Monthly Archives: July 2013

Who Needs Estate Planning? Why estate planning is so important, and not just for the rich.

Who Needs Estate Planning?
Why estate planning is so important, and not just for the rich.

2013 new end of july 4th 1574


You have an estate. It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motor home.

Rich or poor, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio and more. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.

“But, I don’t need estate planning … do I?” Let’s think about that. If the estate is small, should you still plan? Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? If you don’t decide, you could potentially be leaving behind a legacy of legal headaches to your survivors. This, quite simply, is what estate planning is all about – deciding how what you have now (money and assets) will be distributed after your lifetime.

Do you HAVE to create an estate plan? While it is absolutely possible to die without planning your estate, I wouldn’t say that it is advisable. If you don’t leave behind an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.

Why not just a will? Did you know that your heirs could encounter legal hassles … even if you have a will? Basically, a will tells the world what you’d like to have happen, but proper estate planning is what provides the tools to make those things happen. While your will may state who your beneficiaries are, those beneficiaries may still have to seek a court order to have assets transfer from your name to theirs, and in such a case, those assets won’t lawfully belong to them until the court procedure (known as probate) concludes. Estate planning can include items like properly prepared and funded trusts, which could help your heirs to avoid probate.

Where do you begin? I recommend that you speak with a qualified legal or financial professional – one with experience in estate planning. A qualified financial professional may be able to refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents.

GREG OLIVER 9089789089080]=-08

THE SPECIAL NEEDS TRUST. A thoughtful financial move for a loved one with a disability.


A thoughtful financial move for a loved one with a disability.


If you have a child with special needs or care for an adult relative who is mentally or physically challenged, you face long-run financial demands. In all probability, federal and state assistance won’t help you meet all of them.

Enter the special needs trust, an irrevocable trust designed to provide for an individual or family member’s supplemental needs, assorted care and lifestyle needs that cannot be met using government assistance. A trustee uses such a trust to make various purchases of goods and services on behalf of a “permanently and totally disabled” person.1

Even wealthy families have these trusts in place – for good reason. Just to offer one example, the Autism Society estimates that 60% of autistic children will require adult services, with the average lifetime cost of care currently around $3.2 million per individual. So a special needs trust may be a wise move.2

These trusts were officially recognized by Congress in 1993; before that, they were established based on case law. They give families a smart alternative to other, potentially flawed arrangements to provide for these individuals over a lifetime.3

It is still common for a sister or brother of a newly disabled person to hold assets that once belonged to their sibling. Too often, these assets became “easy pickings” in a bankruptcy, litigation or divorce. Other families set up pooled trusts for distributing funds to their children, naming all their kids as beneficiaries; this move keeps disabled children eligible for federal and state benefits, but it also invites other siblings to fight over or lay claim to the pooled assets.2,3

Monies in a special needs trust are not exposed to creditors and are still non-countable assets so that the beneficiary can continue to qualify for social services programs and medical benefits.3

How do these trusts function? Trust assets are typically invested in securities, with the resulting income stream being used to paying for the beneficiary’s needs. Conceptually, they work according to a sliding needs scale; for example, should government services somehow be able to provide for 100% of the beneficiary’s needs, the trust will provide 0% and vice versa.3

The core principle is that the trust assets supplement the government benefits. This holds true if the beneficiary falls into Medicare’s “doughnut hole”; it also holds true if the trust buys goods and services to improve and enhance the lifestyle of the beneficiary. The trust does not exist simply to pay for the beneficiary’s basic living expenses; it may do more.3

Many of these trusts are funded with life insurance, others with assets from parents or grandparents. Still others are funded using a disabled individual’s own assets, or money received from a settlement. (Intended beneficiaries of special needs trusts may not create or revoke them, even if they are mentally competent and pour their personal assets into them.)1

Sometimes parents will establish a special needs trust, yet not fund it until they pass away; a will transfers an inheritance that would go to a disabled child into the trust. The special needs trust can also be designated as a beneficiary of this or that asset, be it a life insurance policy or something else.1

Which requirements must be kept in mind? Here are some basics. The beneficiary of a special needs trust cannot have more than $2,000 in assets in his or her own name (this limit does vary by state). He or she must also be younger than 65 when the trust is established.2,3

