The Boston College Center for Retirement Research released a study that involved over 15,000 employees who were offered projections of their retirement income based on potential voluntary contributions. The projections changed the way individuals decided to contribute to their savings.Continue Reading...
Steve Oshin’s 2013 Annual Domestic Asset Protection Trust State Rankings were released and show the highest scoring state for DAPTs is Nevada.Continue Reading...
Although Obama’s American Taxpayer Relief Act was said to make permanent changes, lawmakers had also advised that it was just the first step in a series of changes. Now Obama’s 2013 budget proposal has several amendments, of which are changes to tax laws that were recently made permanent by the American Taxpayer Relief Act.Continue Reading...
When a baby is on the way, it is a perfect time for expectant parents to complete or update their estate plan to ensure their child’s future care. Some families do not consider the peace of mind a comprehensive estate plan offers until their baby is born. However, during the nine months parents-to-be are decorating a nursery or scheduling routine prenatal visits with their physicians, they can also add meetings with a North Carolina estate planning attorney. There are short-term and long-term events that parents can plan for to prevent court costs, legal fees and wasting of assets, plan for college costs, and secure their baby’s care in the event both parents die or become incapacitated.Continue Reading...
Making withdrawals from retirement accounts before actual retirement is usually a last resort. Individuals fear penalties and taxes—expenses they were not anticipating when they took the financially responsible step to contribute to their retirement. In addition to potential penalties, withdrawing funds early means they may not be accessible when intended: Retirement.Continue Reading...
A new study reveals more employers will offer Roth 401(k)s to their employees in 2013. About a third of all employers surveyed by Aon, a human resource services provider, have plans to add a Roth contribution option. Since there are no income restrictions for Roth 401(k)s, the rising trend will catch the eye of many employees.Continue Reading...
Memory loss comes in many forms. From mild cognitive impairment and dementia, to the severe effects of advancing Alzheimer’s, the number of senior citizens affected by memory impairments is only going up. 1 in 5 Americans over the age of 70 are afflicted by some type of memory loss. Families often recognize the importance of advanced estate planning when thinking of retirement for aging Americans with a growing rate of memory impairment. However, seniors may avoid discussions about retirement planning because they are concerned about losing their independence – both financial and otherwise. By meeting with an estate planning attorney in advance, individuals can take the steps needed to help preserve the independence that most fear will be lost as they age.Continue Reading...
Estate planning has always involved a great deal of paperwork. Today, individuals have personal access to online banking, social media accounts, and email that has pushed the industry into a new realm: Digital estate planning.
Last week the United States Treasury proposed new regulations for Charitable Remainder Trusts (CRTs), which affects the tax liability of distributions in 2013. CRTs are a common type of trust that allows assets to be donated to a charity while the donor receives income for the specified trust period. Trust grantors take advantage of income and estate tax deductions.Continue Reading...
Dealing with financial institutions is not always easy; nor are the institutions always in the right. This is a big frustration in practicing estate planning and probate law.
Financial institutions often set policies or mandates for their customers that are not always consistent with the law or even the institution's own prior agreement with the customer. Let me give you an example:
Last year one of my long-time clients died. He had an IRA of about $800,000 that named his grandchildren as beneficiaries. Given their young ages (around 30), they had the potential of stretching out the account over their life expectancies, which would allow for tremendous tax-deferred growth.
However, the life insurance and annuity company that served as IRA custodian refused to cooperate. After first saying that while they could not accommodate "stretching" themselves, they would allow a rollover to a beneficiary IRA in another company, they then said the account had to be paid out in one single, taxable payment. This position was contrary to the company's IRA/Annuity agreement put in place when the IRA was established.
Luckily, after a sternly-worded letter pointed out that the company was in breach of its contract and that my client's grandchildren intended to sue for the more than $100,000 in damages they would likely incur in extra taxes and loss of growth, the company quickly relented.
The moral of the story is that one should not always give up easily when in a dispute with a bank or insurance company. Sometimes one can even score a victory with a minimum of time or attorneys fees.
