Building A Better Future

Expert advice helped our 2004 Financial Fitness Contest Winners create the right foundation to reach their goals

insurance and split the beneficiary arrangement between the three children. Since he is divorced, he was advised to set up a life insurance trust, where he could designate a guardian to oversee the insurance proceeds a
nd other assets. It was also advised that he draft a will.
THE FOLLOW-THROUGH: For an additional $5 a month, Vaughn was able to increase his employer-sponsored life insurance coverage to $500,000. “I did what I could afford to do,” he says. He drew up a will and getting the trust is on his to-do list. He needs to talk to his former wife about being a guardian for the children in his will.

THE ADVICE: Invest the $600 he was paying in alimony in a mid-cap or small-cap value mutual fund. Start the fund with the $2,000 contest winnings.
THE FOLLOW-THROUGH: Vaughn had to use the $600 and the contest winnings for living expenses. He maintains a Smith Barney aggressive growth mutual fund, which he will keep until he decides where else to invest. “Let’s just say this wasn’t the first thing on my list to figure out,” says Vaughn.

THE ADVICE: Increase liquidity to purchase rental properties. Pay down debt, particularly the $15,000 he had in credit card debt.
THE FOLLOW-THROUGH: Vaughn is relieved to have gotten his credit card debt down to $4,000. He focused on eliminating debt and increasing savings to put himself in a better position to buy rental properties in the future.

THE ADVICE: Consult with former wife about claiming both biological children on his tax return. Vaughn was claiming only one child as a dependent. Since he was earning practically twice as much as his ex-wife and is in a higher tax bracket, the adviser recommended that he take the tax savings–potentially $5,000. His former wife could use her home as a tax write-off. Plus, as head of household, she could continue to claim her daughter and get the earned income credit.
THE FOLLOW-THROUGH: “We did discuss this,” says Vaughn. “She needed the money even more than I did, so I let her claim both children.”

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