In a self-settled trust created with funds owned by the disabled individual, leftover trust assets are wholly or partly paid back to Medicaid after the beneficiary dies to cover its costs for caring for the beneficiary during his or her lifetime. There is no such requirement for third-party special needs trusts funded by parents or grandparents. Assets within these trusts may be transferred to anyone after the death of the first beneficiary.1,2,3

The trust document’s language must express a purpose to provide “supplemental and extra care” beyond what government and social services agencies offer to the trust beneficiary (not basic financial support). The trust must also be without a Crummey clause: a proviso allowing future interest gifts to be treated as present interest gifts, thereby making them eligible for the annual gift tax exclusion.3

If you wish for your loved one to have a good quality of life for years to come, a special needs trust may prove instrumental in allowing you to provide it.

GREG OLIVER 90239047293074293074293074`90[34

1 – [9/28/05]
2 – [12/1/12]
3 – [2011]
Go/ ofs02197`902790237`9273`=[2

Pension Questions After the Detroit Bankruptcy

Pension Questions After the Detroit Bankruptcy
How many retirees face the possibility of less recurring income?



On July 18, Detroit became the largest American city to file for Chapter 9 bankruptcy. What will happen to the pensions of its 20,000+ retired public employees? There is a possibility they could be reduced – perhaps greatly. In the wake of Detroit’s fiscal problems, current and future pension recipients across the country are wondering about the stability and amount of their promised incomes.1,2

In Michigan, the fate of the pension checks for these employees may be determined in the courts. While a federal judge is overseeing Detroit’s bankruptcy proceedings, Michigan’s state constitution states that pension benefits can’t be altered. On July 24, the aforementioned federal judge froze assorted state-court lawsuits brought against the city arguing that the bankruptcy filing was unconstitutional (at the state level). As much as Detroit might want to scale back pensions for fiscal relief, it may be prohibited from doing so.1

When pensions shrink after municipal bankruptcies, how bad is it? For a sobering example, look at Central Falls, RI, which filed for bankruptcy in 2011. Following that declaration, the city whittled away more than 50% of the pension checks issued to a third of its retirees. For example, the average retired firefighter’s annual pension income went from $68,414 to $30,786.2

That’s certainly drastic, and it may not be replicated in Detroit or in Stockton, CA (the second largest American city to go bankrupt). Stockton is reducing bond payments, but so far has refrained from slashing pensions. (As it happens, the city’s biggest creditor is CalPERS, the California Public Employees’ Retirement System.) California’s state constitution also bars reductions in pension benefits, so Stockton’s retired public employees may be waiting on the courts as well.1

Municipal pensions aren’t the only ones at risk. Polaroid went bankrupt, and as a consequence, its retirees are receiving pension checks courtesy of the federal Pension Benefit Guaranty Corp. (PBGC) – checks that, as MarketWatch columnist Robert Powell recently noted, represent “a fraction of what they were supposed to receive.” The biggest multiemployer pension fund in America is that of the Teamsters (the Teamsters’ Central States, Southeast & Southwest Pension Plan). When 2012 ended, it held $17.8 billion in assets. Its liabilities were at $34.9 billion.2

The worst-case scenario is worth considering – just in case. If you receive a pension or are in line for one, developments like these may give you pause. It might be time to ask “what if” – what options you might have if your pension shrinks.

Suppose your pension income was cut 20-30%. What choices would you make? Would you try to live on less, and maybe move to a region where living expenses might be lower? Would you explore becoming a consultant or a solopreneur, or look into part-time work? Could you find methods to generate passive income, or make financial moves to replace any recurring income that would be lost?

With too many pensions on shaky ground these days, a conversation with a financial professional about these what-ifs is a very good idea.

GREG OLIVER 9023749073940173490374[90`3840[`93

Citations. oliver23-0-98R93481983]`134
1 – [7/25/13]
2 – [7/24/13]


The IRS just made taking a home office deduction that much easier


( calls always about this topic ) The IRS just made taking a home office deduction that much easier. It recently announced a simple new option for tax years 2013 and forward.