Here's a press release I received today from the American Institute for Economic Research (AIER):
For the months of June and July AIER is offering 10,000 free hard copies and unlimited free digital copies of its popular, all-in-one planning guide, If Something Should Happen: How to Organize Your Financial and Legal Affairs.
The short, 44-page book takes the guesswork out of everyday estate planning and uniquely helps readers pull together everything that’s necessary into one single place – thereby creating a ‘master plan’ in the event something should happen.
AIER, an independent research organization that focuses on providing practical, personal finance tools, is giving away complimentary copies of the book because “not nearly enough people plan for an unexpected illness, or even their death. They delay planning because the process appears overwhelming, or they simply expect to get to it ‘one day’. With the right tools in hand, however, planning doesn’t have to be stressful,” says AIER Research and Education Director Steven Cunningham.
AIER’s book – which discusses creating a will and where to keep financial documents, as well as provides worksheets for recording financial, personal, medical and insurance information – is the perfect tool for readers who want to avoid sending their loved ones scrambling, trying to pull together the pieces of an uncertain financial puzzle under the most stressful conditions.
If Something Should Happen breaks the planning process into three easy steps:
- Taking stock -- This chapter addresses areas to review before delving into the specifics of estate planning and financial organization.
- Planning -- This chapter reviews key planning documents and the roles of individuals involved in making decisions in the event of disability or death.
- Organizing your records -- This chapter provides a series of fill-in-the-blank forms to help individuals get a handle on their finances and create a “master plan” to share with the individuals they have chosen to assume various responsibilities.
The booklet also includes a page of resources, if readers want more detailed information on any particular aspect of the process, such as pre-paid funeral arrangements, wills and trusts, or powers of attorney.
Complimentary copies of If Something Should Happen are available throughout June and July while supplies last. To receive a free digital copy, visit www.aier.org.
To receive a free hard copy, call 1-888-528-1216 and press 0.
The book, originally published in 2008, normally sells for $10 per copy. A complete list of book endorsements are available here.
Note: I have reviewed the book, and think it will be helpful for most persons. I'm not sure how current the latest version is, however, so be aware that tax figures often change yearly.
Local Financial Planner Janet Ramsey, MBA, CFP will be offering a course entitled To the Health of Your Wealth as part of Duke University's OLLI program. The course will run from January 11 to March 28, 2012. Greg Herman-Giddens will speak on non-tax reasons to do estate planning.
For more information click here.
In IR-2011-103, the IRS announced the pension and other retirement account contributions limit. Certain limits are set for below:
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
- The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
SIMPLE and SEP IRAs:
- The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.
- The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $245,000 to $250,000.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
- The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
The IRA catch-up contribution limit for those aged 50 and over is $5,500.
As an estate planning attorney and Certified Financial Planner, much of what I do is help people protect and grow their assets. Unfortunately, there are those who seek to do the opposite - con artists who try to take others' hard earned money by committing investment fraud. The elderly are particularly vulnerable to such scams.
The Investment Securities section of the website of the North Carolina Secretary of State contains a great deal of educational and other information for investors, including how to file a complaint. One piece provided the Securities Division is Five Things You Need to Know to Avoid Investment Fraud:
1. Know Yourself and Your Investing Goals
You should know your investing objectives and your level of investing knowledge. Ask yourself: What can I afford to lose? What is my risk tolerance? Do I need external guidance to help me invest?
2. Know Who You Are Dealing With
You should know if the person offering you the investment opportunity is registered to sell investments, what their background is, how they are paid, what kinds of products they offer, who their other clients are and what level of service you can expect.
3. Know What You Are Investing In
For example, is the purchase a security? Ask questions, take notes, and get a second opinion from a registered adviser. Never sign a document before reading it carefully, and don't be drawn in by appearances or smooth talk. Remember most fraudulent investments are very well thought out and appear professional in their presentation.
4. Know Who To Call For Help
The North Carolina Securities Division (1-800-688-4507) can provide verification of the registration of the securities seller, investment adviser and the security itself. Other information, such as complaint history, is also available.
