and support responsibilities to both parents can work against the children when it comes to obtaining financial aid for college.  If both parents share these responsibilities, typically, the joint incomes and assets of two separate households will be counted when the colleges compute the Family Expected Contribution amount.  This effectively reduces the amount of aid available.

For example, assume a situation where the non-custodial parent has a much higher income than the custodial parent.  Assume the divorce agreement specifically excludes the higher income parent from any responsibility for college support.  As a result the two children would qualify for financial aid based upon the much lower income of the custodial parent.  This would result in more financial aid than would otherwise be available if both incomes were used to calculate aid eligibility.

In a recent tax court case, a divorced couple shared support and custody of their one child.  The IRS challenged their respective tax returns on the basis that both parents claimed an exemption for the child, claiming that each supplied one half of the support.

The IRS denied the dependency exemption for both parents because neither could prove that the child had spent the greater portion of the calendar year with either.

The divorce agreement provided for joint custody of their child, with physical custody split equally between the parents on a weekly basis.

The Code allows an individual taxpayer to deduct an exemption amount for a “dependent” (i.e., an individual over half of whose support was received from the taxpayer during the calendar year).  If a child’s parents are divorced, the child is in the custody of one or both for the year, and the parents provide over one-half of the child’s support, the custodial parent is treated as having provided over half of the child’s support for the year and he/she may claim the exemption for the year.  However, in the case of “split custody,” custody is treated as being with the parent who, as between both parents, has physical custody of the child for the greater portion of the calendar year.

In this case, neither parent could prove to the Court’s satisfaction that that parent had provided more than one half of the physical custody.  Their documentation and testimony was not convincing enough.  In an understatement of confusion, the Court noted it would be “sheer unguided guesswork” for the court to find otherwise.  As a result the exemption was denied.

This loss of taxable benefit could have been avoided if the parents had agreed to a specific number of days, even to the extent of alternating years taking the dependency exemptions.  Another viable alternative would be for the parties to bargain for a more generous settlement that allows the other to claim the exemption every year.

Best regards,     

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

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Schwartz Financial Service, Inc is not an affiliate of First Allied Securities, Inc.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* This newsletter was prepared by Peak Advisor Alliance.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

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