All taxpayers may now choose to calculate a home office deduction using a simplified “safe harbor” method. You just multiply the allowable square footage of qualified dwelling space you use for business purposes (not to exceed 300 square feet) x $5.00. So the maximum deduction becomes $1,500.00.1,2

While you still have to meet basic IRS criteria for taking a home office deduction in the first place, this simple new option is a breeze compared to tackling 43 lines worth of Form 8829. Still, if you have some software handy, you might want to run some numbers the old way just to see which way might give you the most savings. (Visit the web pages mentioned in the footnotes below for more details.)

If you have any concerns about your tax or financial situation on your mind, feel free to give us a call or send us an email. We’re here for you.

The Fed Perturbs the Markets

THINKING back …………..??
The Fed Perturbs the Markets
2013 new end of july 4th 13712013 new end of july 4th 1371A more positive view of the economy equals a big negative for Wall Street.


The end is in sight for QE3. On June 19, the Federal Reserve let investors know that “easing without end” will eventually end, perhaps as early as mid-2014. Wall Street had anticipated such a signal, but investors still reacted emotionally to the news, with the Dow Jones Industrial Average ceding all of its May and June gains in less than two market days. (The index fell 206 points on June 19 and 354 points on June 20.) Bears see the air quickly coming out of the rally; bulls think the rally will pause during the turbulence, then resume.1,2

Good news implied bad news. In its June 19 policy statement, the Fed presented a brighter economic outlook. It saw unemployment lessening to 6.5-6.8% in 2014. It also envisioned growth of 3-3.5% for 2014 and possibly as much as 2.6% growth in 2013.1,3

Then came the press conference after the release of that statement, at which Fed Chairman Ben Bernanke stated that the central bank could scale back its bond buying in late 2013 and end its current stimulus altogether next year, provided the economy is healthy enough. While the Fed will keep purchasing $85 billion in bonds per month in the short term and hold interest rates where they are until the jobless rate hits 6.5%, Wall Street saw a disquieting big picture: an end to the era of easy money.2,3

The Fed’s announcement hardly came out of left field, but Wall Street reacted as if it did. QE3 could not last forever; a central bank can only practice aggressive easing for so long before risking damage to an economy, and the timing of the news was pretty much in line with expectations. Still, the major U.S. and Asian benchmarks dropped around 2% on the first full market day after the news and the major European markets were down more than 3%. Gold dropped more than 6% on June 20 to $1,296 an ounce and the 10-year Treasury yield climbed to 2.42%, with the real yield of the 10-year TIPS up to 0.46% after rising 0.32% in two days.4,5,6

When & how might the Fed taper? In a new Bloomberg survey, 24 of 54 economists (44%) believe that the Fed will reduce QE3’s scale to $65 billion a month at its September policy meeting. Alternately, 28% of the economists feel tapering will start in December and 13% think we won’t see it until 2014. As to when QE3 will end, 44% of the respondents said June 2014.7

The Fed could end up winding down QE3 later than it anticipates. In fact, you could point to many statistics in this job market that don’t support tapering. Looking at job creation from December through May, payroll growth has averaged 194,000 jobs a month – not the 200,000+ the federal government would like to see. The labor participation rate (the amount of people employed + the amount of people looking for jobs) is scraping a 29-year low. Inflation is not only low, so are inflation expectations: the Cleveland Fed is forecasting average consumer inflation of 1.4% for the next 10 years.8

Who might get hurt the most when interest rates rise? Investment classes across the board took a hit in the wake of the Fed’s announcement as emotion ruled the markets. Historically, fears of rising rates and actual rising rates have tended to affect certain sectors and classes of investments more than others. The utilities and financials sectors have faced headwinds in such a climate in past decades, and it is well documented that REITs are highly sensitive to changes in the interest rate environment. The energy sector and foreign stocks have fared better when rates rise. Still, past performance is no barometer of future results and the markets hardly move on logic alone.9

Will the bull market stumble? For some long-range perspective, we’ll let Prudential Financial market strategist Quincy Krosby have the last word: “We haven’t had a meaningful correction in the market and if this selloff continues…it doesn’t mean the market is going to collapse. It is essentially recalibrating – the road to normal is going to be filled with detours.”2

OLIVER , GREG 09290273940[`2734[90273940[`27340[9`23

1 - [6/20/13]
2 – [6/20/13]
3 – [6/19/13]
4 – [6/20/13]
5 – [6/20/13]
6 – [6/20/13]
7 – [6/20/13]
8 – [6/19/13]
9 – [6/20/13]