5. Know the Red Flags Which Could Signal Fraud
- Promises of high returns with little or no risk, or guarantees: All investments carry risk. Usually, the higher the expected returns, the higher the level of risk. Pressure to "invest immediately or miss the opportunity": Don't be pulled in! This tactic is used to pressure you into handing over your money without doing your homework or asking for independent advice.
- Offshore investment – tax free: Taxes can sometimes be deferred, but they can't be avoided. This tactic is used to get investors to send the money offshore where it is difficult, if not impossible, to get back.
- Great investment opportunity – "your friends can't be wrong": Yes, they can. Many investment fraud victims were introduced to the fraud by unsuspecting family, friends or co-workers.
- Psychological tactics: Sellers who play on your fear (i.e. insufficient income to keep your home or buy your medicine), greed (to live the good life or leave money to your kids?"), or insecurities (not wanting to appear foolish or incompetent) are common tools used by con artists.
- Inside information: First you have no way of knowing that the information is true. But second, trading on inside information is illegal.
You can also talk with your CPA or attorney, who should be able to provide guidance.
From a recent AARP report: reverse mortgages offer older homeowners a way to tap home equity to meet financial needs in retirement. However, the collapse of the mortgage market in 2008–2009 has led to major changes that impact consumer choices. While consumers have more product choices, reverse mortgages are generally more expensive and more complicated—leading to more scrutiny from Congress and regulatory agencies charged with protecting consumers.
Do you think you have to pay income tax on large ($500k++) Roth IRA conversions at the top marginal tax rates? Think again. I have recommend the following strategy to several of my clients. In most cases, you can stay with your current investment manager.
By utilizing the Jagen™ investment strategy, you may be able to lock in a 24.5*% rate on big IRA conversions.
A lot of advisors don’t like the idea of clients paying taxes early. They adhere to the mindset of “never pay a tax if you don’t absolutely have to.” Some advisors also still believe that clients might be in lower tax brackets later in life and don’t want to recommend taxable transactions at today’s top federal rate of 35%. But what if clients didn’t have to pay at top rates today? A Roth conversion at a 25% or less tax rate now will almost guarantee long-term tax savings for high net worth clients with large IRAs. How many clients with large IRAs will be in a retirement tax bracket less than 25%?
Jagen™ funds are eligible IRA investments and offer access to very high level institutional money management platforms. In addition, the Jagen™ fund design provides for a variance between the net asset value (NAV) and fair market value (FMV) of each investor’s interest in the funds.
For example, an investor might have an IRA holding Jagen™ fund units valued at $1 million NAV. This same account may only have a $700,000 FMV based on a qualified appraisal of those fund units. The reason for this valuation adjustment involves various features of Jagen™ funds which must be taken into account when determining FMV. Each fund is privately owned by a limited number of investors and fund units are not traded on open exchanges. Investors must commit to holding their fund units for specified terms. Thus FMV will typically be less than NAV during the holding period.
Here's the text of the press release from the Federal Deposit Insurance Corporation:
Note: for the rules that apply trust owned bank accounts (and other types of ownership, click here.
On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, in part, permanently raises the current standard maximum deposit insurance amount to $250,000. The standard maximum insurance amount of $100,000 had been temporarily raised to $250,000 until December 31, 2013. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category.
The temporary increase from $100,000 to $250,000 was effective from October 3, 2008, through December 31, 2010. On May 20, 2009, the temporary increase was extended through December 31, 2013.
As most people know by now, the $100,000 income limit on the ability to convert a traditional IRA to a tax-free Roth IRA will disappear next year. In addition, a taxpayer who does a conversion in 2010 can pay the tax due from the conversion in 2011 and 2012 (by including 50% of the conversion income in each year). There are innumerable articles about Roth conversions and the math involved, with many differing opinions about the advisability of converting. Bottom line, make sure you hire the appropriate professionals to crunch the numbers and otherwise advise you before making a decision. You really need to consult your financial advisor, CPA and estate planning attorney to ensure that you are fully informed.
Here's a quick list from tax guru Bob Keebler, CPA:
(1) Taxpayers have special favorable tax attributes including charitable deduction carry-forwards, investment tax credits, high basis non-deductible traditional IRAs, etc.
(2) Suspension of the minimum distribution rules at age 70½ provides a considerable advantage to the Roth IRA holder.
(3) Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained when a traditional IRA is subject to estate tax.
(4) Taxpayers who can pay the income tax on the IRA from non-IRA funds benefit greatly from the Roth IRA because of the ability to enjoy greater tax-free yields.
(5) Taxpayers who need to use IRA assets to fund their Unified Credit bypass trust are well advised to consider making a Roth IRA election for that portion of their overall IRA funds.
(6) Future distributions to beneficiaries are generally tax-free.
This from Howard Hinds of the Curbstone Group in Boston:
Master Limited Partnerships (MLPs) are excellent tools for estate planning:
1. MLP distributions (around 8% yield right now) are considered return of capital, meaning that distributions reduce your basis in the MLP, while allocated net income increases your basis.
2. Tax Shield: Because MLPs own large hard assets (like pipelines) with high depreciation (non-cash) expenses, allocated income to an investor is usually less than 20% of cash distributions in a given year for the first several years of ownership. This creates a tax deferral, which is recaptured when you sell the MLP.
3. When you sell an MLP: (a) the gains from your purchase price to selling price are taxed at capital gains rates, and (b) the difference between your purchase price and your basis (which has been reduced over time) is taxed at ordinary income rates.
4. But, if you die while holding an MLP, the tax deferrals you have accumulated over time are washed away along with the capital gains taxes, and whoever receives those MLPs after you die has a new stepped up basis, so those tax deferrals are not passed along. This can be a very big deal for someone who has owned Kinder Morgan Energy Partners since 1995 and they have $0 basis and the share price is $55 per share
So in addition to being great income vehicles for someone with large estate, MLPs can be great tax shields as well.
Wealth Management Exchange is designed for networking and information exchange. One can sign up to receive email alerts on financial and estate planning topics.
Self-employed persons or small business owners such as home builders with big tax losses for the year should consider converting their traditional IRAs to Roth IRAs this year to "soak up" some or all of the loss. This planning could be even more beneficial given that the securities or mutual funds in the original IRA are likely to be depressed in value, which means less income will be realized.
Make sure you speak to your tax advisor soon if you think a rollover may be of benefit to you in 2008. This plan will not work if you have long term capital losses (e.g. from stock sales) rather than ordinary losses (for example, from a S Corporation or LLC), as only $3,000 in capital loss can be used to offset ordinary income.
Words of wisdom from a sage investor on the NY Times Website.
It is also important not to use the poor economy as an excuse to neglect protecting what you have by doing sound estate planning. If you have less, aren't protections against creditors, mismanagement and taxes even more important than when you're flush?
IR-2008-118, Oct. 16, 2008
WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2009.
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost‑of‑living increases.
Many of the pension plan limitations will change for 2009 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, for others, the limitation will remain unchanged. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500. This limitation affects elective deferrals to Section 401(k) plans and to the federal government’s Thrift Savings Plan, among other plans.
Effective Jan. 1, 2009, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $185,000 to $195,000. For participants who separated from service before Jan. 1, 2009, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2008, by 1.0530.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $46,000 to $49,000.
The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:
- The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500.
- The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $230,000 to $245,000.
- The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $150,000 to $160,000.
- The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $935,000 to $985,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $185,000 to $195,000.
- The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $105,000 to $110,000.
- The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,000 to $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
- The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $345,000 to $360,000.
- The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $500 to $550.
- The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,500 to $11,500.
- The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,500 to $16,500.
- The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $90,000 to $95,000. The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $185,000 to $195,000.
- The limitation on wages under Section 45A regarding individuals eligible for the Indian employment credit is $40,000 for tax years beginning in 2008 and will increase to $45,000 for tax years beginning in 2009. The termination date of section 45A was recently extended from Dec. 31, 2007, to Dec. 31, 2009, by Section 314 of Division C of the Emergency Economic Stabilization Act of 2008, P.L. 110-343.
The recent Bailout law increased the FDIC insurance coverage for bank accounts to $250,000 per person, per bank. However, different types of accounts, such as joint, POD, etc. affect how the coverage is calculated. The FDIC provides this handy calculator to estimate the coverage available to you for your accounts at each bank.
What about accounts in the name of trusts, since trusts generally have more than one beneficiary? Luckily, the FDIC has expanded coverage for trust accounts based on the number of beneficiaries. The FDIC website provides the exact rules.
BB&T's personalized service was the key to its number one ranking.
I recently came across a publication entitled If Something Should Happen - How to Organize Your Financial and Legal Affairs. The booklet is authored by Marla Brill and is published by the American Institute for Economic Research. Copies can be ordered from the website.
The booklet provides a concise overview of basic estate planning information, including health insurance and burial issues. It also has several pages for recording important estate, financial, insurance, and medical data. Having the information in this format could save hours of time and worry for your loved ones. For $10, I think it's well worth the money.
How do you go about deciding which financial advisor to hire? The following, from the Paladin Registry , provides an important list of questions to ask when interviewing prospective advisors.
All advisors claim to be financial experts. They make this statement to win your trust and your assets. But, are they telling you the truth? These 10 questions will help you determine advisor’s expertise and ethics.
Make sure you ask all ten questions and require all advisor responses in writing. Verbal information benefits advisors because it’s easier to misrepresent and disputes are your word against theirs.
I'm still in catch up mode from being out a week in early August, which is the reason for my paltry postings of late, but this article on the Chicago Tribune website caught my eye. It describes the financial dangers seniors face by the hands of unscrupulous investment advisers, some of whom who call themselves "estate planners," and others out to defraud the elderly.
Estate planning attorneys can provide a good resource for seniors who are tempted by investment schemes, etc. We can provide objective advice and help investigate the reasonableness of the claims made by those promoting the investment. Attorneys with investment training and credentials can be particularly helpful in this regard.
A recent New York Times article cautions senior citizens that certain designations, such as Certified Senior Adviser (CSA), are used by unscrupulous insurance salespersons and financial advisers to imply knowledge or expertise they do not have. Many such designations are easily obtainable by taking short courses and passing simple exams, and are practically meaningless in measuring competence or ethical standards.
Other designations, such as Certified Financial Planner (CFP), Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC), require extensive study, rigorous exams, and background checks, and provide a much better method of judging a prospective adviser.
An article in the February 24-25 issue of The Wall Street Journal describes how 529 College Savings plans can be used to reduce estate taxes. Earnings on the funds invested in such plans are tax-free if used for qualified college educational expenses. North Carolina residents also get a small tax deduction for contributions to North Carolina sponsored plans (Click "Continue Reading" for more information).
The plans allow the owner to maintain control over how the funds are used, and even change the beneficiary to another relative or the owner himself. If the funds are not used for educational expenses, taxes are due on the gains, along with a 10% penalty.
Gift tax rules allow using up to five years of the $12,000 annual gift tax exclusion at once, so that one person can put $60,000 into a plan in one year. For wealthy grandparents with multiple granchildren, this can add up to substantial estate tax savings. The current estate tax exemption is $2 million, so persons with estates over this amount may want to consider this technique. Before establishing the accounts, however, be sure to check with a qualified tax and investment advisor. There are fees associated with 529 Plans, and investment performance in many types of plans have been lackluster of the last several years.
Check out www.savingforcollege.com for a plethora of information on 529 Plans.Continue Reading...
Being in a college town, most of my clients are intelligent and well educated, and many handle their own taxes and investments. However, there are times when a professional's advice can be invaluable. This recent article on The Motley Fool website provides some guidance about when to seek advice..
How do you choose a financial advisor? I recommend working with a Certified Financial Planner (CFP). CFPs must pass a rigorous examination on investments, retirement planning, estate planning, taxes, insurance and more. They are also required to have met educational and experience requirements and must adhere to strict standards of professional conduct. For a directory of CFPs, take a look at www.cfp.net.
In addition, just as when searching for an attorney, ask your colleagues, friends and other professional advisors for recommendations.
Ideally, your CFP will work with your estate planning attorney and CPA to develop a comprehensive plan that will ensure that your financial future is as secure as possible.